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TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
END TERM PROJECT
ldquoTECHNICAL AND FUNDAMENTAL ANALYSIS
OF SELECTED SECURITIES OF INDIAN STOCK
MARKETrdquo
In partial fulfillment for the requirement of the MBA
Programme
SUBMITTED BY
Under the guidance of
1
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SNo TITLE PgNo
1 CH 1 Introduction 6
11 Rationale 8
12 Objectives 8
13 Research Methodology 9
2 CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW 10
21 DOW THEORY 12
22 ELLIOT WAVES BASICS 16
23 MOVING AVERAGE 17
3 CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW 19
31 Economic Analysis 20
32 Industry Analysis 22
33 Company Analysis 24
331 The Management 24
332 The Company 25
333 The Annual Report 25
334 Ratios 27
335 Cash Flow 28
4 CH 4 Analysis 30
5 CH 5 Limitations 71
6 CH 6 Conclusion 73
2
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7 Glossary 77
8 References and Bibliography 80
3
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER- 1
INTRODUCTION
11 INTRODUCTION
4
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Investing like marriage isnt something that should be entered into lightly You wouldnt
get married on a first date would you Ok maybe some of us would but thats not really
very Foolish Before we marry er I mean invest in a company there are more than a
few things we need to know about it
Securities Analysis
An analysis of securities and the organization and operation of their markets The determination of the risk reward structure of equity and debt securities and their valuation Special emphasis on common stocks Other topics include options mutual fluids and technical analysis
Technical analysis is a method of predicting price movements and future market trends by studying charts of past market action which take into account price of instruments volume of trading and where applicable open interest in the instruments
Fundamental analysis is a method of forecasting the future price movements of a financial instrument based on economic political environmental and other relevant factors and statistics that will affect the basic supply and demand of whatever underlies the financial instrument
Main differences between the two types of analysis
Fundamental analysis Technical analysis
Focuses on what ought to happen in a market
Focuses on what actually happens in a market
Factors involved in price analysis
1 Supply and demand 2 Seasonal cycles 3 Weather 4 Government policy
Charts are based on market action involving
1 Price2 Volume3 Open interest (futures only)
12 RATIONALE FOR THE STUDY
5
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
In an industry plagued with skepticism and a stock market increasingly difficult to predict
and contend with if one looks hard enough there may still be a genuine aid for the Day
Trader and Short Term Investor
The price of a security represents a consensus It is the price at which one person agrees
to buy and another agrees to sell The price at which an investor is willing to buy or sell
depends primarily on his expectations If he expects the securitys price to rise he will
buy it if the investor expects the price to fall he will sell it These simple statements are
the cause of a major challenge in forecasting security prices because they refer to human
expectations As we all know firsthand humans expectations are neither easily
quantifiable nor predictable
If prices are based on investor expectations then knowing what a security should sell for
(ie fundamental analysis) becomes less important than knowing what other investors
expect it to sell for Thats not to say that knowing what a security should sell for isnt
important--it is But there is usually a fairly strong consensus of a stocks future earnings
that the average investor cannot disprove
Fundamental analysis and technical analysis can co-exist in peace and complement each other Since
all the investors in the stock market want to make the maximum profits possible they just cannot
afford to ignore either fundamental or technical analysis
13 OBJECTIVES OF THE STUDY
Primary Objective a) To do technical and fundamental analysis of chosen securities
Sub-Objectives
a) to study the various theories of technical analysis and fundamental analysis
b) understand the movement and performance of stocks
c) understanding and analyzing the factors that affect the movement of stock
prices in the Indian Stock Markets
6
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
14 RESEARCH METHODOLOGY amp DESIGN
TYPE OF STUDY
The research has been based on secondary data analysis The study has been exploratory
as it aims at examining the secondary data for analyzing the previous researches that have
been done in the area of technical and fundamental analysis of stocks The knowledge
thus gained from this preliminary study forms the basis for the further detailed
Descriptive research In the exploratory study the various technical indicators that are
important for analyzing stock were actually identified and important ones short listed
SAMPLE DESIGN
The sample of the stocks for the purpose of collecting secondary data has been selected
on the basis of Random Sampling The stocks are chosen in an unbiased manner and each
stock is chosen independent of the other stocks chosen
SAMPLE SIZE
The sample size for the number of stocks is taken as 10 for technical analysis and 4 for
fundamental analysis of stocks as fundamental analysis is very exhaustive and requires
detailed study
7
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER- 2
TECHNICAL ANALYSIS
A CONCEPTUAL OVERVIEW
TECHNICAL ANALYSIS
Technical analysis can be conditionally divided into some main parts such as
8
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Types of charts Graphical methods Analytical methods Technical indicators
Technical analysis is concerned with predicting future price trends from historical price and volume data The underlying axiom of technical analysis is that all fundamentals (including expectations) are factored into the market and are reflected in exchange rates
A technical analysis is based on three axioms
Movement of the market considers everything Movement of prices is purposeful History repeats itself
SUPPORT AND RESISTANCE
Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
Resistance on the other hand is the point at which sellers (bears) take control of prices and prevent them from rising higher The price at which a trade takes place is the price at which a bull and bear agree to do business It represents the consensus of their expectations
9
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Support levels indicate the price where the most of investors believe that prices will move higher Resistance levels indicate the price at which the most of investors feel prices will move lower
Role Reversal
When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
31 DOW THEORYndash TRENDS
The ideas of Charles Dow the first editor of the Wall Street Journal form the basis of technical analysis The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages Dow created the Industrial Average of top blue chip stocks and a second average of top railroad stocks (now the Transport Average) He believed that the behavior of the averages reflected the hopes and fears of the entire market The behavior patterns that he observed apply to markets throughout the world
Three Movements
Markets fluctuate in more than one time frame at the same time
10
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Nothing is more certain than that the market has three well defined movements which fit into each other
The first is the daily variation due to local causes and the balance of buying and
selling at that particular time
The secondary movement covers a period ranging from ten days to sixty days
averaging probably between thirty and forty days
The third move is the great swing covering from four to six years
Bull markets are broad upward movements of the market that may last several
years interrupted by secondary reactions Bear markets are long declines
interrupted by secondary rallies These movements are referred to as the primary
trend
Secondary movements normally retrace from one third to two thirds of the
primary trend since the previous secondary movement
Daily fluctuations are important for short-term trading but are unimportant in
analysis of broad market movements
Various cycles have subsequently been identified within these broad categories
Primary Movements have Three Phases
The general conditions in the market
Bull markets
Bull markets commence with reviving confidence as business conditions improve
Prices rise as the market responds to improved earnings
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TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Rampant speculation dominates the market and price advances are based on hopes and
expectations rather than actual results
Bear markets
Bear markets start with abandonment of the hopes and expectations that sustained
inflated prices
Prices decline in response to disappointing earnings
Distress selling follows as speculators attempt to close out their positions and
securities are sold without regard to their true value
Ranging Markets
A secondary reaction may take the form of a lsquolinersquo which may endure for several weeks Price fluctuates within a narrow range of about five per cent
Breakouts from a range can occur in either direction
Advances above the upper limit of the line signal accumulation and higher prices
Declines below the lower limit indicate distribution and lower prices
Volume is used to confirm price breakouts
Trends
Bull Trends
A bull trend is identified by a series of rallies where each rally exceeds the highest point of the previous rally The decline between rallies ends above the lowest point of the previous decline
Successive higher highs and higher lows
12
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
Start = higher Low + break above previous High
The end is signaled by a lower high (peak) followed by a decline below the previous low (trough)
End = lower High + break below previous Low
A bear trend starts at the end of a bull trend when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
Large Corrections
A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
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TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A bull trend starts when price rallies above the previous high
A bull trend ends when price declines below the previous low
A bear trend starts at the end of a bull trend (and vice versa)
32 ELLIOT WAVES THEORY BASICS
TRENDLINES
Breaking through support or resistance levels results in a change of tradersrsquo expectations (which causes supplydemand lines to shift)
14
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
An Uptrend is defined by successively higher low-prices A rising trend can be thought of as a rising support level the bulls are in control and are pushing prices higher A Downtrend is defined by successively lower high-prices A falling trend can be thought of as a falling resistance level the bears are in control and are pushing prices lower
33 MOVING AVERAGES
Moving averages are one of the oldest and most popular technical analysis tools A moving average is the average price of a financial instrument over a given time
The moving average represents the consensus of investorrsquos expectations over the indicated period of time
The classic interpretation of a moving average is to use it in observing changes in prices Investors typically buy when the price of an instrument rises above its moving average and sell when the it falls below its moving average
TECHNICAL INDICATORS
There is a vast number of elaborated technical indicators
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TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
MOVING AVERAGE ndashMA
RELATIVE STRENGTH INDEX mdash RSI The Relative Strength Index Technical Indicator (RSI) is a price-following oscillator that ranges between 0 and 100 When Wilder introduced the Relative Strength Index he recommended using a 14-day RSI Since then the 9-day and 25-day Relative Strength Index indicators have also gained popularity
ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the cumulative difference between advancing and declining issues
CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that closed on an uptick and those that closed on a downtick
CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading volume in declining issues to average trading volume in advancing issues
Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 shares HI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price CANDLESTICK CHART A candlestick chart is an extended version of the hi-lo-close
chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation When the stock price ldquopierces the necklinerdquo after the right shoulder is finished itrsquos time to sell
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins A win by the National Football Conference is bullish
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
16
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER- 3
FUNDAMENTAL ANALYSIS
A CONCEPTUAL OVERVIEW
17
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Fundamental analysis refers to the study of the core underlying elements that influence the economy of a particular entity It is a method of study that attempts to predict price action and market trends by analyzing economic indicators government policy and societal factors (to name just a few elements) within a business cycle framework
I ECONOMIC ANALYSIS
POLITICO-ECONOMIC ANALYSIS No industry or company can exist in isolation It may have splendid managers and a tremendous product However its sales and its costs are affected by factors some of which are beyond its control - the world economy price inflation taxes and a host of others It is important therefore to have an appreciation of the politico-economic factors that affect an industry and a company
The political equationA stable political environment is necessary for steady balanced growth If a country is ruled by a stable government which takes decisions for the long-term development of the country industry and companies will prosper Foreign Exchange ReservesA country needs foreign exchange reserves to meet its commitments pay for its imports and service foreign debts
Foreign Exchange RiskThis is a real risk and one must be cognizant of the effect of a revaluation or devaluation of the currency either in the home country or in the country the company deals in
Restrictive PracticesRestrictive practices or cartels imposed by countries can affect companies and industries crystallizing the exposure
Foreign Debt and the Balance of TradeForeign debt especially if it is very large can be a tremendous burden on an economy India pays around $ 5 billion a year in principal repayments and interest payments InflationInflation has an enormous effect in the economy Within the country it erodes purchasing power As a consequence demand falls If the rate of inflation in the country from which a company imports is high then the cost of production in that country will automatically go up
The Threat of NationalizationThe threat of nationalization is a real threat in many countries ndash the fear that a company may become nationalized
Interest Rates
18
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A low interest rate stimulates investment and industry Conversely high interest rates result in higher cost of production and lower consumption
TaxationThe level of taxation in a country has a direct effect on the economy If tax rates are low people have more disposable income
Government PolicyGovernment policy has a direct impact on the economy A government that is perceived to be proindustry will attract investment
THE ECONOMIC CYCLE
It affects investment decisions employment demand and the profitability of companiesThe four stages of an economic cycle are DepressionRecoveryBoom Recession DepressionAt the time of depression demand is low and falling Inflation is high and so are interest rates Companies crippled by high borrowing and falling sales are forced to curtail production close down plants built at times of higher demand and let workers go
RecoveryDuring this phase the economy begins to recover Investment begins anew and the demand grows Companies begin to post profits Conspicuous spending begins once again
BoomIn the boom phase demand reaches an all time high Investment is also high Interest rates are low Gradually as time goes on supply begins to exceed the demand Prices that had been rising begin to stabilize and even fall There is an increase in demand Then as the boom period matures prices begin to rise again
RecessionThe economy slowly begins to downturn Demand starts falling Interest rates and inflation are high Companies start finding it difficult to sell their goods The economy slowly begins to downturn
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TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II INDUSTRY ANALYSIS
The importance of industry analysis is now dawning on the Indian investor as never before
CycleThe first step in industry is to determine the cycle it is in or the stage of maturity of the industry All industries evolve through the following stages1 Entrepreneurial sunrise or nascent stage2 Expansion or growth stage3 Stabilization stagnation or maturity stage and4 Decline or sunset stage to properly establish itself In the early days it may actually make losses
The Entrepreneurial or Nascent StageAt the first stage the industry is new and it can take some time for it to properly establish itself
The Expansion or Growth StageOnce the industry has established itself it enters a growth stage As the industry grows many new companies enter the industry
The Stabilization or Maturity StageAfter the halcyon days of growth an industry matures and stabilizes Rewards are low and so too is the risk Growth is moderate Though sales may increase they do so at a
20
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
slower rate than before Products are more standardized and less innovative and there are several competitors
The Decline or Sunset StageFinally the industry declines This occurs when its products are no longer popular This may be on account of several factors such as a change in social habits The film and video industries
1 BARRIER TO ENTRYNew entrants increase the capacity in an industry and the inflow of funds The question that arises is how easy is it to enter an industry There are some barriers to entry
a) Economies of scaleb) Product differentiation c) Capital requirementd) Switching costse) Access to distribution channelsf) Cost disadvantages independent of scaleg) Government policyh) Expected retaliationj) International cartels
2 THE THREAT OF SUBSTITUTIONNew inventions are always taking place and new and better products replace existing ones An industry that can be replaced by substitutes or is threatened by substitutes is normally an industry one must be careful of investing in An industry where this occurs constantly is the packaging industry -bottles replaced by cans cans replaced by plastic bottles and the like To ward off the threat of substitution companies often have to spend large sums of money in advertising and promotion
3 BARGAINING POWER OF THE BUYERSIn an industry where buyers have control ie in a buyers market buyers are constantly forcing prices down demanding better services or higher quality and this often erodes profitability The factors one should check are whether a) A particular buyer buys most of the products (large purchase volumes) If such buyers withdraw their patronage they can destroy an industry They can also force prices downb) Buyers can play one company against another to bring prices down
4 BARGAINING POWER FOR THE SUPPLIERSAn industry unduly controlled by its suppliers is also under threat This occurs whena) The suppliers have a monopoly or if there are few suppliersb) Suppliers control an essential c) Demand for the product exceeds d) The supplier supplies to various industriese) The switching costs are high
21
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
f) The suppliers product does not have a substituteg) The suppliers product is an important input for the buyersh) The buyer is not important to the supplieri) The suppliers product is unique
5 RIVALRY AMONG COMPETITORSRivalry among competitors can cause an industry great harm This occurs mainly by price cuts heavy advertising additional high cost services or offers and the like This rivalry occurs mainly whena) There are many competitors and supply exceeds demand Companies resort to price cuts and advertise heavily in order to attract customers for their goodsb) The industry growth is slow and companies are competing with each other for a greater market sharec) The economy is in a recession and companies cut the price of their products and offer better service to stimulate demandd) There is lack of differentiation between the product of one company and that of another In such cases the buyer makes his choice on the basis of price or servicee) In some industries economies of scale will necessitate large additions to existing capacities in a company The increase in production could result in over capacity amp price cuttingf) Competitors may have very different strategies in selling their goods and in competing they may be continuously trying to stay ahead
III COMPANY ANALYSIS
At the final stage of fundamental analysis the investor analyzes the company This analysis has two thrustsHow has the company performed vis-agrave-vis other similar companies and How has the company performed in comparison to earlier years It is imperative that one completes the politico economic analysis and the industry analysis before a company is analyzed because the companys performance at a period of time is to an extent a reflection of the economy the political situation and the industry What does one look at when analyzing a company The different issues regarding a company that should be examined are The Management The Company The Annual Report Ratios Cash flow
THE MANAGEMENT
The single most important factor one should consider when investing in a company and one often never considered is its management In India management can be broadly
22
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
divided in two types Family Management Professional Management
THE COMPANY
An aspect not necessarily examined during an analysis of fundamentals is the company A company may have made losses consecutively for two years or more and one may not wish to touch its shares - yet it may be a good company and worth purchasing into There are several factors one should look at
1 How a company is perceived by its competitorsOne of the key factors to ascertain is how a company is perceived by its competitors It is held in high regard Its management may be known for its maturity vision competence and aggressiveness The investor must ascertain the reason and then determine whetherthe reason will continue into the foreseeable future
2 Whether the company is the market leader in its products or in its segmentAnother aspect that should be ascertained is whether the company is the market leader in its products or in its segment When you invest in market leaders the risk is less Theshares of market leaders do not fall as quickly as those of other companies There is a magic to their name that would make individuals prefer to buy their products as opposed to others
3 Company PoliciesThe policy a company follows is also important What is its plans for growth What is its vision Every company has a life If it is allowed to live a normal life it will grow upto a point and then begin to level out and eventually die It is at the point of leveling out that it must be given new life This can give it renewed vigour and a new lease of life
4 Labour RelationsLabour relations are extremely important A company that has motivated industrious work force has high productivity and practically no disruption of work On the other hand a company that has bad industrial relations will lose several hundred mandays as a consequence of strikes and go slows
5 Where the company is located and where its factories are One must also consider where the companies Plants and Factories are located
THE ANNUAL REPORT
The primary and most important source of information about a company is its Annual Report By law this is prepared every year and distributed to the shareholders Annual Reports are usually very well presented A tremendous amount of data is given about the performance of a company over a period of time The Annual Report is broken down into the following specific parts
23
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the Accounts
A The Directorrsquos ReportThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship 1 It enunciates the opinion of the directors on the state of the economy and the political situation vis-agrave-vis the company 2 Explains the performance and the financial results of the company in the period under review This is an extremely important part The results and operations of the various separate divisions are usually detailed and investors can determine the reasons for their good or bad performance3 The Directorrsquos Report details the companys plans for modernization expansion and diversification Without these a company will remain static and eventually decline4 Discusses the profit earned in the period under review and the dividend Recommended by the directors This paragraph should normally be read with some skepticism as the directors will always argue that the performance was satisfactory If adverse economic conditions are usually at fault 5 Elaborates on the directors views of the companys prospects in the future6 Discusses plans for new acquisition and investments An investor must intelligently evaluate the issues raised in a Directorrsquos Report Industry conditions and the managements knowledge of the business must be considered
B The Auditors ReportThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors Auditors are required to report whether the financial statements presented do in fact present a true and fair view of the state of the company Investors must remember that the auditors are their representatives and that they are required by law to point out if the financial statements are not true and fair
CFinancial StatementsThe published financial statements of a company in an Annual Report consist of its Balance Sheet as at the end of the accounting period detailing the financing condition of the company at that date and the Profit and Loss Account or Income Statement summarizing the activities of the company for the accounting period
BALANCE SHEETThe Balance Sheet details the financial position of a company on a particular date of the companys assets (that which the company owns) and liabilities (that which the companyowes) grouped logically under specific heads It must however be noted that the Balance Sheet details the financial position on a particular day and that the position can be materially different on the next day or the day after
24
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOURCES OF FUNDSSHAREHOLDERS FUNDSSHARE CAPITAL(i) Private Placement(ii) Public Issueiii) Rights issuesRESERVESi) Capital Reservesii) Revenue ReservesLOAN FUNDSi) Secured loansii) Unsecured loansFIXED ASSETSINVESTMENTSSTOCK OR INVENTORIESi) Raw materialsii) Work in progressiii) Finished goodsCASH AND BANK BALANCESLOANS AND ADVANCES
PROFIT AND LOSS ACCOUNTThe Profit and Loss account summarizes the activities of a company during an accounting period which may be a month a quarter six months a year or longer and the result achieved by the company It details the income earned by the company its cost and the resulting profit or loss It is in effect the performance appraisal not only of the company but also of its management- its competence foresight and ability to lead
RATIOS
Ratios express mathematically the relationship between performance figures andor assetsliabilities in a form that can be easily understood and interpretedNo single ratio tells the complete storyRatios can be broken down into four broad categories
(A) Profit and Loss RatiosThese show the relationship between two items or groups of items in a profit and loss account or income statement The more common of these ratios are1 Sales to cost of goods sold2 Selling expenses to sales3 Net profit to sales and4 Gross profit to sales
(B) Balance Sheet RatiosThese deal with the relationship in the balance sheet such as 1 Shareholders equity to borrowed funds
25
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
2 Current assets to current liabilities3 Liabilities to net worth4 Debt to assets and5 Liabilities to assets
(C) Balance Sheet and Profit and Loss Account RatiosThese relate an item on the balance sheet to another in the profit and loss account such as1 Earnings to shareholders funds2 Net income to assets employed3 Sales to stock4 Sales to debtors and5 Cost of goods sold to creditors
(D) Financial Statements and Market RatiosThese are normally known as market ratios and are arrived at by relative financial figures to market prices1 Market value to earnings and2 Book value to market value(a) Market value(b) Earnings(c) Profitability(d) Liquidity(e) Leverage(f) Debt Service Capacity(g) Asset ManagementEfficiency(h) Margins
The major ratios that are considered(i) Market value(ii) Price- earnings ratio(iii) Market-to-book ratio(iv) Earnings(v) Earning per share(vi) Dividend per share(vii) Dividend payout ratio(viii) Leverage ratios(ix) Return on investmentstotal assets
CASH FLOW A statement of sources and uses begins with the profit for the year to which are added the increases in liability accounts (sources) and from which are reduced the increases in asset accounts (uses) The net result shows whether there has been an excess or deficit of funds and how this was financed Investors must examine a companys cash flow as it reveals exactly where the money came from how it was utilized Investors must be
26
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
concerned if a company is financing either its inventories or paying dividends from borrowings without real growth as that shows deterioration
27
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-4 ANALYSIS
28
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
I FUNDAMENTAL ANALYSIS OF STOCKS
Basically fundamental analysis is covered in 3 parts
1 Market economy analysis
2 Industry Analysis
3 Company Analysis
1) TATA MOTORS
I Market Economy Analysis
It covers the macro economy analysis and the various macro economic factors on the national level like GDP Monetary policies of India Fiscal Policies and Inflation and money supply etc
GDP
Real GDP growth accelerated from 75 per cent during 2004-05 to 84 per cent during
2005-06 on the back of buoyant manufacturing and services activity supported by a
recovery in the agricultural sector Real GDP growth has thus averaged over eight per
cent during the last three years and over seven per cent in the first four years (2002-03 to
2005-06) of the Tenth Five Year Plan
Strengths of India today are
A well diversified industrial base which profits from self-reliance in all core industries A
large amp sophisticated financial architecture - The robust capital Markets today have over
9000 listed companies and boast of a massive Market capitalization
A healthy GDP composition with agriculture contributing 22 Industry 22 and
services which have gone strength to strength accounting For 56 of the GDP an
29
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
acknowledged strength in knowledge driven industries like Information technology
biotechnology entertainment Software etc
India has Over 3 million scientific amp technical manpower Over 06 million SampT post
graduates Over 07 million graduate engineers Over 3500 doctorates in sciences every
year
Assuming trend growth in agriculture under normal monsoon conditions and barring
domestic or external shocks the Reserve Bank in its Annual Policy Statement for 2007-
08 (April 2007) placed real GDP growth for policy purposes in the range of 75-80 per
cent during 2007-08 Growth prospects are however subject to a number of downside
risks The risks emanating from the global economy are potential escalation and
volatility in international crude oil prices firming up of overall inflationary pressures and
expectations and a hardening of international interest rates along with the withdrawal of
monetary accommodation
Indiarsquos demographic advantage ndash In contrast to developed Countries India will have a
younger population for the next 50 years Hence India would be the hub for RampD
Inflation
Inflation was contained to 63 per cent by end-March 2007 within the indicative
trajectory of 50-55 per cent during 2007-08 The actual inflation was considerably lower
than the indicative trajectory and this could be mainly attributed to the deferred pass-
through of even the cognisable permanent component of international crude oil prices
Money Supply
Monetary and liquidity conditions remained largely comfortable during 2006-07reflecting
proactive liquidity management operations by the Reserve Bank under the liquidity
adjustment facility flexible management of issuances under the market stabilisation
scheme and some private placement of Government securities
30
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
In short the Indian economy is exhibiting strong fundamentals and displaying
considerable resilience At the same time there are continuing signs of demand pressures
especially high credit growth that could exert upward pressure on prices when associated
with supply shocks such as from oil These pressures have the potential for impacting
stability and inflation expectations While domestic developments continue to dominate
the economy global factors tend to gain more attention now than before The global
outlook for growth is positive but downside risks in regard to inflation also RBI is
applying new repo and reverse repo for the balance of inflation and monetary policies
The following are macroeconomic policies generally found as part of government-
directed industrial auto policies
(a) Restrictions on domestic and foreign investment
(b) Domestic content requirements
(c) High tariff walls
(d) Auto export requirements
(e) National production to sales ratios
(f) Distribution controls
(g) Quotas and licensing requirements that significantly restrict imports
(h) Government approval for product related decisions including vehicle make
body type engine size etc
(i) Special government categories for auto taxes
II INDUSTRY ANALYSIS
Since 1991 opening of the economy has changed the face of auto industry Today it is
amongst the main drivers of growth of Indian economy with an output multiplier of
224(for every Re1 invested auto sector gives back Rs224 to the economy) In recent
years we have seen increasing number of global players entering Indian market by way of
Joint ventures collaborations or wholly owned subsidiary
The automobile industry is torn between trying to reduce costs on the one hand and on
the other dealing with the high price of performance-enhancing technology and
environmental compliance Key drivers in the automotive industry are
31
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Reducing air pollution
Reduction of weight
Recyclability
Safety
Better performance and engine efficiency
Aesthetics
Longer service Life
INDUSTRY LIFE CYCLE
The automobile market is at the maturity stage of the life cycle locally and globally due
to an increased number of competitors from domestic and foreign markets The
automobile market is characterized by a low potential for market growth but high sales
and profit potential as the products have still not saturated the market as a whole
MAJOR COMPETITORS OF TATA MOTORS ARE
Maruti Udyog Ltd
General Motors India
Ford India Ltd
Eicher Motors
Bajaj Auto
Hero Motors
Hindustan Motors
32
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Hyundai Motor India Ltd
Royal Enfield Motors
Telco
TVS Motors
FINANCIALS
Description 1 Day PriceChange
MarketCap
PEROE
Div Yield
Long-Term Debt toEquity
Price toBook Value
NetProfit Margin (mrq)
Price toFree Cash Flow (mrq)
Sector Consumer Goods 01125178B
2488
1707
222
1171076
706 40842
Industry Auto Manufacturers - Major (More Info)
0613310B
3000
750171
181 155 160 -440
Companies
Daimlerchrysler AG (DCX) 021 539B1072
1119
350
217 116 469 -354
Ford Motor Co (F) 121 157B NA-951
240
1107
115 -060 -8205
General Motors Corporation (GM) -024 165B NA
-6285
340
390 142 -621 014
Honda Motor Co Ltd (HMC) 083 622B1152
1654
100
083 173 552 20748
Tata Motors Ltd (TTM) -038 71B1864
NA150
NA 535 564 NA
Toyota Motor Corp (TM) 0731756B
1394
1505
120
103 197 659 NA
Opportunities and Threats
a) Opportunities
Road Development The ongoing road development program would improve
connectivity to ports cities and villages through a network of highways and
interconnecting roads by 2010-11 Improved road network would help in faster
33
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
movement of goods between various cities and towns The Company launched TATA
Novus range of vehicles in the heavy segment and TATA ACE for last mile distribution
Car penetration in India Car penetration in India is 7 cars per 1000 persons
International In FY 2006-07 the Company increased share of its overseas vehicle sales
from 76 last year to record high of 111 (as of its total sales) and has planned
further increase in this year
b) Threats
Global Competition India is increasingly attracting global players to set up
manufacturing facility for producing cars especially small cars Global automobile
manufacturers are also entering India in commercial vehicle segment to leverage Indiarsquos
low cost production advantage to their favor
Fuel Prices The continuing fuel price increase in the domestic market could
significantly impact demand of commercial and passenger vehicles
Input costs Commodity items particularly steel non-ferrous metals rubber and
engineering plastics have witnessed huge price increases in the past These prices are
expected to increase further affecting the Companyrsquos profitability
Interest rate hardening and other inflationary trends With interest rates hardening and
liquidity crunch in the system growth in sales may be adversely impacted
Government Regulations Stringent emission and safety requirements could bring new
complexities for automotive and component manufacturers impacting the Companyrsquos
business
Risks and Concerns
Interest Rates FY 2007-08 started with increasing interest rate regime and tightening
liquidity position in the economy Increasing interest rates could further affect vehicle
demand which could have an adverse impact on the Companyrsquos revenues and profits
Exchange rates The Company exports vehicles to many countries and exchange rate
fluctuations in the order execution period could impact the Companyrsquos business
34
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Freight rates In FY 2006-07 freight rates in road transport sector moved up mainly
due to surge in construction activity ongoing road development projects and severe
restriction on over-loading Demand for commercial vehicles could be impacted by
further change in freight rates and change in fuel prices
Domestic market The Company plans to reduce the impact of this cyclicality on its
business by strengthening its less cyclical businesses like buses light trucks small
commercial vehicles
Overseas market In overseas markets the Company competes with global players
which have multiple vehicle platforms large financial capability and global branding
Manufacturing The Company manufactures vehicles at multiple locations and given
the geographical dispersion of its suppliers it faces Logistics Problems
New Competition Competitive activity is expected to increase in commercial vehicle
and passenger vehicle domestic market in coming years
New projects The Company currently is in midst of executing many new projects
ranging from launch of new car platforms to development of new Truck models
III Company Analysis
Key Highlights
Symbol TTL
Sector Consumer Goods
Industry Auto Manufacturers Major
Market Cap Rs29232 crores
Data Since 1945
Last close Rs 74290
Brief Summary of the company
35
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Tata Motors is one of the largest companies in the Tata Group with a total income of US$
235 billion More than 3 million Tata vehicles ply on Indian roads making Tata a
dominant force in the Indian automobile industry
Joint Venture with Fiat and Hitachi
Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing
passenger vehicles engines and transmissions for both domestic and international
markets The Company has also entered into a JV with Hitachi to set up a new plant in
Kharagpur
Product Mix
Tata Motors is Indias only fully integrated automobile manufacturer with a portfolio that
covers trucks buses utility vehicles and passenger cars It would be no exaggeration to
say that Tata Motors provides the wheels for Indias growth
Segmental Overview
Commercial Vehicle Segment
The Company registered 696 volume growth in the domestic CV segment during
4QFY06 from 37228 units in Q3FY05 to 63082 units in Q3FY06 The market share in
this segment was 658 in Q4FY06 as compared to 552 in Q1FY06 The MHCV
goods-carrier segment registered a 544 growth YoY with sale of 33515 units and a
market share of 645 up by around 410 bps driven by infrastructure development and
increase in international trade
Passenger Vehicle Segment
The Company reported a growth of 212 YoY to 49907 vehicles in the domestic
passenger vehicle segment and a market share of 162 in the quarter The passenger
vehicle industry registered a volume growth of 204 during Q4FY06
36
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Plants
Tata Motors owes its leading position in the Indian automobile industry to its strong
focus on indigenisation Their manufacturing plants are situated at Jamshedpur in the
East Pune in the West and Lucknow in the North
Charts showing Key Statistics of tata motors
37
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Share holding pattern as on 31-Mar
shareholding pattern
34
1425
17
10
promotors
MF Banks Fis
FIIs
Others
Public
Financial highlights
38
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
39
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
RATIO ANALYSIS
Ratios 2006 2005 2004
Debtequity 056 049 044
Current ratio 108 087 076
Operating profit margin 1211 1151 1238
Gross profit margin 1087 1043 1104
ROCE 3125 3276 3377
total assets turnover ratio 315 353 343
ROE 2761 3009 2257
Dividend-equity 49794 45373 28211
Retention Ratio 6743 6332 6519
DPS (Rs) 1301 125 799
EPS (Rs) 25 34 41
Dividend Payout Ratio 039 042 037
CAGR of EPS 0177
CAGR of Dividend Payout Ratio -0017
Average ROE 2574
average retention 6354
Growth (g = Avg RR times Avg ROE ) 1636
Market return 1454
40
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
PE ratio (on the basis of historical analysis) = 1812
Therefore the Weighted PE ratio =(1812+2424)2 = 21181
Projected EPS = EPS OF 2006 + CAGR of EPSEPS OF 2006
= Rs48271
Value of Share at the end of financial year 06-07
= Projected EPS Weighted PE Ratio
= Rs1022
2) HPCL
Globalization and the Indian Petroleum Industry
Indian petroleum industry in the post independent period (1947-2001) it may be divided
into three distinct phases
(i) early phase (1947 to 1969)- when the government consolidated its control over
the industry with Soviet assistance
(ii) development phase (1970 to 1989)- in this period the US companies played
dominant role replacing the Soviets and
41
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
(iii) the economic liberalisation phase of 1990s
PORTERrsquoS MODEL
SWOT ANALYSIS
STRENGHS
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
WEAKNESSES
Dependence on refining function high
Moderate share in high profitable retail segment
42
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Diversifications in petrochemicals could trouble the company
High burden of subsidy loss on cooking gas and kerosene
OPPORTUNITIES
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
Overseas presence in upstream and downstream will determine growth
THREATS
Rising oil prices could dampen demand
High regulatory risk
Loss of market share to private players
Entrance of private players in pipelines will take away monopoly of company in
north India
COMPANY ANALYSIS
The Annual Report is broken down into the following specific parts
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the AccountsATHE DIRECTORrsquoS REPORTThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship Fundamental AnalysisB THE AUDITORS REPORTThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors
C FINANCIAL STATEMENTSIt comprises of Balance Sheet Profit and Loss account Cash Flows Its analysis would be discussed later
DSCHEDULES
43
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The schedules detail pertinent information about the items of Balance Sheet and Profit amp Loss Account It also details information about sales manufacturing costs administration costs interest and other income and expenses
1 THE MANAGEMENT
HPCL is a public sector undertaking Thus it is a professionally managed company
There are some parameters of management on which a company is analysed
a integrity of management
b past record of management
c how highly is the management rated by its peers in the same industry
d how the management fares in adversity
e the depth of the knowledge of management
f open and innovative management
on all these parameters HPCL scores good
2 COMPANY
Many times a company has made losses in the previous years but that does not mean
that the company is bad to invest Thus many factors are studied while studying a
company
a) perception of competitors
HPCL is the second largest petroleum company after IOCL Thus it is a competitor of
IOCL and it is trying hard to compete with IOCL on every front That is why now it
has decided to diversify itself in the oil exploration sector
b) company policies
As this is a PSU thus the policies are made by the government The oil sector is one
which is highly regulated by government Thus from time to time it is required to
watch out the various policies changed
3 ANNUAL REPORT
The most primary and most important source of information about a company is its
Annual Report This is prepared every year and distributed to its shareholders
44
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Ratio Analysis
Evaluation of Intrinsic Value of the Security
stdev mkt 0011934stdev sec 003831 Average
Retention Ratio 060504
correlation 0485958 ROE 019842Beta 156765 g 0120052Risk Free Rate 650
Mkt Rate 14
45
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
k 1826
Hence we see that here our g is less than k Thus we see that as per Dividend Discount Model our Intrinsic value is div=22(1+012)=240626= 387
Price= Projected EPS + Weighted PE ratioUsing CAGR EPS = 43468Weighted PE Ratio = 75+6652=33625
Price = 43468+33625 = 381
3) HDFC BANK
The Indian banking industry sector overview
With the economic growth picking up pace and the investment cycle on the way to recovery the banking sector has witnessed a transformation in its vital role of intermediating between the demand and supply of funds
Public sector banks have been very proactive in their restructuring initiatives be it in technology implementation or pruning their loss assets Windfall treasury gains made in the falling interest rate regime were used for writing off the doubtful and loss assets
Retail lending (especially mortgage financing) formed a significant portion of the portfolio for most banks and they customized their products to cater to the diverse demands
Apart from streamlining their processes through technology initiatives such as ATMs telephone banking online banking and web based products banks also resorted to cross selling of financial products such as credit cards mutual funds and insurance policies to augment their fee based income
PORTERrsquoS FIVE FORCES MODEL FOR THE BANKING INDUSTRY
1) BARRIERS TO ENTRY a Economies of scale Since the existing players in the market are well
established and already have a customer base they are able to bear the cost of using the advantages of technology to their maximum advantage
46
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Capital requirement for entry i The Banking Regulation Act prescribes the minimum capital
requirements for a bank Moreover banks have to maintain a capital adequacy ratio of 9 under the Basel I norms
ii Government has declared that the foreign banks will be permitted to establish their presence in India by way of setting up a wholly owned banking subsidiary (WOS) with a minimum capital of Rs300 crore
c Access to distribution channels Since banks have to set up their own distribution channels all the cost has to be directly born by them
d Cost advantage independent of size Existing banks have huge databases of customers which they use when they want to sell a new product launched by them
e Legislation or Government action Banks are governed by Banking Regulation Act 1949 which specifies the rules and regulations applicable to banks RBI is the governing body of banks in India
2) BARGAINING POWER OF BUYERS
Due to increased competition the services offered by banks to customers have improved considerably
3) BARGAINING POWER OF THE SUPPLIERS
Suppliers to banks can be both - the customers and RBIa Customers of banks provide money to banks in the form of deposits and in
return earn some interest on that b RBI acts as a supplier to banks by selling govt securities treasury bills
govt bonds etc c Call money market Banks sometimes have to borrow from other banks to
meet CRR and SLR requirements or other capital requirements as provided by RBI
4) THREAT OF SUBSTITUTES
a Product-for-product substitutioni Banks provide interest on deposits made by people Similar
services are offered by post offices which may act as substitutes to the deposit schemes of banks
ii Some banks offer locker services to customers for yearly rates Similar services are provided by many post offices
47
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Generic substitution People who deposit their savings in banks can invest their money in other sources like mutual funds shares and other securities and life insurance schemes
5) COMPETITIVE RIVALRY
a Extent of competitor balance b Market growth ratesc High Exit Barriers
PEST Analysis for Banking Industry
1 Political factors - The major factors affecting the banking sector are the following
Banking sector reforms ndash As per the RBI roadmap for reforms in the first stage from 2005 to 2009 foreign banks will be allowed to set up wholly owned subsidiaries as well as get greater freedom to set up new branches Fulfilling the minimum priority sector credit -The government mandation of fulfilling the minimum priority sector credit (of which 18 per cent is food credit) has forced the domestic banks to cater to this segment despite the low profitability and vulnerability of asset quality
Banks have also been allowed to set up Offshore Banking Units in SEZrsquos
2 Economic factors -
Basell II norms for the risk management in banking sector - The new Basel Accord has its foundation on three mutually reinforcing pillars The first pillar is compatible with the credit risk market risk and operational risk The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bankConcurrently it also casts responsibility on the supervisors to review and validate banksrsquo risk measurement models
Consolidation and merger and acquisitions in the banking sector- HDFC bank also acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Universal Banking has been introduced ICICI Bank HDFCs closest competitor is already into Universal Banking so HDFC is also getting into it as now it is providing retail banking and also depository facilities in the form of demat account
48
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
3 Social factors-
Big and growing middle class in India - This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans car loans education loans auto loans etc Retail loans have grown from 19 in FYrsquo99 to 51 FYrsquo06Consumer credit accounts for a meager 286 per cent of the countrys GDP and the buoyancy in the economy offers sufficient scope for it to grow
Geographical and Cultural diversity- This is leading to a greater demand for financial products and customization by the customers
4 Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999 It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector
Banks (All) No of players = 40
Sector statistics
We see the sector aggregates and make a financial comparison for the major banks
Top PlayersFY2006
Based on Total Income Based on OPBDT Total Income Change OPBDT Change
(Rs Mn) () (Rs Mn) ()ICICI BANK 631619 5450 S B I 763528 -129 PUNJAB NATIONAL B 29218 1491 ICICI BANK 37174 1936
CAN BANK 277095 2378 PUNJAB NATIONAL B 222052 3936
BANK OF INDIA 23317 2543 CAN BANK 168825 1953
H D F C BANK 185508 6024 H D F C BANK 14324 2748 change - indicates the change between current and corresponding quarter
49
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SNo TITLE PgNo
1 CH 1 Introduction 6
11 Rationale 8
12 Objectives 8
13 Research Methodology 9
2 CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW 10
21 DOW THEORY 12
22 ELLIOT WAVES BASICS 16
23 MOVING AVERAGE 17
3 CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW 19
31 Economic Analysis 20
32 Industry Analysis 22
33 Company Analysis 24
331 The Management 24
332 The Company 25
333 The Annual Report 25
334 Ratios 27
335 Cash Flow 28
4 CH 4 Analysis 30
5 CH 5 Limitations 71
6 CH 6 Conclusion 73
2
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7 Glossary 77
8 References and Bibliography 80
3
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER- 1
INTRODUCTION
11 INTRODUCTION
4
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Investing like marriage isnt something that should be entered into lightly You wouldnt
get married on a first date would you Ok maybe some of us would but thats not really
very Foolish Before we marry er I mean invest in a company there are more than a
few things we need to know about it
Securities Analysis
An analysis of securities and the organization and operation of their markets The determination of the risk reward structure of equity and debt securities and their valuation Special emphasis on common stocks Other topics include options mutual fluids and technical analysis
Technical analysis is a method of predicting price movements and future market trends by studying charts of past market action which take into account price of instruments volume of trading and where applicable open interest in the instruments
Fundamental analysis is a method of forecasting the future price movements of a financial instrument based on economic political environmental and other relevant factors and statistics that will affect the basic supply and demand of whatever underlies the financial instrument
Main differences between the two types of analysis
Fundamental analysis Technical analysis
Focuses on what ought to happen in a market
Focuses on what actually happens in a market
Factors involved in price analysis
1 Supply and demand 2 Seasonal cycles 3 Weather 4 Government policy
Charts are based on market action involving
1 Price2 Volume3 Open interest (futures only)
12 RATIONALE FOR THE STUDY
5
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
In an industry plagued with skepticism and a stock market increasingly difficult to predict
and contend with if one looks hard enough there may still be a genuine aid for the Day
Trader and Short Term Investor
The price of a security represents a consensus It is the price at which one person agrees
to buy and another agrees to sell The price at which an investor is willing to buy or sell
depends primarily on his expectations If he expects the securitys price to rise he will
buy it if the investor expects the price to fall he will sell it These simple statements are
the cause of a major challenge in forecasting security prices because they refer to human
expectations As we all know firsthand humans expectations are neither easily
quantifiable nor predictable
If prices are based on investor expectations then knowing what a security should sell for
(ie fundamental analysis) becomes less important than knowing what other investors
expect it to sell for Thats not to say that knowing what a security should sell for isnt
important--it is But there is usually a fairly strong consensus of a stocks future earnings
that the average investor cannot disprove
Fundamental analysis and technical analysis can co-exist in peace and complement each other Since
all the investors in the stock market want to make the maximum profits possible they just cannot
afford to ignore either fundamental or technical analysis
13 OBJECTIVES OF THE STUDY
Primary Objective a) To do technical and fundamental analysis of chosen securities
Sub-Objectives
a) to study the various theories of technical analysis and fundamental analysis
b) understand the movement and performance of stocks
c) understanding and analyzing the factors that affect the movement of stock
prices in the Indian Stock Markets
6
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
14 RESEARCH METHODOLOGY amp DESIGN
TYPE OF STUDY
The research has been based on secondary data analysis The study has been exploratory
as it aims at examining the secondary data for analyzing the previous researches that have
been done in the area of technical and fundamental analysis of stocks The knowledge
thus gained from this preliminary study forms the basis for the further detailed
Descriptive research In the exploratory study the various technical indicators that are
important for analyzing stock were actually identified and important ones short listed
SAMPLE DESIGN
The sample of the stocks for the purpose of collecting secondary data has been selected
on the basis of Random Sampling The stocks are chosen in an unbiased manner and each
stock is chosen independent of the other stocks chosen
SAMPLE SIZE
The sample size for the number of stocks is taken as 10 for technical analysis and 4 for
fundamental analysis of stocks as fundamental analysis is very exhaustive and requires
detailed study
7
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER- 2
TECHNICAL ANALYSIS
A CONCEPTUAL OVERVIEW
TECHNICAL ANALYSIS
Technical analysis can be conditionally divided into some main parts such as
8
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Types of charts Graphical methods Analytical methods Technical indicators
Technical analysis is concerned with predicting future price trends from historical price and volume data The underlying axiom of technical analysis is that all fundamentals (including expectations) are factored into the market and are reflected in exchange rates
A technical analysis is based on three axioms
Movement of the market considers everything Movement of prices is purposeful History repeats itself
SUPPORT AND RESISTANCE
Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
Resistance on the other hand is the point at which sellers (bears) take control of prices and prevent them from rising higher The price at which a trade takes place is the price at which a bull and bear agree to do business It represents the consensus of their expectations
9
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Support levels indicate the price where the most of investors believe that prices will move higher Resistance levels indicate the price at which the most of investors feel prices will move lower
Role Reversal
When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
31 DOW THEORYndash TRENDS
The ideas of Charles Dow the first editor of the Wall Street Journal form the basis of technical analysis The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages Dow created the Industrial Average of top blue chip stocks and a second average of top railroad stocks (now the Transport Average) He believed that the behavior of the averages reflected the hopes and fears of the entire market The behavior patterns that he observed apply to markets throughout the world
Three Movements
Markets fluctuate in more than one time frame at the same time
10
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Nothing is more certain than that the market has three well defined movements which fit into each other
The first is the daily variation due to local causes and the balance of buying and
selling at that particular time
The secondary movement covers a period ranging from ten days to sixty days
averaging probably between thirty and forty days
The third move is the great swing covering from four to six years
Bull markets are broad upward movements of the market that may last several
years interrupted by secondary reactions Bear markets are long declines
interrupted by secondary rallies These movements are referred to as the primary
trend
Secondary movements normally retrace from one third to two thirds of the
primary trend since the previous secondary movement
Daily fluctuations are important for short-term trading but are unimportant in
analysis of broad market movements
Various cycles have subsequently been identified within these broad categories
Primary Movements have Three Phases
The general conditions in the market
Bull markets
Bull markets commence with reviving confidence as business conditions improve
Prices rise as the market responds to improved earnings
11
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Rampant speculation dominates the market and price advances are based on hopes and
expectations rather than actual results
Bear markets
Bear markets start with abandonment of the hopes and expectations that sustained
inflated prices
Prices decline in response to disappointing earnings
Distress selling follows as speculators attempt to close out their positions and
securities are sold without regard to their true value
Ranging Markets
A secondary reaction may take the form of a lsquolinersquo which may endure for several weeks Price fluctuates within a narrow range of about five per cent
Breakouts from a range can occur in either direction
Advances above the upper limit of the line signal accumulation and higher prices
Declines below the lower limit indicate distribution and lower prices
Volume is used to confirm price breakouts
Trends
Bull Trends
A bull trend is identified by a series of rallies where each rally exceeds the highest point of the previous rally The decline between rallies ends above the lowest point of the previous decline
Successive higher highs and higher lows
12
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
Start = higher Low + break above previous High
The end is signaled by a lower high (peak) followed by a decline below the previous low (trough)
End = lower High + break below previous Low
A bear trend starts at the end of a bull trend when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
Large Corrections
A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
13
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A bull trend starts when price rallies above the previous high
A bull trend ends when price declines below the previous low
A bear trend starts at the end of a bull trend (and vice versa)
32 ELLIOT WAVES THEORY BASICS
TRENDLINES
Breaking through support or resistance levels results in a change of tradersrsquo expectations (which causes supplydemand lines to shift)
14
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
An Uptrend is defined by successively higher low-prices A rising trend can be thought of as a rising support level the bulls are in control and are pushing prices higher A Downtrend is defined by successively lower high-prices A falling trend can be thought of as a falling resistance level the bears are in control and are pushing prices lower
33 MOVING AVERAGES
Moving averages are one of the oldest and most popular technical analysis tools A moving average is the average price of a financial instrument over a given time
The moving average represents the consensus of investorrsquos expectations over the indicated period of time
The classic interpretation of a moving average is to use it in observing changes in prices Investors typically buy when the price of an instrument rises above its moving average and sell when the it falls below its moving average
TECHNICAL INDICATORS
There is a vast number of elaborated technical indicators
15
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
MOVING AVERAGE ndashMA
RELATIVE STRENGTH INDEX mdash RSI The Relative Strength Index Technical Indicator (RSI) is a price-following oscillator that ranges between 0 and 100 When Wilder introduced the Relative Strength Index he recommended using a 14-day RSI Since then the 9-day and 25-day Relative Strength Index indicators have also gained popularity
ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the cumulative difference between advancing and declining issues
CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that closed on an uptick and those that closed on a downtick
CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading volume in declining issues to average trading volume in advancing issues
Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 shares HI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price CANDLESTICK CHART A candlestick chart is an extended version of the hi-lo-close
chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation When the stock price ldquopierces the necklinerdquo after the right shoulder is finished itrsquos time to sell
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins A win by the National Football Conference is bullish
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
16
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER- 3
FUNDAMENTAL ANALYSIS
A CONCEPTUAL OVERVIEW
17
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Fundamental analysis refers to the study of the core underlying elements that influence the economy of a particular entity It is a method of study that attempts to predict price action and market trends by analyzing economic indicators government policy and societal factors (to name just a few elements) within a business cycle framework
I ECONOMIC ANALYSIS
POLITICO-ECONOMIC ANALYSIS No industry or company can exist in isolation It may have splendid managers and a tremendous product However its sales and its costs are affected by factors some of which are beyond its control - the world economy price inflation taxes and a host of others It is important therefore to have an appreciation of the politico-economic factors that affect an industry and a company
The political equationA stable political environment is necessary for steady balanced growth If a country is ruled by a stable government which takes decisions for the long-term development of the country industry and companies will prosper Foreign Exchange ReservesA country needs foreign exchange reserves to meet its commitments pay for its imports and service foreign debts
Foreign Exchange RiskThis is a real risk and one must be cognizant of the effect of a revaluation or devaluation of the currency either in the home country or in the country the company deals in
Restrictive PracticesRestrictive practices or cartels imposed by countries can affect companies and industries crystallizing the exposure
Foreign Debt and the Balance of TradeForeign debt especially if it is very large can be a tremendous burden on an economy India pays around $ 5 billion a year in principal repayments and interest payments InflationInflation has an enormous effect in the economy Within the country it erodes purchasing power As a consequence demand falls If the rate of inflation in the country from which a company imports is high then the cost of production in that country will automatically go up
The Threat of NationalizationThe threat of nationalization is a real threat in many countries ndash the fear that a company may become nationalized
Interest Rates
18
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A low interest rate stimulates investment and industry Conversely high interest rates result in higher cost of production and lower consumption
TaxationThe level of taxation in a country has a direct effect on the economy If tax rates are low people have more disposable income
Government PolicyGovernment policy has a direct impact on the economy A government that is perceived to be proindustry will attract investment
THE ECONOMIC CYCLE
It affects investment decisions employment demand and the profitability of companiesThe four stages of an economic cycle are DepressionRecoveryBoom Recession DepressionAt the time of depression demand is low and falling Inflation is high and so are interest rates Companies crippled by high borrowing and falling sales are forced to curtail production close down plants built at times of higher demand and let workers go
RecoveryDuring this phase the economy begins to recover Investment begins anew and the demand grows Companies begin to post profits Conspicuous spending begins once again
BoomIn the boom phase demand reaches an all time high Investment is also high Interest rates are low Gradually as time goes on supply begins to exceed the demand Prices that had been rising begin to stabilize and even fall There is an increase in demand Then as the boom period matures prices begin to rise again
RecessionThe economy slowly begins to downturn Demand starts falling Interest rates and inflation are high Companies start finding it difficult to sell their goods The economy slowly begins to downturn
19
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II INDUSTRY ANALYSIS
The importance of industry analysis is now dawning on the Indian investor as never before
CycleThe first step in industry is to determine the cycle it is in or the stage of maturity of the industry All industries evolve through the following stages1 Entrepreneurial sunrise or nascent stage2 Expansion or growth stage3 Stabilization stagnation or maturity stage and4 Decline or sunset stage to properly establish itself In the early days it may actually make losses
The Entrepreneurial or Nascent StageAt the first stage the industry is new and it can take some time for it to properly establish itself
The Expansion or Growth StageOnce the industry has established itself it enters a growth stage As the industry grows many new companies enter the industry
The Stabilization or Maturity StageAfter the halcyon days of growth an industry matures and stabilizes Rewards are low and so too is the risk Growth is moderate Though sales may increase they do so at a
20
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
slower rate than before Products are more standardized and less innovative and there are several competitors
The Decline or Sunset StageFinally the industry declines This occurs when its products are no longer popular This may be on account of several factors such as a change in social habits The film and video industries
1 BARRIER TO ENTRYNew entrants increase the capacity in an industry and the inflow of funds The question that arises is how easy is it to enter an industry There are some barriers to entry
a) Economies of scaleb) Product differentiation c) Capital requirementd) Switching costse) Access to distribution channelsf) Cost disadvantages independent of scaleg) Government policyh) Expected retaliationj) International cartels
2 THE THREAT OF SUBSTITUTIONNew inventions are always taking place and new and better products replace existing ones An industry that can be replaced by substitutes or is threatened by substitutes is normally an industry one must be careful of investing in An industry where this occurs constantly is the packaging industry -bottles replaced by cans cans replaced by plastic bottles and the like To ward off the threat of substitution companies often have to spend large sums of money in advertising and promotion
3 BARGAINING POWER OF THE BUYERSIn an industry where buyers have control ie in a buyers market buyers are constantly forcing prices down demanding better services or higher quality and this often erodes profitability The factors one should check are whether a) A particular buyer buys most of the products (large purchase volumes) If such buyers withdraw their patronage they can destroy an industry They can also force prices downb) Buyers can play one company against another to bring prices down
4 BARGAINING POWER FOR THE SUPPLIERSAn industry unduly controlled by its suppliers is also under threat This occurs whena) The suppliers have a monopoly or if there are few suppliersb) Suppliers control an essential c) Demand for the product exceeds d) The supplier supplies to various industriese) The switching costs are high
21
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
f) The suppliers product does not have a substituteg) The suppliers product is an important input for the buyersh) The buyer is not important to the supplieri) The suppliers product is unique
5 RIVALRY AMONG COMPETITORSRivalry among competitors can cause an industry great harm This occurs mainly by price cuts heavy advertising additional high cost services or offers and the like This rivalry occurs mainly whena) There are many competitors and supply exceeds demand Companies resort to price cuts and advertise heavily in order to attract customers for their goodsb) The industry growth is slow and companies are competing with each other for a greater market sharec) The economy is in a recession and companies cut the price of their products and offer better service to stimulate demandd) There is lack of differentiation between the product of one company and that of another In such cases the buyer makes his choice on the basis of price or servicee) In some industries economies of scale will necessitate large additions to existing capacities in a company The increase in production could result in over capacity amp price cuttingf) Competitors may have very different strategies in selling their goods and in competing they may be continuously trying to stay ahead
III COMPANY ANALYSIS
At the final stage of fundamental analysis the investor analyzes the company This analysis has two thrustsHow has the company performed vis-agrave-vis other similar companies and How has the company performed in comparison to earlier years It is imperative that one completes the politico economic analysis and the industry analysis before a company is analyzed because the companys performance at a period of time is to an extent a reflection of the economy the political situation and the industry What does one look at when analyzing a company The different issues regarding a company that should be examined are The Management The Company The Annual Report Ratios Cash flow
THE MANAGEMENT
The single most important factor one should consider when investing in a company and one often never considered is its management In India management can be broadly
22
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
divided in two types Family Management Professional Management
THE COMPANY
An aspect not necessarily examined during an analysis of fundamentals is the company A company may have made losses consecutively for two years or more and one may not wish to touch its shares - yet it may be a good company and worth purchasing into There are several factors one should look at
1 How a company is perceived by its competitorsOne of the key factors to ascertain is how a company is perceived by its competitors It is held in high regard Its management may be known for its maturity vision competence and aggressiveness The investor must ascertain the reason and then determine whetherthe reason will continue into the foreseeable future
2 Whether the company is the market leader in its products or in its segmentAnother aspect that should be ascertained is whether the company is the market leader in its products or in its segment When you invest in market leaders the risk is less Theshares of market leaders do not fall as quickly as those of other companies There is a magic to their name that would make individuals prefer to buy their products as opposed to others
3 Company PoliciesThe policy a company follows is also important What is its plans for growth What is its vision Every company has a life If it is allowed to live a normal life it will grow upto a point and then begin to level out and eventually die It is at the point of leveling out that it must be given new life This can give it renewed vigour and a new lease of life
4 Labour RelationsLabour relations are extremely important A company that has motivated industrious work force has high productivity and practically no disruption of work On the other hand a company that has bad industrial relations will lose several hundred mandays as a consequence of strikes and go slows
5 Where the company is located and where its factories are One must also consider where the companies Plants and Factories are located
THE ANNUAL REPORT
The primary and most important source of information about a company is its Annual Report By law this is prepared every year and distributed to the shareholders Annual Reports are usually very well presented A tremendous amount of data is given about the performance of a company over a period of time The Annual Report is broken down into the following specific parts
23
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the Accounts
A The Directorrsquos ReportThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship 1 It enunciates the opinion of the directors on the state of the economy and the political situation vis-agrave-vis the company 2 Explains the performance and the financial results of the company in the period under review This is an extremely important part The results and operations of the various separate divisions are usually detailed and investors can determine the reasons for their good or bad performance3 The Directorrsquos Report details the companys plans for modernization expansion and diversification Without these a company will remain static and eventually decline4 Discusses the profit earned in the period under review and the dividend Recommended by the directors This paragraph should normally be read with some skepticism as the directors will always argue that the performance was satisfactory If adverse economic conditions are usually at fault 5 Elaborates on the directors views of the companys prospects in the future6 Discusses plans for new acquisition and investments An investor must intelligently evaluate the issues raised in a Directorrsquos Report Industry conditions and the managements knowledge of the business must be considered
B The Auditors ReportThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors Auditors are required to report whether the financial statements presented do in fact present a true and fair view of the state of the company Investors must remember that the auditors are their representatives and that they are required by law to point out if the financial statements are not true and fair
CFinancial StatementsThe published financial statements of a company in an Annual Report consist of its Balance Sheet as at the end of the accounting period detailing the financing condition of the company at that date and the Profit and Loss Account or Income Statement summarizing the activities of the company for the accounting period
BALANCE SHEETThe Balance Sheet details the financial position of a company on a particular date of the companys assets (that which the company owns) and liabilities (that which the companyowes) grouped logically under specific heads It must however be noted that the Balance Sheet details the financial position on a particular day and that the position can be materially different on the next day or the day after
24
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOURCES OF FUNDSSHAREHOLDERS FUNDSSHARE CAPITAL(i) Private Placement(ii) Public Issueiii) Rights issuesRESERVESi) Capital Reservesii) Revenue ReservesLOAN FUNDSi) Secured loansii) Unsecured loansFIXED ASSETSINVESTMENTSSTOCK OR INVENTORIESi) Raw materialsii) Work in progressiii) Finished goodsCASH AND BANK BALANCESLOANS AND ADVANCES
PROFIT AND LOSS ACCOUNTThe Profit and Loss account summarizes the activities of a company during an accounting period which may be a month a quarter six months a year or longer and the result achieved by the company It details the income earned by the company its cost and the resulting profit or loss It is in effect the performance appraisal not only of the company but also of its management- its competence foresight and ability to lead
RATIOS
Ratios express mathematically the relationship between performance figures andor assetsliabilities in a form that can be easily understood and interpretedNo single ratio tells the complete storyRatios can be broken down into four broad categories
(A) Profit and Loss RatiosThese show the relationship between two items or groups of items in a profit and loss account or income statement The more common of these ratios are1 Sales to cost of goods sold2 Selling expenses to sales3 Net profit to sales and4 Gross profit to sales
(B) Balance Sheet RatiosThese deal with the relationship in the balance sheet such as 1 Shareholders equity to borrowed funds
25
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
2 Current assets to current liabilities3 Liabilities to net worth4 Debt to assets and5 Liabilities to assets
(C) Balance Sheet and Profit and Loss Account RatiosThese relate an item on the balance sheet to another in the profit and loss account such as1 Earnings to shareholders funds2 Net income to assets employed3 Sales to stock4 Sales to debtors and5 Cost of goods sold to creditors
(D) Financial Statements and Market RatiosThese are normally known as market ratios and are arrived at by relative financial figures to market prices1 Market value to earnings and2 Book value to market value(a) Market value(b) Earnings(c) Profitability(d) Liquidity(e) Leverage(f) Debt Service Capacity(g) Asset ManagementEfficiency(h) Margins
The major ratios that are considered(i) Market value(ii) Price- earnings ratio(iii) Market-to-book ratio(iv) Earnings(v) Earning per share(vi) Dividend per share(vii) Dividend payout ratio(viii) Leverage ratios(ix) Return on investmentstotal assets
CASH FLOW A statement of sources and uses begins with the profit for the year to which are added the increases in liability accounts (sources) and from which are reduced the increases in asset accounts (uses) The net result shows whether there has been an excess or deficit of funds and how this was financed Investors must examine a companys cash flow as it reveals exactly where the money came from how it was utilized Investors must be
26
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
concerned if a company is financing either its inventories or paying dividends from borrowings without real growth as that shows deterioration
27
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-4 ANALYSIS
28
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
I FUNDAMENTAL ANALYSIS OF STOCKS
Basically fundamental analysis is covered in 3 parts
1 Market economy analysis
2 Industry Analysis
3 Company Analysis
1) TATA MOTORS
I Market Economy Analysis
It covers the macro economy analysis and the various macro economic factors on the national level like GDP Monetary policies of India Fiscal Policies and Inflation and money supply etc
GDP
Real GDP growth accelerated from 75 per cent during 2004-05 to 84 per cent during
2005-06 on the back of buoyant manufacturing and services activity supported by a
recovery in the agricultural sector Real GDP growth has thus averaged over eight per
cent during the last three years and over seven per cent in the first four years (2002-03 to
2005-06) of the Tenth Five Year Plan
Strengths of India today are
A well diversified industrial base which profits from self-reliance in all core industries A
large amp sophisticated financial architecture - The robust capital Markets today have over
9000 listed companies and boast of a massive Market capitalization
A healthy GDP composition with agriculture contributing 22 Industry 22 and
services which have gone strength to strength accounting For 56 of the GDP an
29
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
acknowledged strength in knowledge driven industries like Information technology
biotechnology entertainment Software etc
India has Over 3 million scientific amp technical manpower Over 06 million SampT post
graduates Over 07 million graduate engineers Over 3500 doctorates in sciences every
year
Assuming trend growth in agriculture under normal monsoon conditions and barring
domestic or external shocks the Reserve Bank in its Annual Policy Statement for 2007-
08 (April 2007) placed real GDP growth for policy purposes in the range of 75-80 per
cent during 2007-08 Growth prospects are however subject to a number of downside
risks The risks emanating from the global economy are potential escalation and
volatility in international crude oil prices firming up of overall inflationary pressures and
expectations and a hardening of international interest rates along with the withdrawal of
monetary accommodation
Indiarsquos demographic advantage ndash In contrast to developed Countries India will have a
younger population for the next 50 years Hence India would be the hub for RampD
Inflation
Inflation was contained to 63 per cent by end-March 2007 within the indicative
trajectory of 50-55 per cent during 2007-08 The actual inflation was considerably lower
than the indicative trajectory and this could be mainly attributed to the deferred pass-
through of even the cognisable permanent component of international crude oil prices
Money Supply
Monetary and liquidity conditions remained largely comfortable during 2006-07reflecting
proactive liquidity management operations by the Reserve Bank under the liquidity
adjustment facility flexible management of issuances under the market stabilisation
scheme and some private placement of Government securities
30
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
In short the Indian economy is exhibiting strong fundamentals and displaying
considerable resilience At the same time there are continuing signs of demand pressures
especially high credit growth that could exert upward pressure on prices when associated
with supply shocks such as from oil These pressures have the potential for impacting
stability and inflation expectations While domestic developments continue to dominate
the economy global factors tend to gain more attention now than before The global
outlook for growth is positive but downside risks in regard to inflation also RBI is
applying new repo and reverse repo for the balance of inflation and monetary policies
The following are macroeconomic policies generally found as part of government-
directed industrial auto policies
(a) Restrictions on domestic and foreign investment
(b) Domestic content requirements
(c) High tariff walls
(d) Auto export requirements
(e) National production to sales ratios
(f) Distribution controls
(g) Quotas and licensing requirements that significantly restrict imports
(h) Government approval for product related decisions including vehicle make
body type engine size etc
(i) Special government categories for auto taxes
II INDUSTRY ANALYSIS
Since 1991 opening of the economy has changed the face of auto industry Today it is
amongst the main drivers of growth of Indian economy with an output multiplier of
224(for every Re1 invested auto sector gives back Rs224 to the economy) In recent
years we have seen increasing number of global players entering Indian market by way of
Joint ventures collaborations or wholly owned subsidiary
The automobile industry is torn between trying to reduce costs on the one hand and on
the other dealing with the high price of performance-enhancing technology and
environmental compliance Key drivers in the automotive industry are
31
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Reducing air pollution
Reduction of weight
Recyclability
Safety
Better performance and engine efficiency
Aesthetics
Longer service Life
INDUSTRY LIFE CYCLE
The automobile market is at the maturity stage of the life cycle locally and globally due
to an increased number of competitors from domestic and foreign markets The
automobile market is characterized by a low potential for market growth but high sales
and profit potential as the products have still not saturated the market as a whole
MAJOR COMPETITORS OF TATA MOTORS ARE
Maruti Udyog Ltd
General Motors India
Ford India Ltd
Eicher Motors
Bajaj Auto
Hero Motors
Hindustan Motors
32
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Hyundai Motor India Ltd
Royal Enfield Motors
Telco
TVS Motors
FINANCIALS
Description 1 Day PriceChange
MarketCap
PEROE
Div Yield
Long-Term Debt toEquity
Price toBook Value
NetProfit Margin (mrq)
Price toFree Cash Flow (mrq)
Sector Consumer Goods 01125178B
2488
1707
222
1171076
706 40842
Industry Auto Manufacturers - Major (More Info)
0613310B
3000
750171
181 155 160 -440
Companies
Daimlerchrysler AG (DCX) 021 539B1072
1119
350
217 116 469 -354
Ford Motor Co (F) 121 157B NA-951
240
1107
115 -060 -8205
General Motors Corporation (GM) -024 165B NA
-6285
340
390 142 -621 014
Honda Motor Co Ltd (HMC) 083 622B1152
1654
100
083 173 552 20748
Tata Motors Ltd (TTM) -038 71B1864
NA150
NA 535 564 NA
Toyota Motor Corp (TM) 0731756B
1394
1505
120
103 197 659 NA
Opportunities and Threats
a) Opportunities
Road Development The ongoing road development program would improve
connectivity to ports cities and villages through a network of highways and
interconnecting roads by 2010-11 Improved road network would help in faster
33
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
movement of goods between various cities and towns The Company launched TATA
Novus range of vehicles in the heavy segment and TATA ACE for last mile distribution
Car penetration in India Car penetration in India is 7 cars per 1000 persons
International In FY 2006-07 the Company increased share of its overseas vehicle sales
from 76 last year to record high of 111 (as of its total sales) and has planned
further increase in this year
b) Threats
Global Competition India is increasingly attracting global players to set up
manufacturing facility for producing cars especially small cars Global automobile
manufacturers are also entering India in commercial vehicle segment to leverage Indiarsquos
low cost production advantage to their favor
Fuel Prices The continuing fuel price increase in the domestic market could
significantly impact demand of commercial and passenger vehicles
Input costs Commodity items particularly steel non-ferrous metals rubber and
engineering plastics have witnessed huge price increases in the past These prices are
expected to increase further affecting the Companyrsquos profitability
Interest rate hardening and other inflationary trends With interest rates hardening and
liquidity crunch in the system growth in sales may be adversely impacted
Government Regulations Stringent emission and safety requirements could bring new
complexities for automotive and component manufacturers impacting the Companyrsquos
business
Risks and Concerns
Interest Rates FY 2007-08 started with increasing interest rate regime and tightening
liquidity position in the economy Increasing interest rates could further affect vehicle
demand which could have an adverse impact on the Companyrsquos revenues and profits
Exchange rates The Company exports vehicles to many countries and exchange rate
fluctuations in the order execution period could impact the Companyrsquos business
34
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Freight rates In FY 2006-07 freight rates in road transport sector moved up mainly
due to surge in construction activity ongoing road development projects and severe
restriction on over-loading Demand for commercial vehicles could be impacted by
further change in freight rates and change in fuel prices
Domestic market The Company plans to reduce the impact of this cyclicality on its
business by strengthening its less cyclical businesses like buses light trucks small
commercial vehicles
Overseas market In overseas markets the Company competes with global players
which have multiple vehicle platforms large financial capability and global branding
Manufacturing The Company manufactures vehicles at multiple locations and given
the geographical dispersion of its suppliers it faces Logistics Problems
New Competition Competitive activity is expected to increase in commercial vehicle
and passenger vehicle domestic market in coming years
New projects The Company currently is in midst of executing many new projects
ranging from launch of new car platforms to development of new Truck models
III Company Analysis
Key Highlights
Symbol TTL
Sector Consumer Goods
Industry Auto Manufacturers Major
Market Cap Rs29232 crores
Data Since 1945
Last close Rs 74290
Brief Summary of the company
35
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Tata Motors is one of the largest companies in the Tata Group with a total income of US$
235 billion More than 3 million Tata vehicles ply on Indian roads making Tata a
dominant force in the Indian automobile industry
Joint Venture with Fiat and Hitachi
Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing
passenger vehicles engines and transmissions for both domestic and international
markets The Company has also entered into a JV with Hitachi to set up a new plant in
Kharagpur
Product Mix
Tata Motors is Indias only fully integrated automobile manufacturer with a portfolio that
covers trucks buses utility vehicles and passenger cars It would be no exaggeration to
say that Tata Motors provides the wheels for Indias growth
Segmental Overview
Commercial Vehicle Segment
The Company registered 696 volume growth in the domestic CV segment during
4QFY06 from 37228 units in Q3FY05 to 63082 units in Q3FY06 The market share in
this segment was 658 in Q4FY06 as compared to 552 in Q1FY06 The MHCV
goods-carrier segment registered a 544 growth YoY with sale of 33515 units and a
market share of 645 up by around 410 bps driven by infrastructure development and
increase in international trade
Passenger Vehicle Segment
The Company reported a growth of 212 YoY to 49907 vehicles in the domestic
passenger vehicle segment and a market share of 162 in the quarter The passenger
vehicle industry registered a volume growth of 204 during Q4FY06
36
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Plants
Tata Motors owes its leading position in the Indian automobile industry to its strong
focus on indigenisation Their manufacturing plants are situated at Jamshedpur in the
East Pune in the West and Lucknow in the North
Charts showing Key Statistics of tata motors
37
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Share holding pattern as on 31-Mar
shareholding pattern
34
1425
17
10
promotors
MF Banks Fis
FIIs
Others
Public
Financial highlights
38
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
39
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
RATIO ANALYSIS
Ratios 2006 2005 2004
Debtequity 056 049 044
Current ratio 108 087 076
Operating profit margin 1211 1151 1238
Gross profit margin 1087 1043 1104
ROCE 3125 3276 3377
total assets turnover ratio 315 353 343
ROE 2761 3009 2257
Dividend-equity 49794 45373 28211
Retention Ratio 6743 6332 6519
DPS (Rs) 1301 125 799
EPS (Rs) 25 34 41
Dividend Payout Ratio 039 042 037
CAGR of EPS 0177
CAGR of Dividend Payout Ratio -0017
Average ROE 2574
average retention 6354
Growth (g = Avg RR times Avg ROE ) 1636
Market return 1454
40
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
PE ratio (on the basis of historical analysis) = 1812
Therefore the Weighted PE ratio =(1812+2424)2 = 21181
Projected EPS = EPS OF 2006 + CAGR of EPSEPS OF 2006
= Rs48271
Value of Share at the end of financial year 06-07
= Projected EPS Weighted PE Ratio
= Rs1022
2) HPCL
Globalization and the Indian Petroleum Industry
Indian petroleum industry in the post independent period (1947-2001) it may be divided
into three distinct phases
(i) early phase (1947 to 1969)- when the government consolidated its control over
the industry with Soviet assistance
(ii) development phase (1970 to 1989)- in this period the US companies played
dominant role replacing the Soviets and
41
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
(iii) the economic liberalisation phase of 1990s
PORTERrsquoS MODEL
SWOT ANALYSIS
STRENGHS
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
WEAKNESSES
Dependence on refining function high
Moderate share in high profitable retail segment
42
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Diversifications in petrochemicals could trouble the company
High burden of subsidy loss on cooking gas and kerosene
OPPORTUNITIES
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
Overseas presence in upstream and downstream will determine growth
THREATS
Rising oil prices could dampen demand
High regulatory risk
Loss of market share to private players
Entrance of private players in pipelines will take away monopoly of company in
north India
COMPANY ANALYSIS
The Annual Report is broken down into the following specific parts
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the AccountsATHE DIRECTORrsquoS REPORTThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship Fundamental AnalysisB THE AUDITORS REPORTThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors
C FINANCIAL STATEMENTSIt comprises of Balance Sheet Profit and Loss account Cash Flows Its analysis would be discussed later
DSCHEDULES
43
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The schedules detail pertinent information about the items of Balance Sheet and Profit amp Loss Account It also details information about sales manufacturing costs administration costs interest and other income and expenses
1 THE MANAGEMENT
HPCL is a public sector undertaking Thus it is a professionally managed company
There are some parameters of management on which a company is analysed
a integrity of management
b past record of management
c how highly is the management rated by its peers in the same industry
d how the management fares in adversity
e the depth of the knowledge of management
f open and innovative management
on all these parameters HPCL scores good
2 COMPANY
Many times a company has made losses in the previous years but that does not mean
that the company is bad to invest Thus many factors are studied while studying a
company
a) perception of competitors
HPCL is the second largest petroleum company after IOCL Thus it is a competitor of
IOCL and it is trying hard to compete with IOCL on every front That is why now it
has decided to diversify itself in the oil exploration sector
b) company policies
As this is a PSU thus the policies are made by the government The oil sector is one
which is highly regulated by government Thus from time to time it is required to
watch out the various policies changed
3 ANNUAL REPORT
The most primary and most important source of information about a company is its
Annual Report This is prepared every year and distributed to its shareholders
44
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Ratio Analysis
Evaluation of Intrinsic Value of the Security
stdev mkt 0011934stdev sec 003831 Average
Retention Ratio 060504
correlation 0485958 ROE 019842Beta 156765 g 0120052Risk Free Rate 650
Mkt Rate 14
45
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
k 1826
Hence we see that here our g is less than k Thus we see that as per Dividend Discount Model our Intrinsic value is div=22(1+012)=240626= 387
Price= Projected EPS + Weighted PE ratioUsing CAGR EPS = 43468Weighted PE Ratio = 75+6652=33625
Price = 43468+33625 = 381
3) HDFC BANK
The Indian banking industry sector overview
With the economic growth picking up pace and the investment cycle on the way to recovery the banking sector has witnessed a transformation in its vital role of intermediating between the demand and supply of funds
Public sector banks have been very proactive in their restructuring initiatives be it in technology implementation or pruning their loss assets Windfall treasury gains made in the falling interest rate regime were used for writing off the doubtful and loss assets
Retail lending (especially mortgage financing) formed a significant portion of the portfolio for most banks and they customized their products to cater to the diverse demands
Apart from streamlining their processes through technology initiatives such as ATMs telephone banking online banking and web based products banks also resorted to cross selling of financial products such as credit cards mutual funds and insurance policies to augment their fee based income
PORTERrsquoS FIVE FORCES MODEL FOR THE BANKING INDUSTRY
1) BARRIERS TO ENTRY a Economies of scale Since the existing players in the market are well
established and already have a customer base they are able to bear the cost of using the advantages of technology to their maximum advantage
46
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Capital requirement for entry i The Banking Regulation Act prescribes the minimum capital
requirements for a bank Moreover banks have to maintain a capital adequacy ratio of 9 under the Basel I norms
ii Government has declared that the foreign banks will be permitted to establish their presence in India by way of setting up a wholly owned banking subsidiary (WOS) with a minimum capital of Rs300 crore
c Access to distribution channels Since banks have to set up their own distribution channels all the cost has to be directly born by them
d Cost advantage independent of size Existing banks have huge databases of customers which they use when they want to sell a new product launched by them
e Legislation or Government action Banks are governed by Banking Regulation Act 1949 which specifies the rules and regulations applicable to banks RBI is the governing body of banks in India
2) BARGAINING POWER OF BUYERS
Due to increased competition the services offered by banks to customers have improved considerably
3) BARGAINING POWER OF THE SUPPLIERS
Suppliers to banks can be both - the customers and RBIa Customers of banks provide money to banks in the form of deposits and in
return earn some interest on that b RBI acts as a supplier to banks by selling govt securities treasury bills
govt bonds etc c Call money market Banks sometimes have to borrow from other banks to
meet CRR and SLR requirements or other capital requirements as provided by RBI
4) THREAT OF SUBSTITUTES
a Product-for-product substitutioni Banks provide interest on deposits made by people Similar
services are offered by post offices which may act as substitutes to the deposit schemes of banks
ii Some banks offer locker services to customers for yearly rates Similar services are provided by many post offices
47
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Generic substitution People who deposit their savings in banks can invest their money in other sources like mutual funds shares and other securities and life insurance schemes
5) COMPETITIVE RIVALRY
a Extent of competitor balance b Market growth ratesc High Exit Barriers
PEST Analysis for Banking Industry
1 Political factors - The major factors affecting the banking sector are the following
Banking sector reforms ndash As per the RBI roadmap for reforms in the first stage from 2005 to 2009 foreign banks will be allowed to set up wholly owned subsidiaries as well as get greater freedom to set up new branches Fulfilling the minimum priority sector credit -The government mandation of fulfilling the minimum priority sector credit (of which 18 per cent is food credit) has forced the domestic banks to cater to this segment despite the low profitability and vulnerability of asset quality
Banks have also been allowed to set up Offshore Banking Units in SEZrsquos
2 Economic factors -
Basell II norms for the risk management in banking sector - The new Basel Accord has its foundation on three mutually reinforcing pillars The first pillar is compatible with the credit risk market risk and operational risk The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bankConcurrently it also casts responsibility on the supervisors to review and validate banksrsquo risk measurement models
Consolidation and merger and acquisitions in the banking sector- HDFC bank also acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Universal Banking has been introduced ICICI Bank HDFCs closest competitor is already into Universal Banking so HDFC is also getting into it as now it is providing retail banking and also depository facilities in the form of demat account
48
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
3 Social factors-
Big and growing middle class in India - This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans car loans education loans auto loans etc Retail loans have grown from 19 in FYrsquo99 to 51 FYrsquo06Consumer credit accounts for a meager 286 per cent of the countrys GDP and the buoyancy in the economy offers sufficient scope for it to grow
Geographical and Cultural diversity- This is leading to a greater demand for financial products and customization by the customers
4 Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999 It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector
Banks (All) No of players = 40
Sector statistics
We see the sector aggregates and make a financial comparison for the major banks
Top PlayersFY2006
Based on Total Income Based on OPBDT Total Income Change OPBDT Change
(Rs Mn) () (Rs Mn) ()ICICI BANK 631619 5450 S B I 763528 -129 PUNJAB NATIONAL B 29218 1491 ICICI BANK 37174 1936
CAN BANK 277095 2378 PUNJAB NATIONAL B 222052 3936
BANK OF INDIA 23317 2543 CAN BANK 168825 1953
H D F C BANK 185508 6024 H D F C BANK 14324 2748 change - indicates the change between current and corresponding quarter
49
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7 Glossary 77
8 References and Bibliography 80
3
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER- 1
INTRODUCTION
11 INTRODUCTION
4
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Investing like marriage isnt something that should be entered into lightly You wouldnt
get married on a first date would you Ok maybe some of us would but thats not really
very Foolish Before we marry er I mean invest in a company there are more than a
few things we need to know about it
Securities Analysis
An analysis of securities and the organization and operation of their markets The determination of the risk reward structure of equity and debt securities and their valuation Special emphasis on common stocks Other topics include options mutual fluids and technical analysis
Technical analysis is a method of predicting price movements and future market trends by studying charts of past market action which take into account price of instruments volume of trading and where applicable open interest in the instruments
Fundamental analysis is a method of forecasting the future price movements of a financial instrument based on economic political environmental and other relevant factors and statistics that will affect the basic supply and demand of whatever underlies the financial instrument
Main differences between the two types of analysis
Fundamental analysis Technical analysis
Focuses on what ought to happen in a market
Focuses on what actually happens in a market
Factors involved in price analysis
1 Supply and demand 2 Seasonal cycles 3 Weather 4 Government policy
Charts are based on market action involving
1 Price2 Volume3 Open interest (futures only)
12 RATIONALE FOR THE STUDY
5
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
In an industry plagued with skepticism and a stock market increasingly difficult to predict
and contend with if one looks hard enough there may still be a genuine aid for the Day
Trader and Short Term Investor
The price of a security represents a consensus It is the price at which one person agrees
to buy and another agrees to sell The price at which an investor is willing to buy or sell
depends primarily on his expectations If he expects the securitys price to rise he will
buy it if the investor expects the price to fall he will sell it These simple statements are
the cause of a major challenge in forecasting security prices because they refer to human
expectations As we all know firsthand humans expectations are neither easily
quantifiable nor predictable
If prices are based on investor expectations then knowing what a security should sell for
(ie fundamental analysis) becomes less important than knowing what other investors
expect it to sell for Thats not to say that knowing what a security should sell for isnt
important--it is But there is usually a fairly strong consensus of a stocks future earnings
that the average investor cannot disprove
Fundamental analysis and technical analysis can co-exist in peace and complement each other Since
all the investors in the stock market want to make the maximum profits possible they just cannot
afford to ignore either fundamental or technical analysis
13 OBJECTIVES OF THE STUDY
Primary Objective a) To do technical and fundamental analysis of chosen securities
Sub-Objectives
a) to study the various theories of technical analysis and fundamental analysis
b) understand the movement and performance of stocks
c) understanding and analyzing the factors that affect the movement of stock
prices in the Indian Stock Markets
6
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
14 RESEARCH METHODOLOGY amp DESIGN
TYPE OF STUDY
The research has been based on secondary data analysis The study has been exploratory
as it aims at examining the secondary data for analyzing the previous researches that have
been done in the area of technical and fundamental analysis of stocks The knowledge
thus gained from this preliminary study forms the basis for the further detailed
Descriptive research In the exploratory study the various technical indicators that are
important for analyzing stock were actually identified and important ones short listed
SAMPLE DESIGN
The sample of the stocks for the purpose of collecting secondary data has been selected
on the basis of Random Sampling The stocks are chosen in an unbiased manner and each
stock is chosen independent of the other stocks chosen
SAMPLE SIZE
The sample size for the number of stocks is taken as 10 for technical analysis and 4 for
fundamental analysis of stocks as fundamental analysis is very exhaustive and requires
detailed study
7
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER- 2
TECHNICAL ANALYSIS
A CONCEPTUAL OVERVIEW
TECHNICAL ANALYSIS
Technical analysis can be conditionally divided into some main parts such as
8
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Types of charts Graphical methods Analytical methods Technical indicators
Technical analysis is concerned with predicting future price trends from historical price and volume data The underlying axiom of technical analysis is that all fundamentals (including expectations) are factored into the market and are reflected in exchange rates
A technical analysis is based on three axioms
Movement of the market considers everything Movement of prices is purposeful History repeats itself
SUPPORT AND RESISTANCE
Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
Resistance on the other hand is the point at which sellers (bears) take control of prices and prevent them from rising higher The price at which a trade takes place is the price at which a bull and bear agree to do business It represents the consensus of their expectations
9
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Support levels indicate the price where the most of investors believe that prices will move higher Resistance levels indicate the price at which the most of investors feel prices will move lower
Role Reversal
When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
31 DOW THEORYndash TRENDS
The ideas of Charles Dow the first editor of the Wall Street Journal form the basis of technical analysis The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages Dow created the Industrial Average of top blue chip stocks and a second average of top railroad stocks (now the Transport Average) He believed that the behavior of the averages reflected the hopes and fears of the entire market The behavior patterns that he observed apply to markets throughout the world
Three Movements
Markets fluctuate in more than one time frame at the same time
10
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Nothing is more certain than that the market has three well defined movements which fit into each other
The first is the daily variation due to local causes and the balance of buying and
selling at that particular time
The secondary movement covers a period ranging from ten days to sixty days
averaging probably between thirty and forty days
The third move is the great swing covering from four to six years
Bull markets are broad upward movements of the market that may last several
years interrupted by secondary reactions Bear markets are long declines
interrupted by secondary rallies These movements are referred to as the primary
trend
Secondary movements normally retrace from one third to two thirds of the
primary trend since the previous secondary movement
Daily fluctuations are important for short-term trading but are unimportant in
analysis of broad market movements
Various cycles have subsequently been identified within these broad categories
Primary Movements have Three Phases
The general conditions in the market
Bull markets
Bull markets commence with reviving confidence as business conditions improve
Prices rise as the market responds to improved earnings
11
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Rampant speculation dominates the market and price advances are based on hopes and
expectations rather than actual results
Bear markets
Bear markets start with abandonment of the hopes and expectations that sustained
inflated prices
Prices decline in response to disappointing earnings
Distress selling follows as speculators attempt to close out their positions and
securities are sold without regard to their true value
Ranging Markets
A secondary reaction may take the form of a lsquolinersquo which may endure for several weeks Price fluctuates within a narrow range of about five per cent
Breakouts from a range can occur in either direction
Advances above the upper limit of the line signal accumulation and higher prices
Declines below the lower limit indicate distribution and lower prices
Volume is used to confirm price breakouts
Trends
Bull Trends
A bull trend is identified by a series of rallies where each rally exceeds the highest point of the previous rally The decline between rallies ends above the lowest point of the previous decline
Successive higher highs and higher lows
12
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
Start = higher Low + break above previous High
The end is signaled by a lower high (peak) followed by a decline below the previous low (trough)
End = lower High + break below previous Low
A bear trend starts at the end of a bull trend when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
Large Corrections
A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
13
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A bull trend starts when price rallies above the previous high
A bull trend ends when price declines below the previous low
A bear trend starts at the end of a bull trend (and vice versa)
32 ELLIOT WAVES THEORY BASICS
TRENDLINES
Breaking through support or resistance levels results in a change of tradersrsquo expectations (which causes supplydemand lines to shift)
14
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
An Uptrend is defined by successively higher low-prices A rising trend can be thought of as a rising support level the bulls are in control and are pushing prices higher A Downtrend is defined by successively lower high-prices A falling trend can be thought of as a falling resistance level the bears are in control and are pushing prices lower
33 MOVING AVERAGES
Moving averages are one of the oldest and most popular technical analysis tools A moving average is the average price of a financial instrument over a given time
The moving average represents the consensus of investorrsquos expectations over the indicated period of time
The classic interpretation of a moving average is to use it in observing changes in prices Investors typically buy when the price of an instrument rises above its moving average and sell when the it falls below its moving average
TECHNICAL INDICATORS
There is a vast number of elaborated technical indicators
15
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
MOVING AVERAGE ndashMA
RELATIVE STRENGTH INDEX mdash RSI The Relative Strength Index Technical Indicator (RSI) is a price-following oscillator that ranges between 0 and 100 When Wilder introduced the Relative Strength Index he recommended using a 14-day RSI Since then the 9-day and 25-day Relative Strength Index indicators have also gained popularity
ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the cumulative difference between advancing and declining issues
CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that closed on an uptick and those that closed on a downtick
CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading volume in declining issues to average trading volume in advancing issues
Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 shares HI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price CANDLESTICK CHART A candlestick chart is an extended version of the hi-lo-close
chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation When the stock price ldquopierces the necklinerdquo after the right shoulder is finished itrsquos time to sell
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins A win by the National Football Conference is bullish
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
16
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER- 3
FUNDAMENTAL ANALYSIS
A CONCEPTUAL OVERVIEW
17
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Fundamental analysis refers to the study of the core underlying elements that influence the economy of a particular entity It is a method of study that attempts to predict price action and market trends by analyzing economic indicators government policy and societal factors (to name just a few elements) within a business cycle framework
I ECONOMIC ANALYSIS
POLITICO-ECONOMIC ANALYSIS No industry or company can exist in isolation It may have splendid managers and a tremendous product However its sales and its costs are affected by factors some of which are beyond its control - the world economy price inflation taxes and a host of others It is important therefore to have an appreciation of the politico-economic factors that affect an industry and a company
The political equationA stable political environment is necessary for steady balanced growth If a country is ruled by a stable government which takes decisions for the long-term development of the country industry and companies will prosper Foreign Exchange ReservesA country needs foreign exchange reserves to meet its commitments pay for its imports and service foreign debts
Foreign Exchange RiskThis is a real risk and one must be cognizant of the effect of a revaluation or devaluation of the currency either in the home country or in the country the company deals in
Restrictive PracticesRestrictive practices or cartels imposed by countries can affect companies and industries crystallizing the exposure
Foreign Debt and the Balance of TradeForeign debt especially if it is very large can be a tremendous burden on an economy India pays around $ 5 billion a year in principal repayments and interest payments InflationInflation has an enormous effect in the economy Within the country it erodes purchasing power As a consequence demand falls If the rate of inflation in the country from which a company imports is high then the cost of production in that country will automatically go up
The Threat of NationalizationThe threat of nationalization is a real threat in many countries ndash the fear that a company may become nationalized
Interest Rates
18
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A low interest rate stimulates investment and industry Conversely high interest rates result in higher cost of production and lower consumption
TaxationThe level of taxation in a country has a direct effect on the economy If tax rates are low people have more disposable income
Government PolicyGovernment policy has a direct impact on the economy A government that is perceived to be proindustry will attract investment
THE ECONOMIC CYCLE
It affects investment decisions employment demand and the profitability of companiesThe four stages of an economic cycle are DepressionRecoveryBoom Recession DepressionAt the time of depression demand is low and falling Inflation is high and so are interest rates Companies crippled by high borrowing and falling sales are forced to curtail production close down plants built at times of higher demand and let workers go
RecoveryDuring this phase the economy begins to recover Investment begins anew and the demand grows Companies begin to post profits Conspicuous spending begins once again
BoomIn the boom phase demand reaches an all time high Investment is also high Interest rates are low Gradually as time goes on supply begins to exceed the demand Prices that had been rising begin to stabilize and even fall There is an increase in demand Then as the boom period matures prices begin to rise again
RecessionThe economy slowly begins to downturn Demand starts falling Interest rates and inflation are high Companies start finding it difficult to sell their goods The economy slowly begins to downturn
19
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II INDUSTRY ANALYSIS
The importance of industry analysis is now dawning on the Indian investor as never before
CycleThe first step in industry is to determine the cycle it is in or the stage of maturity of the industry All industries evolve through the following stages1 Entrepreneurial sunrise or nascent stage2 Expansion or growth stage3 Stabilization stagnation or maturity stage and4 Decline or sunset stage to properly establish itself In the early days it may actually make losses
The Entrepreneurial or Nascent StageAt the first stage the industry is new and it can take some time for it to properly establish itself
The Expansion or Growth StageOnce the industry has established itself it enters a growth stage As the industry grows many new companies enter the industry
The Stabilization or Maturity StageAfter the halcyon days of growth an industry matures and stabilizes Rewards are low and so too is the risk Growth is moderate Though sales may increase they do so at a
20
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
slower rate than before Products are more standardized and less innovative and there are several competitors
The Decline or Sunset StageFinally the industry declines This occurs when its products are no longer popular This may be on account of several factors such as a change in social habits The film and video industries
1 BARRIER TO ENTRYNew entrants increase the capacity in an industry and the inflow of funds The question that arises is how easy is it to enter an industry There are some barriers to entry
a) Economies of scaleb) Product differentiation c) Capital requirementd) Switching costse) Access to distribution channelsf) Cost disadvantages independent of scaleg) Government policyh) Expected retaliationj) International cartels
2 THE THREAT OF SUBSTITUTIONNew inventions are always taking place and new and better products replace existing ones An industry that can be replaced by substitutes or is threatened by substitutes is normally an industry one must be careful of investing in An industry where this occurs constantly is the packaging industry -bottles replaced by cans cans replaced by plastic bottles and the like To ward off the threat of substitution companies often have to spend large sums of money in advertising and promotion
3 BARGAINING POWER OF THE BUYERSIn an industry where buyers have control ie in a buyers market buyers are constantly forcing prices down demanding better services or higher quality and this often erodes profitability The factors one should check are whether a) A particular buyer buys most of the products (large purchase volumes) If such buyers withdraw their patronage they can destroy an industry They can also force prices downb) Buyers can play one company against another to bring prices down
4 BARGAINING POWER FOR THE SUPPLIERSAn industry unduly controlled by its suppliers is also under threat This occurs whena) The suppliers have a monopoly or if there are few suppliersb) Suppliers control an essential c) Demand for the product exceeds d) The supplier supplies to various industriese) The switching costs are high
21
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
f) The suppliers product does not have a substituteg) The suppliers product is an important input for the buyersh) The buyer is not important to the supplieri) The suppliers product is unique
5 RIVALRY AMONG COMPETITORSRivalry among competitors can cause an industry great harm This occurs mainly by price cuts heavy advertising additional high cost services or offers and the like This rivalry occurs mainly whena) There are many competitors and supply exceeds demand Companies resort to price cuts and advertise heavily in order to attract customers for their goodsb) The industry growth is slow and companies are competing with each other for a greater market sharec) The economy is in a recession and companies cut the price of their products and offer better service to stimulate demandd) There is lack of differentiation between the product of one company and that of another In such cases the buyer makes his choice on the basis of price or servicee) In some industries economies of scale will necessitate large additions to existing capacities in a company The increase in production could result in over capacity amp price cuttingf) Competitors may have very different strategies in selling their goods and in competing they may be continuously trying to stay ahead
III COMPANY ANALYSIS
At the final stage of fundamental analysis the investor analyzes the company This analysis has two thrustsHow has the company performed vis-agrave-vis other similar companies and How has the company performed in comparison to earlier years It is imperative that one completes the politico economic analysis and the industry analysis before a company is analyzed because the companys performance at a period of time is to an extent a reflection of the economy the political situation and the industry What does one look at when analyzing a company The different issues regarding a company that should be examined are The Management The Company The Annual Report Ratios Cash flow
THE MANAGEMENT
The single most important factor one should consider when investing in a company and one often never considered is its management In India management can be broadly
22
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
divided in two types Family Management Professional Management
THE COMPANY
An aspect not necessarily examined during an analysis of fundamentals is the company A company may have made losses consecutively for two years or more and one may not wish to touch its shares - yet it may be a good company and worth purchasing into There are several factors one should look at
1 How a company is perceived by its competitorsOne of the key factors to ascertain is how a company is perceived by its competitors It is held in high regard Its management may be known for its maturity vision competence and aggressiveness The investor must ascertain the reason and then determine whetherthe reason will continue into the foreseeable future
2 Whether the company is the market leader in its products or in its segmentAnother aspect that should be ascertained is whether the company is the market leader in its products or in its segment When you invest in market leaders the risk is less Theshares of market leaders do not fall as quickly as those of other companies There is a magic to their name that would make individuals prefer to buy their products as opposed to others
3 Company PoliciesThe policy a company follows is also important What is its plans for growth What is its vision Every company has a life If it is allowed to live a normal life it will grow upto a point and then begin to level out and eventually die It is at the point of leveling out that it must be given new life This can give it renewed vigour and a new lease of life
4 Labour RelationsLabour relations are extremely important A company that has motivated industrious work force has high productivity and practically no disruption of work On the other hand a company that has bad industrial relations will lose several hundred mandays as a consequence of strikes and go slows
5 Where the company is located and where its factories are One must also consider where the companies Plants and Factories are located
THE ANNUAL REPORT
The primary and most important source of information about a company is its Annual Report By law this is prepared every year and distributed to the shareholders Annual Reports are usually very well presented A tremendous amount of data is given about the performance of a company over a period of time The Annual Report is broken down into the following specific parts
23
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the Accounts
A The Directorrsquos ReportThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship 1 It enunciates the opinion of the directors on the state of the economy and the political situation vis-agrave-vis the company 2 Explains the performance and the financial results of the company in the period under review This is an extremely important part The results and operations of the various separate divisions are usually detailed and investors can determine the reasons for their good or bad performance3 The Directorrsquos Report details the companys plans for modernization expansion and diversification Without these a company will remain static and eventually decline4 Discusses the profit earned in the period under review and the dividend Recommended by the directors This paragraph should normally be read with some skepticism as the directors will always argue that the performance was satisfactory If adverse economic conditions are usually at fault 5 Elaborates on the directors views of the companys prospects in the future6 Discusses plans for new acquisition and investments An investor must intelligently evaluate the issues raised in a Directorrsquos Report Industry conditions and the managements knowledge of the business must be considered
B The Auditors ReportThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors Auditors are required to report whether the financial statements presented do in fact present a true and fair view of the state of the company Investors must remember that the auditors are their representatives and that they are required by law to point out if the financial statements are not true and fair
CFinancial StatementsThe published financial statements of a company in an Annual Report consist of its Balance Sheet as at the end of the accounting period detailing the financing condition of the company at that date and the Profit and Loss Account or Income Statement summarizing the activities of the company for the accounting period
BALANCE SHEETThe Balance Sheet details the financial position of a company on a particular date of the companys assets (that which the company owns) and liabilities (that which the companyowes) grouped logically under specific heads It must however be noted that the Balance Sheet details the financial position on a particular day and that the position can be materially different on the next day or the day after
24
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOURCES OF FUNDSSHAREHOLDERS FUNDSSHARE CAPITAL(i) Private Placement(ii) Public Issueiii) Rights issuesRESERVESi) Capital Reservesii) Revenue ReservesLOAN FUNDSi) Secured loansii) Unsecured loansFIXED ASSETSINVESTMENTSSTOCK OR INVENTORIESi) Raw materialsii) Work in progressiii) Finished goodsCASH AND BANK BALANCESLOANS AND ADVANCES
PROFIT AND LOSS ACCOUNTThe Profit and Loss account summarizes the activities of a company during an accounting period which may be a month a quarter six months a year or longer and the result achieved by the company It details the income earned by the company its cost and the resulting profit or loss It is in effect the performance appraisal not only of the company but also of its management- its competence foresight and ability to lead
RATIOS
Ratios express mathematically the relationship between performance figures andor assetsliabilities in a form that can be easily understood and interpretedNo single ratio tells the complete storyRatios can be broken down into four broad categories
(A) Profit and Loss RatiosThese show the relationship between two items or groups of items in a profit and loss account or income statement The more common of these ratios are1 Sales to cost of goods sold2 Selling expenses to sales3 Net profit to sales and4 Gross profit to sales
(B) Balance Sheet RatiosThese deal with the relationship in the balance sheet such as 1 Shareholders equity to borrowed funds
25
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
2 Current assets to current liabilities3 Liabilities to net worth4 Debt to assets and5 Liabilities to assets
(C) Balance Sheet and Profit and Loss Account RatiosThese relate an item on the balance sheet to another in the profit and loss account such as1 Earnings to shareholders funds2 Net income to assets employed3 Sales to stock4 Sales to debtors and5 Cost of goods sold to creditors
(D) Financial Statements and Market RatiosThese are normally known as market ratios and are arrived at by relative financial figures to market prices1 Market value to earnings and2 Book value to market value(a) Market value(b) Earnings(c) Profitability(d) Liquidity(e) Leverage(f) Debt Service Capacity(g) Asset ManagementEfficiency(h) Margins
The major ratios that are considered(i) Market value(ii) Price- earnings ratio(iii) Market-to-book ratio(iv) Earnings(v) Earning per share(vi) Dividend per share(vii) Dividend payout ratio(viii) Leverage ratios(ix) Return on investmentstotal assets
CASH FLOW A statement of sources and uses begins with the profit for the year to which are added the increases in liability accounts (sources) and from which are reduced the increases in asset accounts (uses) The net result shows whether there has been an excess or deficit of funds and how this was financed Investors must examine a companys cash flow as it reveals exactly where the money came from how it was utilized Investors must be
26
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
concerned if a company is financing either its inventories or paying dividends from borrowings without real growth as that shows deterioration
27
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-4 ANALYSIS
28
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
I FUNDAMENTAL ANALYSIS OF STOCKS
Basically fundamental analysis is covered in 3 parts
1 Market economy analysis
2 Industry Analysis
3 Company Analysis
1) TATA MOTORS
I Market Economy Analysis
It covers the macro economy analysis and the various macro economic factors on the national level like GDP Monetary policies of India Fiscal Policies and Inflation and money supply etc
GDP
Real GDP growth accelerated from 75 per cent during 2004-05 to 84 per cent during
2005-06 on the back of buoyant manufacturing and services activity supported by a
recovery in the agricultural sector Real GDP growth has thus averaged over eight per
cent during the last three years and over seven per cent in the first four years (2002-03 to
2005-06) of the Tenth Five Year Plan
Strengths of India today are
A well diversified industrial base which profits from self-reliance in all core industries A
large amp sophisticated financial architecture - The robust capital Markets today have over
9000 listed companies and boast of a massive Market capitalization
A healthy GDP composition with agriculture contributing 22 Industry 22 and
services which have gone strength to strength accounting For 56 of the GDP an
29
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
acknowledged strength in knowledge driven industries like Information technology
biotechnology entertainment Software etc
India has Over 3 million scientific amp technical manpower Over 06 million SampT post
graduates Over 07 million graduate engineers Over 3500 doctorates in sciences every
year
Assuming trend growth in agriculture under normal monsoon conditions and barring
domestic or external shocks the Reserve Bank in its Annual Policy Statement for 2007-
08 (April 2007) placed real GDP growth for policy purposes in the range of 75-80 per
cent during 2007-08 Growth prospects are however subject to a number of downside
risks The risks emanating from the global economy are potential escalation and
volatility in international crude oil prices firming up of overall inflationary pressures and
expectations and a hardening of international interest rates along with the withdrawal of
monetary accommodation
Indiarsquos demographic advantage ndash In contrast to developed Countries India will have a
younger population for the next 50 years Hence India would be the hub for RampD
Inflation
Inflation was contained to 63 per cent by end-March 2007 within the indicative
trajectory of 50-55 per cent during 2007-08 The actual inflation was considerably lower
than the indicative trajectory and this could be mainly attributed to the deferred pass-
through of even the cognisable permanent component of international crude oil prices
Money Supply
Monetary and liquidity conditions remained largely comfortable during 2006-07reflecting
proactive liquidity management operations by the Reserve Bank under the liquidity
adjustment facility flexible management of issuances under the market stabilisation
scheme and some private placement of Government securities
30
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
In short the Indian economy is exhibiting strong fundamentals and displaying
considerable resilience At the same time there are continuing signs of demand pressures
especially high credit growth that could exert upward pressure on prices when associated
with supply shocks such as from oil These pressures have the potential for impacting
stability and inflation expectations While domestic developments continue to dominate
the economy global factors tend to gain more attention now than before The global
outlook for growth is positive but downside risks in regard to inflation also RBI is
applying new repo and reverse repo for the balance of inflation and monetary policies
The following are macroeconomic policies generally found as part of government-
directed industrial auto policies
(a) Restrictions on domestic and foreign investment
(b) Domestic content requirements
(c) High tariff walls
(d) Auto export requirements
(e) National production to sales ratios
(f) Distribution controls
(g) Quotas and licensing requirements that significantly restrict imports
(h) Government approval for product related decisions including vehicle make
body type engine size etc
(i) Special government categories for auto taxes
II INDUSTRY ANALYSIS
Since 1991 opening of the economy has changed the face of auto industry Today it is
amongst the main drivers of growth of Indian economy with an output multiplier of
224(for every Re1 invested auto sector gives back Rs224 to the economy) In recent
years we have seen increasing number of global players entering Indian market by way of
Joint ventures collaborations or wholly owned subsidiary
The automobile industry is torn between trying to reduce costs on the one hand and on
the other dealing with the high price of performance-enhancing technology and
environmental compliance Key drivers in the automotive industry are
31
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Reducing air pollution
Reduction of weight
Recyclability
Safety
Better performance and engine efficiency
Aesthetics
Longer service Life
INDUSTRY LIFE CYCLE
The automobile market is at the maturity stage of the life cycle locally and globally due
to an increased number of competitors from domestic and foreign markets The
automobile market is characterized by a low potential for market growth but high sales
and profit potential as the products have still not saturated the market as a whole
MAJOR COMPETITORS OF TATA MOTORS ARE
Maruti Udyog Ltd
General Motors India
Ford India Ltd
Eicher Motors
Bajaj Auto
Hero Motors
Hindustan Motors
32
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Hyundai Motor India Ltd
Royal Enfield Motors
Telco
TVS Motors
FINANCIALS
Description 1 Day PriceChange
MarketCap
PEROE
Div Yield
Long-Term Debt toEquity
Price toBook Value
NetProfit Margin (mrq)
Price toFree Cash Flow (mrq)
Sector Consumer Goods 01125178B
2488
1707
222
1171076
706 40842
Industry Auto Manufacturers - Major (More Info)
0613310B
3000
750171
181 155 160 -440
Companies
Daimlerchrysler AG (DCX) 021 539B1072
1119
350
217 116 469 -354
Ford Motor Co (F) 121 157B NA-951
240
1107
115 -060 -8205
General Motors Corporation (GM) -024 165B NA
-6285
340
390 142 -621 014
Honda Motor Co Ltd (HMC) 083 622B1152
1654
100
083 173 552 20748
Tata Motors Ltd (TTM) -038 71B1864
NA150
NA 535 564 NA
Toyota Motor Corp (TM) 0731756B
1394
1505
120
103 197 659 NA
Opportunities and Threats
a) Opportunities
Road Development The ongoing road development program would improve
connectivity to ports cities and villages through a network of highways and
interconnecting roads by 2010-11 Improved road network would help in faster
33
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
movement of goods between various cities and towns The Company launched TATA
Novus range of vehicles in the heavy segment and TATA ACE for last mile distribution
Car penetration in India Car penetration in India is 7 cars per 1000 persons
International In FY 2006-07 the Company increased share of its overseas vehicle sales
from 76 last year to record high of 111 (as of its total sales) and has planned
further increase in this year
b) Threats
Global Competition India is increasingly attracting global players to set up
manufacturing facility for producing cars especially small cars Global automobile
manufacturers are also entering India in commercial vehicle segment to leverage Indiarsquos
low cost production advantage to their favor
Fuel Prices The continuing fuel price increase in the domestic market could
significantly impact demand of commercial and passenger vehicles
Input costs Commodity items particularly steel non-ferrous metals rubber and
engineering plastics have witnessed huge price increases in the past These prices are
expected to increase further affecting the Companyrsquos profitability
Interest rate hardening and other inflationary trends With interest rates hardening and
liquidity crunch in the system growth in sales may be adversely impacted
Government Regulations Stringent emission and safety requirements could bring new
complexities for automotive and component manufacturers impacting the Companyrsquos
business
Risks and Concerns
Interest Rates FY 2007-08 started with increasing interest rate regime and tightening
liquidity position in the economy Increasing interest rates could further affect vehicle
demand which could have an adverse impact on the Companyrsquos revenues and profits
Exchange rates The Company exports vehicles to many countries and exchange rate
fluctuations in the order execution period could impact the Companyrsquos business
34
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Freight rates In FY 2006-07 freight rates in road transport sector moved up mainly
due to surge in construction activity ongoing road development projects and severe
restriction on over-loading Demand for commercial vehicles could be impacted by
further change in freight rates and change in fuel prices
Domestic market The Company plans to reduce the impact of this cyclicality on its
business by strengthening its less cyclical businesses like buses light trucks small
commercial vehicles
Overseas market In overseas markets the Company competes with global players
which have multiple vehicle platforms large financial capability and global branding
Manufacturing The Company manufactures vehicles at multiple locations and given
the geographical dispersion of its suppliers it faces Logistics Problems
New Competition Competitive activity is expected to increase in commercial vehicle
and passenger vehicle domestic market in coming years
New projects The Company currently is in midst of executing many new projects
ranging from launch of new car platforms to development of new Truck models
III Company Analysis
Key Highlights
Symbol TTL
Sector Consumer Goods
Industry Auto Manufacturers Major
Market Cap Rs29232 crores
Data Since 1945
Last close Rs 74290
Brief Summary of the company
35
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Tata Motors is one of the largest companies in the Tata Group with a total income of US$
235 billion More than 3 million Tata vehicles ply on Indian roads making Tata a
dominant force in the Indian automobile industry
Joint Venture with Fiat and Hitachi
Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing
passenger vehicles engines and transmissions for both domestic and international
markets The Company has also entered into a JV with Hitachi to set up a new plant in
Kharagpur
Product Mix
Tata Motors is Indias only fully integrated automobile manufacturer with a portfolio that
covers trucks buses utility vehicles and passenger cars It would be no exaggeration to
say that Tata Motors provides the wheels for Indias growth
Segmental Overview
Commercial Vehicle Segment
The Company registered 696 volume growth in the domestic CV segment during
4QFY06 from 37228 units in Q3FY05 to 63082 units in Q3FY06 The market share in
this segment was 658 in Q4FY06 as compared to 552 in Q1FY06 The MHCV
goods-carrier segment registered a 544 growth YoY with sale of 33515 units and a
market share of 645 up by around 410 bps driven by infrastructure development and
increase in international trade
Passenger Vehicle Segment
The Company reported a growth of 212 YoY to 49907 vehicles in the domestic
passenger vehicle segment and a market share of 162 in the quarter The passenger
vehicle industry registered a volume growth of 204 during Q4FY06
36
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Plants
Tata Motors owes its leading position in the Indian automobile industry to its strong
focus on indigenisation Their manufacturing plants are situated at Jamshedpur in the
East Pune in the West and Lucknow in the North
Charts showing Key Statistics of tata motors
37
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Share holding pattern as on 31-Mar
shareholding pattern
34
1425
17
10
promotors
MF Banks Fis
FIIs
Others
Public
Financial highlights
38
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
39
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
RATIO ANALYSIS
Ratios 2006 2005 2004
Debtequity 056 049 044
Current ratio 108 087 076
Operating profit margin 1211 1151 1238
Gross profit margin 1087 1043 1104
ROCE 3125 3276 3377
total assets turnover ratio 315 353 343
ROE 2761 3009 2257
Dividend-equity 49794 45373 28211
Retention Ratio 6743 6332 6519
DPS (Rs) 1301 125 799
EPS (Rs) 25 34 41
Dividend Payout Ratio 039 042 037
CAGR of EPS 0177
CAGR of Dividend Payout Ratio -0017
Average ROE 2574
average retention 6354
Growth (g = Avg RR times Avg ROE ) 1636
Market return 1454
40
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
PE ratio (on the basis of historical analysis) = 1812
Therefore the Weighted PE ratio =(1812+2424)2 = 21181
Projected EPS = EPS OF 2006 + CAGR of EPSEPS OF 2006
= Rs48271
Value of Share at the end of financial year 06-07
= Projected EPS Weighted PE Ratio
= Rs1022
2) HPCL
Globalization and the Indian Petroleum Industry
Indian petroleum industry in the post independent period (1947-2001) it may be divided
into three distinct phases
(i) early phase (1947 to 1969)- when the government consolidated its control over
the industry with Soviet assistance
(ii) development phase (1970 to 1989)- in this period the US companies played
dominant role replacing the Soviets and
41
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
(iii) the economic liberalisation phase of 1990s
PORTERrsquoS MODEL
SWOT ANALYSIS
STRENGHS
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
WEAKNESSES
Dependence on refining function high
Moderate share in high profitable retail segment
42
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Diversifications in petrochemicals could trouble the company
High burden of subsidy loss on cooking gas and kerosene
OPPORTUNITIES
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
Overseas presence in upstream and downstream will determine growth
THREATS
Rising oil prices could dampen demand
High regulatory risk
Loss of market share to private players
Entrance of private players in pipelines will take away monopoly of company in
north India
COMPANY ANALYSIS
The Annual Report is broken down into the following specific parts
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the AccountsATHE DIRECTORrsquoS REPORTThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship Fundamental AnalysisB THE AUDITORS REPORTThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors
C FINANCIAL STATEMENTSIt comprises of Balance Sheet Profit and Loss account Cash Flows Its analysis would be discussed later
DSCHEDULES
43
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The schedules detail pertinent information about the items of Balance Sheet and Profit amp Loss Account It also details information about sales manufacturing costs administration costs interest and other income and expenses
1 THE MANAGEMENT
HPCL is a public sector undertaking Thus it is a professionally managed company
There are some parameters of management on which a company is analysed
a integrity of management
b past record of management
c how highly is the management rated by its peers in the same industry
d how the management fares in adversity
e the depth of the knowledge of management
f open and innovative management
on all these parameters HPCL scores good
2 COMPANY
Many times a company has made losses in the previous years but that does not mean
that the company is bad to invest Thus many factors are studied while studying a
company
a) perception of competitors
HPCL is the second largest petroleum company after IOCL Thus it is a competitor of
IOCL and it is trying hard to compete with IOCL on every front That is why now it
has decided to diversify itself in the oil exploration sector
b) company policies
As this is a PSU thus the policies are made by the government The oil sector is one
which is highly regulated by government Thus from time to time it is required to
watch out the various policies changed
3 ANNUAL REPORT
The most primary and most important source of information about a company is its
Annual Report This is prepared every year and distributed to its shareholders
44
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Ratio Analysis
Evaluation of Intrinsic Value of the Security
stdev mkt 0011934stdev sec 003831 Average
Retention Ratio 060504
correlation 0485958 ROE 019842Beta 156765 g 0120052Risk Free Rate 650
Mkt Rate 14
45
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
k 1826
Hence we see that here our g is less than k Thus we see that as per Dividend Discount Model our Intrinsic value is div=22(1+012)=240626= 387
Price= Projected EPS + Weighted PE ratioUsing CAGR EPS = 43468Weighted PE Ratio = 75+6652=33625
Price = 43468+33625 = 381
3) HDFC BANK
The Indian banking industry sector overview
With the economic growth picking up pace and the investment cycle on the way to recovery the banking sector has witnessed a transformation in its vital role of intermediating between the demand and supply of funds
Public sector banks have been very proactive in their restructuring initiatives be it in technology implementation or pruning their loss assets Windfall treasury gains made in the falling interest rate regime were used for writing off the doubtful and loss assets
Retail lending (especially mortgage financing) formed a significant portion of the portfolio for most banks and they customized their products to cater to the diverse demands
Apart from streamlining their processes through technology initiatives such as ATMs telephone banking online banking and web based products banks also resorted to cross selling of financial products such as credit cards mutual funds and insurance policies to augment their fee based income
PORTERrsquoS FIVE FORCES MODEL FOR THE BANKING INDUSTRY
1) BARRIERS TO ENTRY a Economies of scale Since the existing players in the market are well
established and already have a customer base they are able to bear the cost of using the advantages of technology to their maximum advantage
46
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Capital requirement for entry i The Banking Regulation Act prescribes the minimum capital
requirements for a bank Moreover banks have to maintain a capital adequacy ratio of 9 under the Basel I norms
ii Government has declared that the foreign banks will be permitted to establish their presence in India by way of setting up a wholly owned banking subsidiary (WOS) with a minimum capital of Rs300 crore
c Access to distribution channels Since banks have to set up their own distribution channels all the cost has to be directly born by them
d Cost advantage independent of size Existing banks have huge databases of customers which they use when they want to sell a new product launched by them
e Legislation or Government action Banks are governed by Banking Regulation Act 1949 which specifies the rules and regulations applicable to banks RBI is the governing body of banks in India
2) BARGAINING POWER OF BUYERS
Due to increased competition the services offered by banks to customers have improved considerably
3) BARGAINING POWER OF THE SUPPLIERS
Suppliers to banks can be both - the customers and RBIa Customers of banks provide money to banks in the form of deposits and in
return earn some interest on that b RBI acts as a supplier to banks by selling govt securities treasury bills
govt bonds etc c Call money market Banks sometimes have to borrow from other banks to
meet CRR and SLR requirements or other capital requirements as provided by RBI
4) THREAT OF SUBSTITUTES
a Product-for-product substitutioni Banks provide interest on deposits made by people Similar
services are offered by post offices which may act as substitutes to the deposit schemes of banks
ii Some banks offer locker services to customers for yearly rates Similar services are provided by many post offices
47
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Generic substitution People who deposit their savings in banks can invest their money in other sources like mutual funds shares and other securities and life insurance schemes
5) COMPETITIVE RIVALRY
a Extent of competitor balance b Market growth ratesc High Exit Barriers
PEST Analysis for Banking Industry
1 Political factors - The major factors affecting the banking sector are the following
Banking sector reforms ndash As per the RBI roadmap for reforms in the first stage from 2005 to 2009 foreign banks will be allowed to set up wholly owned subsidiaries as well as get greater freedom to set up new branches Fulfilling the minimum priority sector credit -The government mandation of fulfilling the minimum priority sector credit (of which 18 per cent is food credit) has forced the domestic banks to cater to this segment despite the low profitability and vulnerability of asset quality
Banks have also been allowed to set up Offshore Banking Units in SEZrsquos
2 Economic factors -
Basell II norms for the risk management in banking sector - The new Basel Accord has its foundation on three mutually reinforcing pillars The first pillar is compatible with the credit risk market risk and operational risk The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bankConcurrently it also casts responsibility on the supervisors to review and validate banksrsquo risk measurement models
Consolidation and merger and acquisitions in the banking sector- HDFC bank also acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Universal Banking has been introduced ICICI Bank HDFCs closest competitor is already into Universal Banking so HDFC is also getting into it as now it is providing retail banking and also depository facilities in the form of demat account
48
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
3 Social factors-
Big and growing middle class in India - This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans car loans education loans auto loans etc Retail loans have grown from 19 in FYrsquo99 to 51 FYrsquo06Consumer credit accounts for a meager 286 per cent of the countrys GDP and the buoyancy in the economy offers sufficient scope for it to grow
Geographical and Cultural diversity- This is leading to a greater demand for financial products and customization by the customers
4 Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999 It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector
Banks (All) No of players = 40
Sector statistics
We see the sector aggregates and make a financial comparison for the major banks
Top PlayersFY2006
Based on Total Income Based on OPBDT Total Income Change OPBDT Change
(Rs Mn) () (Rs Mn) ()ICICI BANK 631619 5450 S B I 763528 -129 PUNJAB NATIONAL B 29218 1491 ICICI BANK 37174 1936
CAN BANK 277095 2378 PUNJAB NATIONAL B 222052 3936
BANK OF INDIA 23317 2543 CAN BANK 168825 1953
H D F C BANK 185508 6024 H D F C BANK 14324 2748 change - indicates the change between current and corresponding quarter
49
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER- 1
INTRODUCTION
11 INTRODUCTION
4
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Investing like marriage isnt something that should be entered into lightly You wouldnt
get married on a first date would you Ok maybe some of us would but thats not really
very Foolish Before we marry er I mean invest in a company there are more than a
few things we need to know about it
Securities Analysis
An analysis of securities and the organization and operation of their markets The determination of the risk reward structure of equity and debt securities and their valuation Special emphasis on common stocks Other topics include options mutual fluids and technical analysis
Technical analysis is a method of predicting price movements and future market trends by studying charts of past market action which take into account price of instruments volume of trading and where applicable open interest in the instruments
Fundamental analysis is a method of forecasting the future price movements of a financial instrument based on economic political environmental and other relevant factors and statistics that will affect the basic supply and demand of whatever underlies the financial instrument
Main differences between the two types of analysis
Fundamental analysis Technical analysis
Focuses on what ought to happen in a market
Focuses on what actually happens in a market
Factors involved in price analysis
1 Supply and demand 2 Seasonal cycles 3 Weather 4 Government policy
Charts are based on market action involving
1 Price2 Volume3 Open interest (futures only)
12 RATIONALE FOR THE STUDY
5
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
In an industry plagued with skepticism and a stock market increasingly difficult to predict
and contend with if one looks hard enough there may still be a genuine aid for the Day
Trader and Short Term Investor
The price of a security represents a consensus It is the price at which one person agrees
to buy and another agrees to sell The price at which an investor is willing to buy or sell
depends primarily on his expectations If he expects the securitys price to rise he will
buy it if the investor expects the price to fall he will sell it These simple statements are
the cause of a major challenge in forecasting security prices because they refer to human
expectations As we all know firsthand humans expectations are neither easily
quantifiable nor predictable
If prices are based on investor expectations then knowing what a security should sell for
(ie fundamental analysis) becomes less important than knowing what other investors
expect it to sell for Thats not to say that knowing what a security should sell for isnt
important--it is But there is usually a fairly strong consensus of a stocks future earnings
that the average investor cannot disprove
Fundamental analysis and technical analysis can co-exist in peace and complement each other Since
all the investors in the stock market want to make the maximum profits possible they just cannot
afford to ignore either fundamental or technical analysis
13 OBJECTIVES OF THE STUDY
Primary Objective a) To do technical and fundamental analysis of chosen securities
Sub-Objectives
a) to study the various theories of technical analysis and fundamental analysis
b) understand the movement and performance of stocks
c) understanding and analyzing the factors that affect the movement of stock
prices in the Indian Stock Markets
6
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
14 RESEARCH METHODOLOGY amp DESIGN
TYPE OF STUDY
The research has been based on secondary data analysis The study has been exploratory
as it aims at examining the secondary data for analyzing the previous researches that have
been done in the area of technical and fundamental analysis of stocks The knowledge
thus gained from this preliminary study forms the basis for the further detailed
Descriptive research In the exploratory study the various technical indicators that are
important for analyzing stock were actually identified and important ones short listed
SAMPLE DESIGN
The sample of the stocks for the purpose of collecting secondary data has been selected
on the basis of Random Sampling The stocks are chosen in an unbiased manner and each
stock is chosen independent of the other stocks chosen
SAMPLE SIZE
The sample size for the number of stocks is taken as 10 for technical analysis and 4 for
fundamental analysis of stocks as fundamental analysis is very exhaustive and requires
detailed study
7
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER- 2
TECHNICAL ANALYSIS
A CONCEPTUAL OVERVIEW
TECHNICAL ANALYSIS
Technical analysis can be conditionally divided into some main parts such as
8
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Types of charts Graphical methods Analytical methods Technical indicators
Technical analysis is concerned with predicting future price trends from historical price and volume data The underlying axiom of technical analysis is that all fundamentals (including expectations) are factored into the market and are reflected in exchange rates
A technical analysis is based on three axioms
Movement of the market considers everything Movement of prices is purposeful History repeats itself
SUPPORT AND RESISTANCE
Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
Resistance on the other hand is the point at which sellers (bears) take control of prices and prevent them from rising higher The price at which a trade takes place is the price at which a bull and bear agree to do business It represents the consensus of their expectations
9
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Support levels indicate the price where the most of investors believe that prices will move higher Resistance levels indicate the price at which the most of investors feel prices will move lower
Role Reversal
When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
31 DOW THEORYndash TRENDS
The ideas of Charles Dow the first editor of the Wall Street Journal form the basis of technical analysis The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages Dow created the Industrial Average of top blue chip stocks and a second average of top railroad stocks (now the Transport Average) He believed that the behavior of the averages reflected the hopes and fears of the entire market The behavior patterns that he observed apply to markets throughout the world
Three Movements
Markets fluctuate in more than one time frame at the same time
10
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Nothing is more certain than that the market has three well defined movements which fit into each other
The first is the daily variation due to local causes and the balance of buying and
selling at that particular time
The secondary movement covers a period ranging from ten days to sixty days
averaging probably between thirty and forty days
The third move is the great swing covering from four to six years
Bull markets are broad upward movements of the market that may last several
years interrupted by secondary reactions Bear markets are long declines
interrupted by secondary rallies These movements are referred to as the primary
trend
Secondary movements normally retrace from one third to two thirds of the
primary trend since the previous secondary movement
Daily fluctuations are important for short-term trading but are unimportant in
analysis of broad market movements
Various cycles have subsequently been identified within these broad categories
Primary Movements have Three Phases
The general conditions in the market
Bull markets
Bull markets commence with reviving confidence as business conditions improve
Prices rise as the market responds to improved earnings
11
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Rampant speculation dominates the market and price advances are based on hopes and
expectations rather than actual results
Bear markets
Bear markets start with abandonment of the hopes and expectations that sustained
inflated prices
Prices decline in response to disappointing earnings
Distress selling follows as speculators attempt to close out their positions and
securities are sold without regard to their true value
Ranging Markets
A secondary reaction may take the form of a lsquolinersquo which may endure for several weeks Price fluctuates within a narrow range of about five per cent
Breakouts from a range can occur in either direction
Advances above the upper limit of the line signal accumulation and higher prices
Declines below the lower limit indicate distribution and lower prices
Volume is used to confirm price breakouts
Trends
Bull Trends
A bull trend is identified by a series of rallies where each rally exceeds the highest point of the previous rally The decline between rallies ends above the lowest point of the previous decline
Successive higher highs and higher lows
12
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
Start = higher Low + break above previous High
The end is signaled by a lower high (peak) followed by a decline below the previous low (trough)
End = lower High + break below previous Low
A bear trend starts at the end of a bull trend when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
Large Corrections
A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
13
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A bull trend starts when price rallies above the previous high
A bull trend ends when price declines below the previous low
A bear trend starts at the end of a bull trend (and vice versa)
32 ELLIOT WAVES THEORY BASICS
TRENDLINES
Breaking through support or resistance levels results in a change of tradersrsquo expectations (which causes supplydemand lines to shift)
14
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
An Uptrend is defined by successively higher low-prices A rising trend can be thought of as a rising support level the bulls are in control and are pushing prices higher A Downtrend is defined by successively lower high-prices A falling trend can be thought of as a falling resistance level the bears are in control and are pushing prices lower
33 MOVING AVERAGES
Moving averages are one of the oldest and most popular technical analysis tools A moving average is the average price of a financial instrument over a given time
The moving average represents the consensus of investorrsquos expectations over the indicated period of time
The classic interpretation of a moving average is to use it in observing changes in prices Investors typically buy when the price of an instrument rises above its moving average and sell when the it falls below its moving average
TECHNICAL INDICATORS
There is a vast number of elaborated technical indicators
15
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
MOVING AVERAGE ndashMA
RELATIVE STRENGTH INDEX mdash RSI The Relative Strength Index Technical Indicator (RSI) is a price-following oscillator that ranges between 0 and 100 When Wilder introduced the Relative Strength Index he recommended using a 14-day RSI Since then the 9-day and 25-day Relative Strength Index indicators have also gained popularity
ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the cumulative difference between advancing and declining issues
CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that closed on an uptick and those that closed on a downtick
CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading volume in declining issues to average trading volume in advancing issues
Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 shares HI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price CANDLESTICK CHART A candlestick chart is an extended version of the hi-lo-close
chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation When the stock price ldquopierces the necklinerdquo after the right shoulder is finished itrsquos time to sell
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins A win by the National Football Conference is bullish
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
16
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER- 3
FUNDAMENTAL ANALYSIS
A CONCEPTUAL OVERVIEW
17
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Fundamental analysis refers to the study of the core underlying elements that influence the economy of a particular entity It is a method of study that attempts to predict price action and market trends by analyzing economic indicators government policy and societal factors (to name just a few elements) within a business cycle framework
I ECONOMIC ANALYSIS
POLITICO-ECONOMIC ANALYSIS No industry or company can exist in isolation It may have splendid managers and a tremendous product However its sales and its costs are affected by factors some of which are beyond its control - the world economy price inflation taxes and a host of others It is important therefore to have an appreciation of the politico-economic factors that affect an industry and a company
The political equationA stable political environment is necessary for steady balanced growth If a country is ruled by a stable government which takes decisions for the long-term development of the country industry and companies will prosper Foreign Exchange ReservesA country needs foreign exchange reserves to meet its commitments pay for its imports and service foreign debts
Foreign Exchange RiskThis is a real risk and one must be cognizant of the effect of a revaluation or devaluation of the currency either in the home country or in the country the company deals in
Restrictive PracticesRestrictive practices or cartels imposed by countries can affect companies and industries crystallizing the exposure
Foreign Debt and the Balance of TradeForeign debt especially if it is very large can be a tremendous burden on an economy India pays around $ 5 billion a year in principal repayments and interest payments InflationInflation has an enormous effect in the economy Within the country it erodes purchasing power As a consequence demand falls If the rate of inflation in the country from which a company imports is high then the cost of production in that country will automatically go up
The Threat of NationalizationThe threat of nationalization is a real threat in many countries ndash the fear that a company may become nationalized
Interest Rates
18
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A low interest rate stimulates investment and industry Conversely high interest rates result in higher cost of production and lower consumption
TaxationThe level of taxation in a country has a direct effect on the economy If tax rates are low people have more disposable income
Government PolicyGovernment policy has a direct impact on the economy A government that is perceived to be proindustry will attract investment
THE ECONOMIC CYCLE
It affects investment decisions employment demand and the profitability of companiesThe four stages of an economic cycle are DepressionRecoveryBoom Recession DepressionAt the time of depression demand is low and falling Inflation is high and so are interest rates Companies crippled by high borrowing and falling sales are forced to curtail production close down plants built at times of higher demand and let workers go
RecoveryDuring this phase the economy begins to recover Investment begins anew and the demand grows Companies begin to post profits Conspicuous spending begins once again
BoomIn the boom phase demand reaches an all time high Investment is also high Interest rates are low Gradually as time goes on supply begins to exceed the demand Prices that had been rising begin to stabilize and even fall There is an increase in demand Then as the boom period matures prices begin to rise again
RecessionThe economy slowly begins to downturn Demand starts falling Interest rates and inflation are high Companies start finding it difficult to sell their goods The economy slowly begins to downturn
19
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II INDUSTRY ANALYSIS
The importance of industry analysis is now dawning on the Indian investor as never before
CycleThe first step in industry is to determine the cycle it is in or the stage of maturity of the industry All industries evolve through the following stages1 Entrepreneurial sunrise or nascent stage2 Expansion or growth stage3 Stabilization stagnation or maturity stage and4 Decline or sunset stage to properly establish itself In the early days it may actually make losses
The Entrepreneurial or Nascent StageAt the first stage the industry is new and it can take some time for it to properly establish itself
The Expansion or Growth StageOnce the industry has established itself it enters a growth stage As the industry grows many new companies enter the industry
The Stabilization or Maturity StageAfter the halcyon days of growth an industry matures and stabilizes Rewards are low and so too is the risk Growth is moderate Though sales may increase they do so at a
20
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
slower rate than before Products are more standardized and less innovative and there are several competitors
The Decline or Sunset StageFinally the industry declines This occurs when its products are no longer popular This may be on account of several factors such as a change in social habits The film and video industries
1 BARRIER TO ENTRYNew entrants increase the capacity in an industry and the inflow of funds The question that arises is how easy is it to enter an industry There are some barriers to entry
a) Economies of scaleb) Product differentiation c) Capital requirementd) Switching costse) Access to distribution channelsf) Cost disadvantages independent of scaleg) Government policyh) Expected retaliationj) International cartels
2 THE THREAT OF SUBSTITUTIONNew inventions are always taking place and new and better products replace existing ones An industry that can be replaced by substitutes or is threatened by substitutes is normally an industry one must be careful of investing in An industry where this occurs constantly is the packaging industry -bottles replaced by cans cans replaced by plastic bottles and the like To ward off the threat of substitution companies often have to spend large sums of money in advertising and promotion
3 BARGAINING POWER OF THE BUYERSIn an industry where buyers have control ie in a buyers market buyers are constantly forcing prices down demanding better services or higher quality and this often erodes profitability The factors one should check are whether a) A particular buyer buys most of the products (large purchase volumes) If such buyers withdraw their patronage they can destroy an industry They can also force prices downb) Buyers can play one company against another to bring prices down
4 BARGAINING POWER FOR THE SUPPLIERSAn industry unduly controlled by its suppliers is also under threat This occurs whena) The suppliers have a monopoly or if there are few suppliersb) Suppliers control an essential c) Demand for the product exceeds d) The supplier supplies to various industriese) The switching costs are high
21
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
f) The suppliers product does not have a substituteg) The suppliers product is an important input for the buyersh) The buyer is not important to the supplieri) The suppliers product is unique
5 RIVALRY AMONG COMPETITORSRivalry among competitors can cause an industry great harm This occurs mainly by price cuts heavy advertising additional high cost services or offers and the like This rivalry occurs mainly whena) There are many competitors and supply exceeds demand Companies resort to price cuts and advertise heavily in order to attract customers for their goodsb) The industry growth is slow and companies are competing with each other for a greater market sharec) The economy is in a recession and companies cut the price of their products and offer better service to stimulate demandd) There is lack of differentiation between the product of one company and that of another In such cases the buyer makes his choice on the basis of price or servicee) In some industries economies of scale will necessitate large additions to existing capacities in a company The increase in production could result in over capacity amp price cuttingf) Competitors may have very different strategies in selling their goods and in competing they may be continuously trying to stay ahead
III COMPANY ANALYSIS
At the final stage of fundamental analysis the investor analyzes the company This analysis has two thrustsHow has the company performed vis-agrave-vis other similar companies and How has the company performed in comparison to earlier years It is imperative that one completes the politico economic analysis and the industry analysis before a company is analyzed because the companys performance at a period of time is to an extent a reflection of the economy the political situation and the industry What does one look at when analyzing a company The different issues regarding a company that should be examined are The Management The Company The Annual Report Ratios Cash flow
THE MANAGEMENT
The single most important factor one should consider when investing in a company and one often never considered is its management In India management can be broadly
22
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
divided in two types Family Management Professional Management
THE COMPANY
An aspect not necessarily examined during an analysis of fundamentals is the company A company may have made losses consecutively for two years or more and one may not wish to touch its shares - yet it may be a good company and worth purchasing into There are several factors one should look at
1 How a company is perceived by its competitorsOne of the key factors to ascertain is how a company is perceived by its competitors It is held in high regard Its management may be known for its maturity vision competence and aggressiveness The investor must ascertain the reason and then determine whetherthe reason will continue into the foreseeable future
2 Whether the company is the market leader in its products or in its segmentAnother aspect that should be ascertained is whether the company is the market leader in its products or in its segment When you invest in market leaders the risk is less Theshares of market leaders do not fall as quickly as those of other companies There is a magic to their name that would make individuals prefer to buy their products as opposed to others
3 Company PoliciesThe policy a company follows is also important What is its plans for growth What is its vision Every company has a life If it is allowed to live a normal life it will grow upto a point and then begin to level out and eventually die It is at the point of leveling out that it must be given new life This can give it renewed vigour and a new lease of life
4 Labour RelationsLabour relations are extremely important A company that has motivated industrious work force has high productivity and practically no disruption of work On the other hand a company that has bad industrial relations will lose several hundred mandays as a consequence of strikes and go slows
5 Where the company is located and where its factories are One must also consider where the companies Plants and Factories are located
THE ANNUAL REPORT
The primary and most important source of information about a company is its Annual Report By law this is prepared every year and distributed to the shareholders Annual Reports are usually very well presented A tremendous amount of data is given about the performance of a company over a period of time The Annual Report is broken down into the following specific parts
23
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the Accounts
A The Directorrsquos ReportThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship 1 It enunciates the opinion of the directors on the state of the economy and the political situation vis-agrave-vis the company 2 Explains the performance and the financial results of the company in the period under review This is an extremely important part The results and operations of the various separate divisions are usually detailed and investors can determine the reasons for their good or bad performance3 The Directorrsquos Report details the companys plans for modernization expansion and diversification Without these a company will remain static and eventually decline4 Discusses the profit earned in the period under review and the dividend Recommended by the directors This paragraph should normally be read with some skepticism as the directors will always argue that the performance was satisfactory If adverse economic conditions are usually at fault 5 Elaborates on the directors views of the companys prospects in the future6 Discusses plans for new acquisition and investments An investor must intelligently evaluate the issues raised in a Directorrsquos Report Industry conditions and the managements knowledge of the business must be considered
B The Auditors ReportThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors Auditors are required to report whether the financial statements presented do in fact present a true and fair view of the state of the company Investors must remember that the auditors are their representatives and that they are required by law to point out if the financial statements are not true and fair
CFinancial StatementsThe published financial statements of a company in an Annual Report consist of its Balance Sheet as at the end of the accounting period detailing the financing condition of the company at that date and the Profit and Loss Account or Income Statement summarizing the activities of the company for the accounting period
BALANCE SHEETThe Balance Sheet details the financial position of a company on a particular date of the companys assets (that which the company owns) and liabilities (that which the companyowes) grouped logically under specific heads It must however be noted that the Balance Sheet details the financial position on a particular day and that the position can be materially different on the next day or the day after
24
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOURCES OF FUNDSSHAREHOLDERS FUNDSSHARE CAPITAL(i) Private Placement(ii) Public Issueiii) Rights issuesRESERVESi) Capital Reservesii) Revenue ReservesLOAN FUNDSi) Secured loansii) Unsecured loansFIXED ASSETSINVESTMENTSSTOCK OR INVENTORIESi) Raw materialsii) Work in progressiii) Finished goodsCASH AND BANK BALANCESLOANS AND ADVANCES
PROFIT AND LOSS ACCOUNTThe Profit and Loss account summarizes the activities of a company during an accounting period which may be a month a quarter six months a year or longer and the result achieved by the company It details the income earned by the company its cost and the resulting profit or loss It is in effect the performance appraisal not only of the company but also of its management- its competence foresight and ability to lead
RATIOS
Ratios express mathematically the relationship between performance figures andor assetsliabilities in a form that can be easily understood and interpretedNo single ratio tells the complete storyRatios can be broken down into four broad categories
(A) Profit and Loss RatiosThese show the relationship between two items or groups of items in a profit and loss account or income statement The more common of these ratios are1 Sales to cost of goods sold2 Selling expenses to sales3 Net profit to sales and4 Gross profit to sales
(B) Balance Sheet RatiosThese deal with the relationship in the balance sheet such as 1 Shareholders equity to borrowed funds
25
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
2 Current assets to current liabilities3 Liabilities to net worth4 Debt to assets and5 Liabilities to assets
(C) Balance Sheet and Profit and Loss Account RatiosThese relate an item on the balance sheet to another in the profit and loss account such as1 Earnings to shareholders funds2 Net income to assets employed3 Sales to stock4 Sales to debtors and5 Cost of goods sold to creditors
(D) Financial Statements and Market RatiosThese are normally known as market ratios and are arrived at by relative financial figures to market prices1 Market value to earnings and2 Book value to market value(a) Market value(b) Earnings(c) Profitability(d) Liquidity(e) Leverage(f) Debt Service Capacity(g) Asset ManagementEfficiency(h) Margins
The major ratios that are considered(i) Market value(ii) Price- earnings ratio(iii) Market-to-book ratio(iv) Earnings(v) Earning per share(vi) Dividend per share(vii) Dividend payout ratio(viii) Leverage ratios(ix) Return on investmentstotal assets
CASH FLOW A statement of sources and uses begins with the profit for the year to which are added the increases in liability accounts (sources) and from which are reduced the increases in asset accounts (uses) The net result shows whether there has been an excess or deficit of funds and how this was financed Investors must examine a companys cash flow as it reveals exactly where the money came from how it was utilized Investors must be
26
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
concerned if a company is financing either its inventories or paying dividends from borrowings without real growth as that shows deterioration
27
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-4 ANALYSIS
28
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
I FUNDAMENTAL ANALYSIS OF STOCKS
Basically fundamental analysis is covered in 3 parts
1 Market economy analysis
2 Industry Analysis
3 Company Analysis
1) TATA MOTORS
I Market Economy Analysis
It covers the macro economy analysis and the various macro economic factors on the national level like GDP Monetary policies of India Fiscal Policies and Inflation and money supply etc
GDP
Real GDP growth accelerated from 75 per cent during 2004-05 to 84 per cent during
2005-06 on the back of buoyant manufacturing and services activity supported by a
recovery in the agricultural sector Real GDP growth has thus averaged over eight per
cent during the last three years and over seven per cent in the first four years (2002-03 to
2005-06) of the Tenth Five Year Plan
Strengths of India today are
A well diversified industrial base which profits from self-reliance in all core industries A
large amp sophisticated financial architecture - The robust capital Markets today have over
9000 listed companies and boast of a massive Market capitalization
A healthy GDP composition with agriculture contributing 22 Industry 22 and
services which have gone strength to strength accounting For 56 of the GDP an
29
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
acknowledged strength in knowledge driven industries like Information technology
biotechnology entertainment Software etc
India has Over 3 million scientific amp technical manpower Over 06 million SampT post
graduates Over 07 million graduate engineers Over 3500 doctorates in sciences every
year
Assuming trend growth in agriculture under normal monsoon conditions and barring
domestic or external shocks the Reserve Bank in its Annual Policy Statement for 2007-
08 (April 2007) placed real GDP growth for policy purposes in the range of 75-80 per
cent during 2007-08 Growth prospects are however subject to a number of downside
risks The risks emanating from the global economy are potential escalation and
volatility in international crude oil prices firming up of overall inflationary pressures and
expectations and a hardening of international interest rates along with the withdrawal of
monetary accommodation
Indiarsquos demographic advantage ndash In contrast to developed Countries India will have a
younger population for the next 50 years Hence India would be the hub for RampD
Inflation
Inflation was contained to 63 per cent by end-March 2007 within the indicative
trajectory of 50-55 per cent during 2007-08 The actual inflation was considerably lower
than the indicative trajectory and this could be mainly attributed to the deferred pass-
through of even the cognisable permanent component of international crude oil prices
Money Supply
Monetary and liquidity conditions remained largely comfortable during 2006-07reflecting
proactive liquidity management operations by the Reserve Bank under the liquidity
adjustment facility flexible management of issuances under the market stabilisation
scheme and some private placement of Government securities
30
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
In short the Indian economy is exhibiting strong fundamentals and displaying
considerable resilience At the same time there are continuing signs of demand pressures
especially high credit growth that could exert upward pressure on prices when associated
with supply shocks such as from oil These pressures have the potential for impacting
stability and inflation expectations While domestic developments continue to dominate
the economy global factors tend to gain more attention now than before The global
outlook for growth is positive but downside risks in regard to inflation also RBI is
applying new repo and reverse repo for the balance of inflation and monetary policies
The following are macroeconomic policies generally found as part of government-
directed industrial auto policies
(a) Restrictions on domestic and foreign investment
(b) Domestic content requirements
(c) High tariff walls
(d) Auto export requirements
(e) National production to sales ratios
(f) Distribution controls
(g) Quotas and licensing requirements that significantly restrict imports
(h) Government approval for product related decisions including vehicle make
body type engine size etc
(i) Special government categories for auto taxes
II INDUSTRY ANALYSIS
Since 1991 opening of the economy has changed the face of auto industry Today it is
amongst the main drivers of growth of Indian economy with an output multiplier of
224(for every Re1 invested auto sector gives back Rs224 to the economy) In recent
years we have seen increasing number of global players entering Indian market by way of
Joint ventures collaborations or wholly owned subsidiary
The automobile industry is torn between trying to reduce costs on the one hand and on
the other dealing with the high price of performance-enhancing technology and
environmental compliance Key drivers in the automotive industry are
31
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Reducing air pollution
Reduction of weight
Recyclability
Safety
Better performance and engine efficiency
Aesthetics
Longer service Life
INDUSTRY LIFE CYCLE
The automobile market is at the maturity stage of the life cycle locally and globally due
to an increased number of competitors from domestic and foreign markets The
automobile market is characterized by a low potential for market growth but high sales
and profit potential as the products have still not saturated the market as a whole
MAJOR COMPETITORS OF TATA MOTORS ARE
Maruti Udyog Ltd
General Motors India
Ford India Ltd
Eicher Motors
Bajaj Auto
Hero Motors
Hindustan Motors
32
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Hyundai Motor India Ltd
Royal Enfield Motors
Telco
TVS Motors
FINANCIALS
Description 1 Day PriceChange
MarketCap
PEROE
Div Yield
Long-Term Debt toEquity
Price toBook Value
NetProfit Margin (mrq)
Price toFree Cash Flow (mrq)
Sector Consumer Goods 01125178B
2488
1707
222
1171076
706 40842
Industry Auto Manufacturers - Major (More Info)
0613310B
3000
750171
181 155 160 -440
Companies
Daimlerchrysler AG (DCX) 021 539B1072
1119
350
217 116 469 -354
Ford Motor Co (F) 121 157B NA-951
240
1107
115 -060 -8205
General Motors Corporation (GM) -024 165B NA
-6285
340
390 142 -621 014
Honda Motor Co Ltd (HMC) 083 622B1152
1654
100
083 173 552 20748
Tata Motors Ltd (TTM) -038 71B1864
NA150
NA 535 564 NA
Toyota Motor Corp (TM) 0731756B
1394
1505
120
103 197 659 NA
Opportunities and Threats
a) Opportunities
Road Development The ongoing road development program would improve
connectivity to ports cities and villages through a network of highways and
interconnecting roads by 2010-11 Improved road network would help in faster
33
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
movement of goods between various cities and towns The Company launched TATA
Novus range of vehicles in the heavy segment and TATA ACE for last mile distribution
Car penetration in India Car penetration in India is 7 cars per 1000 persons
International In FY 2006-07 the Company increased share of its overseas vehicle sales
from 76 last year to record high of 111 (as of its total sales) and has planned
further increase in this year
b) Threats
Global Competition India is increasingly attracting global players to set up
manufacturing facility for producing cars especially small cars Global automobile
manufacturers are also entering India in commercial vehicle segment to leverage Indiarsquos
low cost production advantage to their favor
Fuel Prices The continuing fuel price increase in the domestic market could
significantly impact demand of commercial and passenger vehicles
Input costs Commodity items particularly steel non-ferrous metals rubber and
engineering plastics have witnessed huge price increases in the past These prices are
expected to increase further affecting the Companyrsquos profitability
Interest rate hardening and other inflationary trends With interest rates hardening and
liquidity crunch in the system growth in sales may be adversely impacted
Government Regulations Stringent emission and safety requirements could bring new
complexities for automotive and component manufacturers impacting the Companyrsquos
business
Risks and Concerns
Interest Rates FY 2007-08 started with increasing interest rate regime and tightening
liquidity position in the economy Increasing interest rates could further affect vehicle
demand which could have an adverse impact on the Companyrsquos revenues and profits
Exchange rates The Company exports vehicles to many countries and exchange rate
fluctuations in the order execution period could impact the Companyrsquos business
34
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Freight rates In FY 2006-07 freight rates in road transport sector moved up mainly
due to surge in construction activity ongoing road development projects and severe
restriction on over-loading Demand for commercial vehicles could be impacted by
further change in freight rates and change in fuel prices
Domestic market The Company plans to reduce the impact of this cyclicality on its
business by strengthening its less cyclical businesses like buses light trucks small
commercial vehicles
Overseas market In overseas markets the Company competes with global players
which have multiple vehicle platforms large financial capability and global branding
Manufacturing The Company manufactures vehicles at multiple locations and given
the geographical dispersion of its suppliers it faces Logistics Problems
New Competition Competitive activity is expected to increase in commercial vehicle
and passenger vehicle domestic market in coming years
New projects The Company currently is in midst of executing many new projects
ranging from launch of new car platforms to development of new Truck models
III Company Analysis
Key Highlights
Symbol TTL
Sector Consumer Goods
Industry Auto Manufacturers Major
Market Cap Rs29232 crores
Data Since 1945
Last close Rs 74290
Brief Summary of the company
35
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Tata Motors is one of the largest companies in the Tata Group with a total income of US$
235 billion More than 3 million Tata vehicles ply on Indian roads making Tata a
dominant force in the Indian automobile industry
Joint Venture with Fiat and Hitachi
Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing
passenger vehicles engines and transmissions for both domestic and international
markets The Company has also entered into a JV with Hitachi to set up a new plant in
Kharagpur
Product Mix
Tata Motors is Indias only fully integrated automobile manufacturer with a portfolio that
covers trucks buses utility vehicles and passenger cars It would be no exaggeration to
say that Tata Motors provides the wheels for Indias growth
Segmental Overview
Commercial Vehicle Segment
The Company registered 696 volume growth in the domestic CV segment during
4QFY06 from 37228 units in Q3FY05 to 63082 units in Q3FY06 The market share in
this segment was 658 in Q4FY06 as compared to 552 in Q1FY06 The MHCV
goods-carrier segment registered a 544 growth YoY with sale of 33515 units and a
market share of 645 up by around 410 bps driven by infrastructure development and
increase in international trade
Passenger Vehicle Segment
The Company reported a growth of 212 YoY to 49907 vehicles in the domestic
passenger vehicle segment and a market share of 162 in the quarter The passenger
vehicle industry registered a volume growth of 204 during Q4FY06
36
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Plants
Tata Motors owes its leading position in the Indian automobile industry to its strong
focus on indigenisation Their manufacturing plants are situated at Jamshedpur in the
East Pune in the West and Lucknow in the North
Charts showing Key Statistics of tata motors
37
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Share holding pattern as on 31-Mar
shareholding pattern
34
1425
17
10
promotors
MF Banks Fis
FIIs
Others
Public
Financial highlights
38
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
39
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
RATIO ANALYSIS
Ratios 2006 2005 2004
Debtequity 056 049 044
Current ratio 108 087 076
Operating profit margin 1211 1151 1238
Gross profit margin 1087 1043 1104
ROCE 3125 3276 3377
total assets turnover ratio 315 353 343
ROE 2761 3009 2257
Dividend-equity 49794 45373 28211
Retention Ratio 6743 6332 6519
DPS (Rs) 1301 125 799
EPS (Rs) 25 34 41
Dividend Payout Ratio 039 042 037
CAGR of EPS 0177
CAGR of Dividend Payout Ratio -0017
Average ROE 2574
average retention 6354
Growth (g = Avg RR times Avg ROE ) 1636
Market return 1454
40
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
PE ratio (on the basis of historical analysis) = 1812
Therefore the Weighted PE ratio =(1812+2424)2 = 21181
Projected EPS = EPS OF 2006 + CAGR of EPSEPS OF 2006
= Rs48271
Value of Share at the end of financial year 06-07
= Projected EPS Weighted PE Ratio
= Rs1022
2) HPCL
Globalization and the Indian Petroleum Industry
Indian petroleum industry in the post independent period (1947-2001) it may be divided
into three distinct phases
(i) early phase (1947 to 1969)- when the government consolidated its control over
the industry with Soviet assistance
(ii) development phase (1970 to 1989)- in this period the US companies played
dominant role replacing the Soviets and
41
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
(iii) the economic liberalisation phase of 1990s
PORTERrsquoS MODEL
SWOT ANALYSIS
STRENGHS
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
WEAKNESSES
Dependence on refining function high
Moderate share in high profitable retail segment
42
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Diversifications in petrochemicals could trouble the company
High burden of subsidy loss on cooking gas and kerosene
OPPORTUNITIES
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
Overseas presence in upstream and downstream will determine growth
THREATS
Rising oil prices could dampen demand
High regulatory risk
Loss of market share to private players
Entrance of private players in pipelines will take away monopoly of company in
north India
COMPANY ANALYSIS
The Annual Report is broken down into the following specific parts
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the AccountsATHE DIRECTORrsquoS REPORTThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship Fundamental AnalysisB THE AUDITORS REPORTThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors
C FINANCIAL STATEMENTSIt comprises of Balance Sheet Profit and Loss account Cash Flows Its analysis would be discussed later
DSCHEDULES
43
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The schedules detail pertinent information about the items of Balance Sheet and Profit amp Loss Account It also details information about sales manufacturing costs administration costs interest and other income and expenses
1 THE MANAGEMENT
HPCL is a public sector undertaking Thus it is a professionally managed company
There are some parameters of management on which a company is analysed
a integrity of management
b past record of management
c how highly is the management rated by its peers in the same industry
d how the management fares in adversity
e the depth of the knowledge of management
f open and innovative management
on all these parameters HPCL scores good
2 COMPANY
Many times a company has made losses in the previous years but that does not mean
that the company is bad to invest Thus many factors are studied while studying a
company
a) perception of competitors
HPCL is the second largest petroleum company after IOCL Thus it is a competitor of
IOCL and it is trying hard to compete with IOCL on every front That is why now it
has decided to diversify itself in the oil exploration sector
b) company policies
As this is a PSU thus the policies are made by the government The oil sector is one
which is highly regulated by government Thus from time to time it is required to
watch out the various policies changed
3 ANNUAL REPORT
The most primary and most important source of information about a company is its
Annual Report This is prepared every year and distributed to its shareholders
44
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Ratio Analysis
Evaluation of Intrinsic Value of the Security
stdev mkt 0011934stdev sec 003831 Average
Retention Ratio 060504
correlation 0485958 ROE 019842Beta 156765 g 0120052Risk Free Rate 650
Mkt Rate 14
45
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
k 1826
Hence we see that here our g is less than k Thus we see that as per Dividend Discount Model our Intrinsic value is div=22(1+012)=240626= 387
Price= Projected EPS + Weighted PE ratioUsing CAGR EPS = 43468Weighted PE Ratio = 75+6652=33625
Price = 43468+33625 = 381
3) HDFC BANK
The Indian banking industry sector overview
With the economic growth picking up pace and the investment cycle on the way to recovery the banking sector has witnessed a transformation in its vital role of intermediating between the demand and supply of funds
Public sector banks have been very proactive in their restructuring initiatives be it in technology implementation or pruning their loss assets Windfall treasury gains made in the falling interest rate regime were used for writing off the doubtful and loss assets
Retail lending (especially mortgage financing) formed a significant portion of the portfolio for most banks and they customized their products to cater to the diverse demands
Apart from streamlining their processes through technology initiatives such as ATMs telephone banking online banking and web based products banks also resorted to cross selling of financial products such as credit cards mutual funds and insurance policies to augment their fee based income
PORTERrsquoS FIVE FORCES MODEL FOR THE BANKING INDUSTRY
1) BARRIERS TO ENTRY a Economies of scale Since the existing players in the market are well
established and already have a customer base they are able to bear the cost of using the advantages of technology to their maximum advantage
46
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Capital requirement for entry i The Banking Regulation Act prescribes the minimum capital
requirements for a bank Moreover banks have to maintain a capital adequacy ratio of 9 under the Basel I norms
ii Government has declared that the foreign banks will be permitted to establish their presence in India by way of setting up a wholly owned banking subsidiary (WOS) with a minimum capital of Rs300 crore
c Access to distribution channels Since banks have to set up their own distribution channels all the cost has to be directly born by them
d Cost advantage independent of size Existing banks have huge databases of customers which they use when they want to sell a new product launched by them
e Legislation or Government action Banks are governed by Banking Regulation Act 1949 which specifies the rules and regulations applicable to banks RBI is the governing body of banks in India
2) BARGAINING POWER OF BUYERS
Due to increased competition the services offered by banks to customers have improved considerably
3) BARGAINING POWER OF THE SUPPLIERS
Suppliers to banks can be both - the customers and RBIa Customers of banks provide money to banks in the form of deposits and in
return earn some interest on that b RBI acts as a supplier to banks by selling govt securities treasury bills
govt bonds etc c Call money market Banks sometimes have to borrow from other banks to
meet CRR and SLR requirements or other capital requirements as provided by RBI
4) THREAT OF SUBSTITUTES
a Product-for-product substitutioni Banks provide interest on deposits made by people Similar
services are offered by post offices which may act as substitutes to the deposit schemes of banks
ii Some banks offer locker services to customers for yearly rates Similar services are provided by many post offices
47
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Generic substitution People who deposit their savings in banks can invest their money in other sources like mutual funds shares and other securities and life insurance schemes
5) COMPETITIVE RIVALRY
a Extent of competitor balance b Market growth ratesc High Exit Barriers
PEST Analysis for Banking Industry
1 Political factors - The major factors affecting the banking sector are the following
Banking sector reforms ndash As per the RBI roadmap for reforms in the first stage from 2005 to 2009 foreign banks will be allowed to set up wholly owned subsidiaries as well as get greater freedom to set up new branches Fulfilling the minimum priority sector credit -The government mandation of fulfilling the minimum priority sector credit (of which 18 per cent is food credit) has forced the domestic banks to cater to this segment despite the low profitability and vulnerability of asset quality
Banks have also been allowed to set up Offshore Banking Units in SEZrsquos
2 Economic factors -
Basell II norms for the risk management in banking sector - The new Basel Accord has its foundation on three mutually reinforcing pillars The first pillar is compatible with the credit risk market risk and operational risk The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bankConcurrently it also casts responsibility on the supervisors to review and validate banksrsquo risk measurement models
Consolidation and merger and acquisitions in the banking sector- HDFC bank also acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Universal Banking has been introduced ICICI Bank HDFCs closest competitor is already into Universal Banking so HDFC is also getting into it as now it is providing retail banking and also depository facilities in the form of demat account
48
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
3 Social factors-
Big and growing middle class in India - This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans car loans education loans auto loans etc Retail loans have grown from 19 in FYrsquo99 to 51 FYrsquo06Consumer credit accounts for a meager 286 per cent of the countrys GDP and the buoyancy in the economy offers sufficient scope for it to grow
Geographical and Cultural diversity- This is leading to a greater demand for financial products and customization by the customers
4 Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999 It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector
Banks (All) No of players = 40
Sector statistics
We see the sector aggregates and make a financial comparison for the major banks
Top PlayersFY2006
Based on Total Income Based on OPBDT Total Income Change OPBDT Change
(Rs Mn) () (Rs Mn) ()ICICI BANK 631619 5450 S B I 763528 -129 PUNJAB NATIONAL B 29218 1491 ICICI BANK 37174 1936
CAN BANK 277095 2378 PUNJAB NATIONAL B 222052 3936
BANK OF INDIA 23317 2543 CAN BANK 168825 1953
H D F C BANK 185508 6024 H D F C BANK 14324 2748 change - indicates the change between current and corresponding quarter
49
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Investing like marriage isnt something that should be entered into lightly You wouldnt
get married on a first date would you Ok maybe some of us would but thats not really
very Foolish Before we marry er I mean invest in a company there are more than a
few things we need to know about it
Securities Analysis
An analysis of securities and the organization and operation of their markets The determination of the risk reward structure of equity and debt securities and their valuation Special emphasis on common stocks Other topics include options mutual fluids and technical analysis
Technical analysis is a method of predicting price movements and future market trends by studying charts of past market action which take into account price of instruments volume of trading and where applicable open interest in the instruments
Fundamental analysis is a method of forecasting the future price movements of a financial instrument based on economic political environmental and other relevant factors and statistics that will affect the basic supply and demand of whatever underlies the financial instrument
Main differences between the two types of analysis
Fundamental analysis Technical analysis
Focuses on what ought to happen in a market
Focuses on what actually happens in a market
Factors involved in price analysis
1 Supply and demand 2 Seasonal cycles 3 Weather 4 Government policy
Charts are based on market action involving
1 Price2 Volume3 Open interest (futures only)
12 RATIONALE FOR THE STUDY
5
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
In an industry plagued with skepticism and a stock market increasingly difficult to predict
and contend with if one looks hard enough there may still be a genuine aid for the Day
Trader and Short Term Investor
The price of a security represents a consensus It is the price at which one person agrees
to buy and another agrees to sell The price at which an investor is willing to buy or sell
depends primarily on his expectations If he expects the securitys price to rise he will
buy it if the investor expects the price to fall he will sell it These simple statements are
the cause of a major challenge in forecasting security prices because they refer to human
expectations As we all know firsthand humans expectations are neither easily
quantifiable nor predictable
If prices are based on investor expectations then knowing what a security should sell for
(ie fundamental analysis) becomes less important than knowing what other investors
expect it to sell for Thats not to say that knowing what a security should sell for isnt
important--it is But there is usually a fairly strong consensus of a stocks future earnings
that the average investor cannot disprove
Fundamental analysis and technical analysis can co-exist in peace and complement each other Since
all the investors in the stock market want to make the maximum profits possible they just cannot
afford to ignore either fundamental or technical analysis
13 OBJECTIVES OF THE STUDY
Primary Objective a) To do technical and fundamental analysis of chosen securities
Sub-Objectives
a) to study the various theories of technical analysis and fundamental analysis
b) understand the movement and performance of stocks
c) understanding and analyzing the factors that affect the movement of stock
prices in the Indian Stock Markets
6
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
14 RESEARCH METHODOLOGY amp DESIGN
TYPE OF STUDY
The research has been based on secondary data analysis The study has been exploratory
as it aims at examining the secondary data for analyzing the previous researches that have
been done in the area of technical and fundamental analysis of stocks The knowledge
thus gained from this preliminary study forms the basis for the further detailed
Descriptive research In the exploratory study the various technical indicators that are
important for analyzing stock were actually identified and important ones short listed
SAMPLE DESIGN
The sample of the stocks for the purpose of collecting secondary data has been selected
on the basis of Random Sampling The stocks are chosen in an unbiased manner and each
stock is chosen independent of the other stocks chosen
SAMPLE SIZE
The sample size for the number of stocks is taken as 10 for technical analysis and 4 for
fundamental analysis of stocks as fundamental analysis is very exhaustive and requires
detailed study
7
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER- 2
TECHNICAL ANALYSIS
A CONCEPTUAL OVERVIEW
TECHNICAL ANALYSIS
Technical analysis can be conditionally divided into some main parts such as
8
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Types of charts Graphical methods Analytical methods Technical indicators
Technical analysis is concerned with predicting future price trends from historical price and volume data The underlying axiom of technical analysis is that all fundamentals (including expectations) are factored into the market and are reflected in exchange rates
A technical analysis is based on three axioms
Movement of the market considers everything Movement of prices is purposeful History repeats itself
SUPPORT AND RESISTANCE
Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
Resistance on the other hand is the point at which sellers (bears) take control of prices and prevent them from rising higher The price at which a trade takes place is the price at which a bull and bear agree to do business It represents the consensus of their expectations
9
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Support levels indicate the price where the most of investors believe that prices will move higher Resistance levels indicate the price at which the most of investors feel prices will move lower
Role Reversal
When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
31 DOW THEORYndash TRENDS
The ideas of Charles Dow the first editor of the Wall Street Journal form the basis of technical analysis The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages Dow created the Industrial Average of top blue chip stocks and a second average of top railroad stocks (now the Transport Average) He believed that the behavior of the averages reflected the hopes and fears of the entire market The behavior patterns that he observed apply to markets throughout the world
Three Movements
Markets fluctuate in more than one time frame at the same time
10
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Nothing is more certain than that the market has three well defined movements which fit into each other
The first is the daily variation due to local causes and the balance of buying and
selling at that particular time
The secondary movement covers a period ranging from ten days to sixty days
averaging probably between thirty and forty days
The third move is the great swing covering from four to six years
Bull markets are broad upward movements of the market that may last several
years interrupted by secondary reactions Bear markets are long declines
interrupted by secondary rallies These movements are referred to as the primary
trend
Secondary movements normally retrace from one third to two thirds of the
primary trend since the previous secondary movement
Daily fluctuations are important for short-term trading but are unimportant in
analysis of broad market movements
Various cycles have subsequently been identified within these broad categories
Primary Movements have Three Phases
The general conditions in the market
Bull markets
Bull markets commence with reviving confidence as business conditions improve
Prices rise as the market responds to improved earnings
11
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Rampant speculation dominates the market and price advances are based on hopes and
expectations rather than actual results
Bear markets
Bear markets start with abandonment of the hopes and expectations that sustained
inflated prices
Prices decline in response to disappointing earnings
Distress selling follows as speculators attempt to close out their positions and
securities are sold without regard to their true value
Ranging Markets
A secondary reaction may take the form of a lsquolinersquo which may endure for several weeks Price fluctuates within a narrow range of about five per cent
Breakouts from a range can occur in either direction
Advances above the upper limit of the line signal accumulation and higher prices
Declines below the lower limit indicate distribution and lower prices
Volume is used to confirm price breakouts
Trends
Bull Trends
A bull trend is identified by a series of rallies where each rally exceeds the highest point of the previous rally The decline between rallies ends above the lowest point of the previous decline
Successive higher highs and higher lows
12
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
Start = higher Low + break above previous High
The end is signaled by a lower high (peak) followed by a decline below the previous low (trough)
End = lower High + break below previous Low
A bear trend starts at the end of a bull trend when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
Large Corrections
A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
13
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A bull trend starts when price rallies above the previous high
A bull trend ends when price declines below the previous low
A bear trend starts at the end of a bull trend (and vice versa)
32 ELLIOT WAVES THEORY BASICS
TRENDLINES
Breaking through support or resistance levels results in a change of tradersrsquo expectations (which causes supplydemand lines to shift)
14
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
An Uptrend is defined by successively higher low-prices A rising trend can be thought of as a rising support level the bulls are in control and are pushing prices higher A Downtrend is defined by successively lower high-prices A falling trend can be thought of as a falling resistance level the bears are in control and are pushing prices lower
33 MOVING AVERAGES
Moving averages are one of the oldest and most popular technical analysis tools A moving average is the average price of a financial instrument over a given time
The moving average represents the consensus of investorrsquos expectations over the indicated period of time
The classic interpretation of a moving average is to use it in observing changes in prices Investors typically buy when the price of an instrument rises above its moving average and sell when the it falls below its moving average
TECHNICAL INDICATORS
There is a vast number of elaborated technical indicators
15
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
MOVING AVERAGE ndashMA
RELATIVE STRENGTH INDEX mdash RSI The Relative Strength Index Technical Indicator (RSI) is a price-following oscillator that ranges between 0 and 100 When Wilder introduced the Relative Strength Index he recommended using a 14-day RSI Since then the 9-day and 25-day Relative Strength Index indicators have also gained popularity
ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the cumulative difference between advancing and declining issues
CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that closed on an uptick and those that closed on a downtick
CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading volume in declining issues to average trading volume in advancing issues
Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 shares HI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price CANDLESTICK CHART A candlestick chart is an extended version of the hi-lo-close
chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation When the stock price ldquopierces the necklinerdquo after the right shoulder is finished itrsquos time to sell
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins A win by the National Football Conference is bullish
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
16
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER- 3
FUNDAMENTAL ANALYSIS
A CONCEPTUAL OVERVIEW
17
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Fundamental analysis refers to the study of the core underlying elements that influence the economy of a particular entity It is a method of study that attempts to predict price action and market trends by analyzing economic indicators government policy and societal factors (to name just a few elements) within a business cycle framework
I ECONOMIC ANALYSIS
POLITICO-ECONOMIC ANALYSIS No industry or company can exist in isolation It may have splendid managers and a tremendous product However its sales and its costs are affected by factors some of which are beyond its control - the world economy price inflation taxes and a host of others It is important therefore to have an appreciation of the politico-economic factors that affect an industry and a company
The political equationA stable political environment is necessary for steady balanced growth If a country is ruled by a stable government which takes decisions for the long-term development of the country industry and companies will prosper Foreign Exchange ReservesA country needs foreign exchange reserves to meet its commitments pay for its imports and service foreign debts
Foreign Exchange RiskThis is a real risk and one must be cognizant of the effect of a revaluation or devaluation of the currency either in the home country or in the country the company deals in
Restrictive PracticesRestrictive practices or cartels imposed by countries can affect companies and industries crystallizing the exposure
Foreign Debt and the Balance of TradeForeign debt especially if it is very large can be a tremendous burden on an economy India pays around $ 5 billion a year in principal repayments and interest payments InflationInflation has an enormous effect in the economy Within the country it erodes purchasing power As a consequence demand falls If the rate of inflation in the country from which a company imports is high then the cost of production in that country will automatically go up
The Threat of NationalizationThe threat of nationalization is a real threat in many countries ndash the fear that a company may become nationalized
Interest Rates
18
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A low interest rate stimulates investment and industry Conversely high interest rates result in higher cost of production and lower consumption
TaxationThe level of taxation in a country has a direct effect on the economy If tax rates are low people have more disposable income
Government PolicyGovernment policy has a direct impact on the economy A government that is perceived to be proindustry will attract investment
THE ECONOMIC CYCLE
It affects investment decisions employment demand and the profitability of companiesThe four stages of an economic cycle are DepressionRecoveryBoom Recession DepressionAt the time of depression demand is low and falling Inflation is high and so are interest rates Companies crippled by high borrowing and falling sales are forced to curtail production close down plants built at times of higher demand and let workers go
RecoveryDuring this phase the economy begins to recover Investment begins anew and the demand grows Companies begin to post profits Conspicuous spending begins once again
BoomIn the boom phase demand reaches an all time high Investment is also high Interest rates are low Gradually as time goes on supply begins to exceed the demand Prices that had been rising begin to stabilize and even fall There is an increase in demand Then as the boom period matures prices begin to rise again
RecessionThe economy slowly begins to downturn Demand starts falling Interest rates and inflation are high Companies start finding it difficult to sell their goods The economy slowly begins to downturn
19
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II INDUSTRY ANALYSIS
The importance of industry analysis is now dawning on the Indian investor as never before
CycleThe first step in industry is to determine the cycle it is in or the stage of maturity of the industry All industries evolve through the following stages1 Entrepreneurial sunrise or nascent stage2 Expansion or growth stage3 Stabilization stagnation or maturity stage and4 Decline or sunset stage to properly establish itself In the early days it may actually make losses
The Entrepreneurial or Nascent StageAt the first stage the industry is new and it can take some time for it to properly establish itself
The Expansion or Growth StageOnce the industry has established itself it enters a growth stage As the industry grows many new companies enter the industry
The Stabilization or Maturity StageAfter the halcyon days of growth an industry matures and stabilizes Rewards are low and so too is the risk Growth is moderate Though sales may increase they do so at a
20
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
slower rate than before Products are more standardized and less innovative and there are several competitors
The Decline or Sunset StageFinally the industry declines This occurs when its products are no longer popular This may be on account of several factors such as a change in social habits The film and video industries
1 BARRIER TO ENTRYNew entrants increase the capacity in an industry and the inflow of funds The question that arises is how easy is it to enter an industry There are some barriers to entry
a) Economies of scaleb) Product differentiation c) Capital requirementd) Switching costse) Access to distribution channelsf) Cost disadvantages independent of scaleg) Government policyh) Expected retaliationj) International cartels
2 THE THREAT OF SUBSTITUTIONNew inventions are always taking place and new and better products replace existing ones An industry that can be replaced by substitutes or is threatened by substitutes is normally an industry one must be careful of investing in An industry where this occurs constantly is the packaging industry -bottles replaced by cans cans replaced by plastic bottles and the like To ward off the threat of substitution companies often have to spend large sums of money in advertising and promotion
3 BARGAINING POWER OF THE BUYERSIn an industry where buyers have control ie in a buyers market buyers are constantly forcing prices down demanding better services or higher quality and this often erodes profitability The factors one should check are whether a) A particular buyer buys most of the products (large purchase volumes) If such buyers withdraw their patronage they can destroy an industry They can also force prices downb) Buyers can play one company against another to bring prices down
4 BARGAINING POWER FOR THE SUPPLIERSAn industry unduly controlled by its suppliers is also under threat This occurs whena) The suppliers have a monopoly or if there are few suppliersb) Suppliers control an essential c) Demand for the product exceeds d) The supplier supplies to various industriese) The switching costs are high
21
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
f) The suppliers product does not have a substituteg) The suppliers product is an important input for the buyersh) The buyer is not important to the supplieri) The suppliers product is unique
5 RIVALRY AMONG COMPETITORSRivalry among competitors can cause an industry great harm This occurs mainly by price cuts heavy advertising additional high cost services or offers and the like This rivalry occurs mainly whena) There are many competitors and supply exceeds demand Companies resort to price cuts and advertise heavily in order to attract customers for their goodsb) The industry growth is slow and companies are competing with each other for a greater market sharec) The economy is in a recession and companies cut the price of their products and offer better service to stimulate demandd) There is lack of differentiation between the product of one company and that of another In such cases the buyer makes his choice on the basis of price or servicee) In some industries economies of scale will necessitate large additions to existing capacities in a company The increase in production could result in over capacity amp price cuttingf) Competitors may have very different strategies in selling their goods and in competing they may be continuously trying to stay ahead
III COMPANY ANALYSIS
At the final stage of fundamental analysis the investor analyzes the company This analysis has two thrustsHow has the company performed vis-agrave-vis other similar companies and How has the company performed in comparison to earlier years It is imperative that one completes the politico economic analysis and the industry analysis before a company is analyzed because the companys performance at a period of time is to an extent a reflection of the economy the political situation and the industry What does one look at when analyzing a company The different issues regarding a company that should be examined are The Management The Company The Annual Report Ratios Cash flow
THE MANAGEMENT
The single most important factor one should consider when investing in a company and one often never considered is its management In India management can be broadly
22
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
divided in two types Family Management Professional Management
THE COMPANY
An aspect not necessarily examined during an analysis of fundamentals is the company A company may have made losses consecutively for two years or more and one may not wish to touch its shares - yet it may be a good company and worth purchasing into There are several factors one should look at
1 How a company is perceived by its competitorsOne of the key factors to ascertain is how a company is perceived by its competitors It is held in high regard Its management may be known for its maturity vision competence and aggressiveness The investor must ascertain the reason and then determine whetherthe reason will continue into the foreseeable future
2 Whether the company is the market leader in its products or in its segmentAnother aspect that should be ascertained is whether the company is the market leader in its products or in its segment When you invest in market leaders the risk is less Theshares of market leaders do not fall as quickly as those of other companies There is a magic to their name that would make individuals prefer to buy their products as opposed to others
3 Company PoliciesThe policy a company follows is also important What is its plans for growth What is its vision Every company has a life If it is allowed to live a normal life it will grow upto a point and then begin to level out and eventually die It is at the point of leveling out that it must be given new life This can give it renewed vigour and a new lease of life
4 Labour RelationsLabour relations are extremely important A company that has motivated industrious work force has high productivity and practically no disruption of work On the other hand a company that has bad industrial relations will lose several hundred mandays as a consequence of strikes and go slows
5 Where the company is located and where its factories are One must also consider where the companies Plants and Factories are located
THE ANNUAL REPORT
The primary and most important source of information about a company is its Annual Report By law this is prepared every year and distributed to the shareholders Annual Reports are usually very well presented A tremendous amount of data is given about the performance of a company over a period of time The Annual Report is broken down into the following specific parts
23
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the Accounts
A The Directorrsquos ReportThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship 1 It enunciates the opinion of the directors on the state of the economy and the political situation vis-agrave-vis the company 2 Explains the performance and the financial results of the company in the period under review This is an extremely important part The results and operations of the various separate divisions are usually detailed and investors can determine the reasons for their good or bad performance3 The Directorrsquos Report details the companys plans for modernization expansion and diversification Without these a company will remain static and eventually decline4 Discusses the profit earned in the period under review and the dividend Recommended by the directors This paragraph should normally be read with some skepticism as the directors will always argue that the performance was satisfactory If adverse economic conditions are usually at fault 5 Elaborates on the directors views of the companys prospects in the future6 Discusses plans for new acquisition and investments An investor must intelligently evaluate the issues raised in a Directorrsquos Report Industry conditions and the managements knowledge of the business must be considered
B The Auditors ReportThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors Auditors are required to report whether the financial statements presented do in fact present a true and fair view of the state of the company Investors must remember that the auditors are their representatives and that they are required by law to point out if the financial statements are not true and fair
CFinancial StatementsThe published financial statements of a company in an Annual Report consist of its Balance Sheet as at the end of the accounting period detailing the financing condition of the company at that date and the Profit and Loss Account or Income Statement summarizing the activities of the company for the accounting period
BALANCE SHEETThe Balance Sheet details the financial position of a company on a particular date of the companys assets (that which the company owns) and liabilities (that which the companyowes) grouped logically under specific heads It must however be noted that the Balance Sheet details the financial position on a particular day and that the position can be materially different on the next day or the day after
24
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOURCES OF FUNDSSHAREHOLDERS FUNDSSHARE CAPITAL(i) Private Placement(ii) Public Issueiii) Rights issuesRESERVESi) Capital Reservesii) Revenue ReservesLOAN FUNDSi) Secured loansii) Unsecured loansFIXED ASSETSINVESTMENTSSTOCK OR INVENTORIESi) Raw materialsii) Work in progressiii) Finished goodsCASH AND BANK BALANCESLOANS AND ADVANCES
PROFIT AND LOSS ACCOUNTThe Profit and Loss account summarizes the activities of a company during an accounting period which may be a month a quarter six months a year or longer and the result achieved by the company It details the income earned by the company its cost and the resulting profit or loss It is in effect the performance appraisal not only of the company but also of its management- its competence foresight and ability to lead
RATIOS
Ratios express mathematically the relationship between performance figures andor assetsliabilities in a form that can be easily understood and interpretedNo single ratio tells the complete storyRatios can be broken down into four broad categories
(A) Profit and Loss RatiosThese show the relationship between two items or groups of items in a profit and loss account or income statement The more common of these ratios are1 Sales to cost of goods sold2 Selling expenses to sales3 Net profit to sales and4 Gross profit to sales
(B) Balance Sheet RatiosThese deal with the relationship in the balance sheet such as 1 Shareholders equity to borrowed funds
25
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
2 Current assets to current liabilities3 Liabilities to net worth4 Debt to assets and5 Liabilities to assets
(C) Balance Sheet and Profit and Loss Account RatiosThese relate an item on the balance sheet to another in the profit and loss account such as1 Earnings to shareholders funds2 Net income to assets employed3 Sales to stock4 Sales to debtors and5 Cost of goods sold to creditors
(D) Financial Statements and Market RatiosThese are normally known as market ratios and are arrived at by relative financial figures to market prices1 Market value to earnings and2 Book value to market value(a) Market value(b) Earnings(c) Profitability(d) Liquidity(e) Leverage(f) Debt Service Capacity(g) Asset ManagementEfficiency(h) Margins
The major ratios that are considered(i) Market value(ii) Price- earnings ratio(iii) Market-to-book ratio(iv) Earnings(v) Earning per share(vi) Dividend per share(vii) Dividend payout ratio(viii) Leverage ratios(ix) Return on investmentstotal assets
CASH FLOW A statement of sources and uses begins with the profit for the year to which are added the increases in liability accounts (sources) and from which are reduced the increases in asset accounts (uses) The net result shows whether there has been an excess or deficit of funds and how this was financed Investors must examine a companys cash flow as it reveals exactly where the money came from how it was utilized Investors must be
26
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
concerned if a company is financing either its inventories or paying dividends from borrowings without real growth as that shows deterioration
27
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-4 ANALYSIS
28
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
I FUNDAMENTAL ANALYSIS OF STOCKS
Basically fundamental analysis is covered in 3 parts
1 Market economy analysis
2 Industry Analysis
3 Company Analysis
1) TATA MOTORS
I Market Economy Analysis
It covers the macro economy analysis and the various macro economic factors on the national level like GDP Monetary policies of India Fiscal Policies and Inflation and money supply etc
GDP
Real GDP growth accelerated from 75 per cent during 2004-05 to 84 per cent during
2005-06 on the back of buoyant manufacturing and services activity supported by a
recovery in the agricultural sector Real GDP growth has thus averaged over eight per
cent during the last three years and over seven per cent in the first four years (2002-03 to
2005-06) of the Tenth Five Year Plan
Strengths of India today are
A well diversified industrial base which profits from self-reliance in all core industries A
large amp sophisticated financial architecture - The robust capital Markets today have over
9000 listed companies and boast of a massive Market capitalization
A healthy GDP composition with agriculture contributing 22 Industry 22 and
services which have gone strength to strength accounting For 56 of the GDP an
29
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
acknowledged strength in knowledge driven industries like Information technology
biotechnology entertainment Software etc
India has Over 3 million scientific amp technical manpower Over 06 million SampT post
graduates Over 07 million graduate engineers Over 3500 doctorates in sciences every
year
Assuming trend growth in agriculture under normal monsoon conditions and barring
domestic or external shocks the Reserve Bank in its Annual Policy Statement for 2007-
08 (April 2007) placed real GDP growth for policy purposes in the range of 75-80 per
cent during 2007-08 Growth prospects are however subject to a number of downside
risks The risks emanating from the global economy are potential escalation and
volatility in international crude oil prices firming up of overall inflationary pressures and
expectations and a hardening of international interest rates along with the withdrawal of
monetary accommodation
Indiarsquos demographic advantage ndash In contrast to developed Countries India will have a
younger population for the next 50 years Hence India would be the hub for RampD
Inflation
Inflation was contained to 63 per cent by end-March 2007 within the indicative
trajectory of 50-55 per cent during 2007-08 The actual inflation was considerably lower
than the indicative trajectory and this could be mainly attributed to the deferred pass-
through of even the cognisable permanent component of international crude oil prices
Money Supply
Monetary and liquidity conditions remained largely comfortable during 2006-07reflecting
proactive liquidity management operations by the Reserve Bank under the liquidity
adjustment facility flexible management of issuances under the market stabilisation
scheme and some private placement of Government securities
30
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
In short the Indian economy is exhibiting strong fundamentals and displaying
considerable resilience At the same time there are continuing signs of demand pressures
especially high credit growth that could exert upward pressure on prices when associated
with supply shocks such as from oil These pressures have the potential for impacting
stability and inflation expectations While domestic developments continue to dominate
the economy global factors tend to gain more attention now than before The global
outlook for growth is positive but downside risks in regard to inflation also RBI is
applying new repo and reverse repo for the balance of inflation and monetary policies
The following are macroeconomic policies generally found as part of government-
directed industrial auto policies
(a) Restrictions on domestic and foreign investment
(b) Domestic content requirements
(c) High tariff walls
(d) Auto export requirements
(e) National production to sales ratios
(f) Distribution controls
(g) Quotas and licensing requirements that significantly restrict imports
(h) Government approval for product related decisions including vehicle make
body type engine size etc
(i) Special government categories for auto taxes
II INDUSTRY ANALYSIS
Since 1991 opening of the economy has changed the face of auto industry Today it is
amongst the main drivers of growth of Indian economy with an output multiplier of
224(for every Re1 invested auto sector gives back Rs224 to the economy) In recent
years we have seen increasing number of global players entering Indian market by way of
Joint ventures collaborations or wholly owned subsidiary
The automobile industry is torn between trying to reduce costs on the one hand and on
the other dealing with the high price of performance-enhancing technology and
environmental compliance Key drivers in the automotive industry are
31
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Reducing air pollution
Reduction of weight
Recyclability
Safety
Better performance and engine efficiency
Aesthetics
Longer service Life
INDUSTRY LIFE CYCLE
The automobile market is at the maturity stage of the life cycle locally and globally due
to an increased number of competitors from domestic and foreign markets The
automobile market is characterized by a low potential for market growth but high sales
and profit potential as the products have still not saturated the market as a whole
MAJOR COMPETITORS OF TATA MOTORS ARE
Maruti Udyog Ltd
General Motors India
Ford India Ltd
Eicher Motors
Bajaj Auto
Hero Motors
Hindustan Motors
32
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Hyundai Motor India Ltd
Royal Enfield Motors
Telco
TVS Motors
FINANCIALS
Description 1 Day PriceChange
MarketCap
PEROE
Div Yield
Long-Term Debt toEquity
Price toBook Value
NetProfit Margin (mrq)
Price toFree Cash Flow (mrq)
Sector Consumer Goods 01125178B
2488
1707
222
1171076
706 40842
Industry Auto Manufacturers - Major (More Info)
0613310B
3000
750171
181 155 160 -440
Companies
Daimlerchrysler AG (DCX) 021 539B1072
1119
350
217 116 469 -354
Ford Motor Co (F) 121 157B NA-951
240
1107
115 -060 -8205
General Motors Corporation (GM) -024 165B NA
-6285
340
390 142 -621 014
Honda Motor Co Ltd (HMC) 083 622B1152
1654
100
083 173 552 20748
Tata Motors Ltd (TTM) -038 71B1864
NA150
NA 535 564 NA
Toyota Motor Corp (TM) 0731756B
1394
1505
120
103 197 659 NA
Opportunities and Threats
a) Opportunities
Road Development The ongoing road development program would improve
connectivity to ports cities and villages through a network of highways and
interconnecting roads by 2010-11 Improved road network would help in faster
33
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
movement of goods between various cities and towns The Company launched TATA
Novus range of vehicles in the heavy segment and TATA ACE for last mile distribution
Car penetration in India Car penetration in India is 7 cars per 1000 persons
International In FY 2006-07 the Company increased share of its overseas vehicle sales
from 76 last year to record high of 111 (as of its total sales) and has planned
further increase in this year
b) Threats
Global Competition India is increasingly attracting global players to set up
manufacturing facility for producing cars especially small cars Global automobile
manufacturers are also entering India in commercial vehicle segment to leverage Indiarsquos
low cost production advantage to their favor
Fuel Prices The continuing fuel price increase in the domestic market could
significantly impact demand of commercial and passenger vehicles
Input costs Commodity items particularly steel non-ferrous metals rubber and
engineering plastics have witnessed huge price increases in the past These prices are
expected to increase further affecting the Companyrsquos profitability
Interest rate hardening and other inflationary trends With interest rates hardening and
liquidity crunch in the system growth in sales may be adversely impacted
Government Regulations Stringent emission and safety requirements could bring new
complexities for automotive and component manufacturers impacting the Companyrsquos
business
Risks and Concerns
Interest Rates FY 2007-08 started with increasing interest rate regime and tightening
liquidity position in the economy Increasing interest rates could further affect vehicle
demand which could have an adverse impact on the Companyrsquos revenues and profits
Exchange rates The Company exports vehicles to many countries and exchange rate
fluctuations in the order execution period could impact the Companyrsquos business
34
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Freight rates In FY 2006-07 freight rates in road transport sector moved up mainly
due to surge in construction activity ongoing road development projects and severe
restriction on over-loading Demand for commercial vehicles could be impacted by
further change in freight rates and change in fuel prices
Domestic market The Company plans to reduce the impact of this cyclicality on its
business by strengthening its less cyclical businesses like buses light trucks small
commercial vehicles
Overseas market In overseas markets the Company competes with global players
which have multiple vehicle platforms large financial capability and global branding
Manufacturing The Company manufactures vehicles at multiple locations and given
the geographical dispersion of its suppliers it faces Logistics Problems
New Competition Competitive activity is expected to increase in commercial vehicle
and passenger vehicle domestic market in coming years
New projects The Company currently is in midst of executing many new projects
ranging from launch of new car platforms to development of new Truck models
III Company Analysis
Key Highlights
Symbol TTL
Sector Consumer Goods
Industry Auto Manufacturers Major
Market Cap Rs29232 crores
Data Since 1945
Last close Rs 74290
Brief Summary of the company
35
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Tata Motors is one of the largest companies in the Tata Group with a total income of US$
235 billion More than 3 million Tata vehicles ply on Indian roads making Tata a
dominant force in the Indian automobile industry
Joint Venture with Fiat and Hitachi
Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing
passenger vehicles engines and transmissions for both domestic and international
markets The Company has also entered into a JV with Hitachi to set up a new plant in
Kharagpur
Product Mix
Tata Motors is Indias only fully integrated automobile manufacturer with a portfolio that
covers trucks buses utility vehicles and passenger cars It would be no exaggeration to
say that Tata Motors provides the wheels for Indias growth
Segmental Overview
Commercial Vehicle Segment
The Company registered 696 volume growth in the domestic CV segment during
4QFY06 from 37228 units in Q3FY05 to 63082 units in Q3FY06 The market share in
this segment was 658 in Q4FY06 as compared to 552 in Q1FY06 The MHCV
goods-carrier segment registered a 544 growth YoY with sale of 33515 units and a
market share of 645 up by around 410 bps driven by infrastructure development and
increase in international trade
Passenger Vehicle Segment
The Company reported a growth of 212 YoY to 49907 vehicles in the domestic
passenger vehicle segment and a market share of 162 in the quarter The passenger
vehicle industry registered a volume growth of 204 during Q4FY06
36
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Plants
Tata Motors owes its leading position in the Indian automobile industry to its strong
focus on indigenisation Their manufacturing plants are situated at Jamshedpur in the
East Pune in the West and Lucknow in the North
Charts showing Key Statistics of tata motors
37
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Share holding pattern as on 31-Mar
shareholding pattern
34
1425
17
10
promotors
MF Banks Fis
FIIs
Others
Public
Financial highlights
38
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
39
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
RATIO ANALYSIS
Ratios 2006 2005 2004
Debtequity 056 049 044
Current ratio 108 087 076
Operating profit margin 1211 1151 1238
Gross profit margin 1087 1043 1104
ROCE 3125 3276 3377
total assets turnover ratio 315 353 343
ROE 2761 3009 2257
Dividend-equity 49794 45373 28211
Retention Ratio 6743 6332 6519
DPS (Rs) 1301 125 799
EPS (Rs) 25 34 41
Dividend Payout Ratio 039 042 037
CAGR of EPS 0177
CAGR of Dividend Payout Ratio -0017
Average ROE 2574
average retention 6354
Growth (g = Avg RR times Avg ROE ) 1636
Market return 1454
40
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
PE ratio (on the basis of historical analysis) = 1812
Therefore the Weighted PE ratio =(1812+2424)2 = 21181
Projected EPS = EPS OF 2006 + CAGR of EPSEPS OF 2006
= Rs48271
Value of Share at the end of financial year 06-07
= Projected EPS Weighted PE Ratio
= Rs1022
2) HPCL
Globalization and the Indian Petroleum Industry
Indian petroleum industry in the post independent period (1947-2001) it may be divided
into three distinct phases
(i) early phase (1947 to 1969)- when the government consolidated its control over
the industry with Soviet assistance
(ii) development phase (1970 to 1989)- in this period the US companies played
dominant role replacing the Soviets and
41
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
(iii) the economic liberalisation phase of 1990s
PORTERrsquoS MODEL
SWOT ANALYSIS
STRENGHS
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
WEAKNESSES
Dependence on refining function high
Moderate share in high profitable retail segment
42
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Diversifications in petrochemicals could trouble the company
High burden of subsidy loss on cooking gas and kerosene
OPPORTUNITIES
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
Overseas presence in upstream and downstream will determine growth
THREATS
Rising oil prices could dampen demand
High regulatory risk
Loss of market share to private players
Entrance of private players in pipelines will take away monopoly of company in
north India
COMPANY ANALYSIS
The Annual Report is broken down into the following specific parts
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the AccountsATHE DIRECTORrsquoS REPORTThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship Fundamental AnalysisB THE AUDITORS REPORTThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors
C FINANCIAL STATEMENTSIt comprises of Balance Sheet Profit and Loss account Cash Flows Its analysis would be discussed later
DSCHEDULES
43
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The schedules detail pertinent information about the items of Balance Sheet and Profit amp Loss Account It also details information about sales manufacturing costs administration costs interest and other income and expenses
1 THE MANAGEMENT
HPCL is a public sector undertaking Thus it is a professionally managed company
There are some parameters of management on which a company is analysed
a integrity of management
b past record of management
c how highly is the management rated by its peers in the same industry
d how the management fares in adversity
e the depth of the knowledge of management
f open and innovative management
on all these parameters HPCL scores good
2 COMPANY
Many times a company has made losses in the previous years but that does not mean
that the company is bad to invest Thus many factors are studied while studying a
company
a) perception of competitors
HPCL is the second largest petroleum company after IOCL Thus it is a competitor of
IOCL and it is trying hard to compete with IOCL on every front That is why now it
has decided to diversify itself in the oil exploration sector
b) company policies
As this is a PSU thus the policies are made by the government The oil sector is one
which is highly regulated by government Thus from time to time it is required to
watch out the various policies changed
3 ANNUAL REPORT
The most primary and most important source of information about a company is its
Annual Report This is prepared every year and distributed to its shareholders
44
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Ratio Analysis
Evaluation of Intrinsic Value of the Security
stdev mkt 0011934stdev sec 003831 Average
Retention Ratio 060504
correlation 0485958 ROE 019842Beta 156765 g 0120052Risk Free Rate 650
Mkt Rate 14
45
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
k 1826
Hence we see that here our g is less than k Thus we see that as per Dividend Discount Model our Intrinsic value is div=22(1+012)=240626= 387
Price= Projected EPS + Weighted PE ratioUsing CAGR EPS = 43468Weighted PE Ratio = 75+6652=33625
Price = 43468+33625 = 381
3) HDFC BANK
The Indian banking industry sector overview
With the economic growth picking up pace and the investment cycle on the way to recovery the banking sector has witnessed a transformation in its vital role of intermediating between the demand and supply of funds
Public sector banks have been very proactive in their restructuring initiatives be it in technology implementation or pruning their loss assets Windfall treasury gains made in the falling interest rate regime were used for writing off the doubtful and loss assets
Retail lending (especially mortgage financing) formed a significant portion of the portfolio for most banks and they customized their products to cater to the diverse demands
Apart from streamlining their processes through technology initiatives such as ATMs telephone banking online banking and web based products banks also resorted to cross selling of financial products such as credit cards mutual funds and insurance policies to augment their fee based income
PORTERrsquoS FIVE FORCES MODEL FOR THE BANKING INDUSTRY
1) BARRIERS TO ENTRY a Economies of scale Since the existing players in the market are well
established and already have a customer base they are able to bear the cost of using the advantages of technology to their maximum advantage
46
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Capital requirement for entry i The Banking Regulation Act prescribes the minimum capital
requirements for a bank Moreover banks have to maintain a capital adequacy ratio of 9 under the Basel I norms
ii Government has declared that the foreign banks will be permitted to establish their presence in India by way of setting up a wholly owned banking subsidiary (WOS) with a minimum capital of Rs300 crore
c Access to distribution channels Since banks have to set up their own distribution channels all the cost has to be directly born by them
d Cost advantage independent of size Existing banks have huge databases of customers which they use when they want to sell a new product launched by them
e Legislation or Government action Banks are governed by Banking Regulation Act 1949 which specifies the rules and regulations applicable to banks RBI is the governing body of banks in India
2) BARGAINING POWER OF BUYERS
Due to increased competition the services offered by banks to customers have improved considerably
3) BARGAINING POWER OF THE SUPPLIERS
Suppliers to banks can be both - the customers and RBIa Customers of banks provide money to banks in the form of deposits and in
return earn some interest on that b RBI acts as a supplier to banks by selling govt securities treasury bills
govt bonds etc c Call money market Banks sometimes have to borrow from other banks to
meet CRR and SLR requirements or other capital requirements as provided by RBI
4) THREAT OF SUBSTITUTES
a Product-for-product substitutioni Banks provide interest on deposits made by people Similar
services are offered by post offices which may act as substitutes to the deposit schemes of banks
ii Some banks offer locker services to customers for yearly rates Similar services are provided by many post offices
47
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Generic substitution People who deposit their savings in banks can invest their money in other sources like mutual funds shares and other securities and life insurance schemes
5) COMPETITIVE RIVALRY
a Extent of competitor balance b Market growth ratesc High Exit Barriers
PEST Analysis for Banking Industry
1 Political factors - The major factors affecting the banking sector are the following
Banking sector reforms ndash As per the RBI roadmap for reforms in the first stage from 2005 to 2009 foreign banks will be allowed to set up wholly owned subsidiaries as well as get greater freedom to set up new branches Fulfilling the minimum priority sector credit -The government mandation of fulfilling the minimum priority sector credit (of which 18 per cent is food credit) has forced the domestic banks to cater to this segment despite the low profitability and vulnerability of asset quality
Banks have also been allowed to set up Offshore Banking Units in SEZrsquos
2 Economic factors -
Basell II norms for the risk management in banking sector - The new Basel Accord has its foundation on three mutually reinforcing pillars The first pillar is compatible with the credit risk market risk and operational risk The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bankConcurrently it also casts responsibility on the supervisors to review and validate banksrsquo risk measurement models
Consolidation and merger and acquisitions in the banking sector- HDFC bank also acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Universal Banking has been introduced ICICI Bank HDFCs closest competitor is already into Universal Banking so HDFC is also getting into it as now it is providing retail banking and also depository facilities in the form of demat account
48
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
3 Social factors-
Big and growing middle class in India - This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans car loans education loans auto loans etc Retail loans have grown from 19 in FYrsquo99 to 51 FYrsquo06Consumer credit accounts for a meager 286 per cent of the countrys GDP and the buoyancy in the economy offers sufficient scope for it to grow
Geographical and Cultural diversity- This is leading to a greater demand for financial products and customization by the customers
4 Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999 It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector
Banks (All) No of players = 40
Sector statistics
We see the sector aggregates and make a financial comparison for the major banks
Top PlayersFY2006
Based on Total Income Based on OPBDT Total Income Change OPBDT Change
(Rs Mn) () (Rs Mn) ()ICICI BANK 631619 5450 S B I 763528 -129 PUNJAB NATIONAL B 29218 1491 ICICI BANK 37174 1936
CAN BANK 277095 2378 PUNJAB NATIONAL B 222052 3936
BANK OF INDIA 23317 2543 CAN BANK 168825 1953
H D F C BANK 185508 6024 H D F C BANK 14324 2748 change - indicates the change between current and corresponding quarter
49
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
In an industry plagued with skepticism and a stock market increasingly difficult to predict
and contend with if one looks hard enough there may still be a genuine aid for the Day
Trader and Short Term Investor
The price of a security represents a consensus It is the price at which one person agrees
to buy and another agrees to sell The price at which an investor is willing to buy or sell
depends primarily on his expectations If he expects the securitys price to rise he will
buy it if the investor expects the price to fall he will sell it These simple statements are
the cause of a major challenge in forecasting security prices because they refer to human
expectations As we all know firsthand humans expectations are neither easily
quantifiable nor predictable
If prices are based on investor expectations then knowing what a security should sell for
(ie fundamental analysis) becomes less important than knowing what other investors
expect it to sell for Thats not to say that knowing what a security should sell for isnt
important--it is But there is usually a fairly strong consensus of a stocks future earnings
that the average investor cannot disprove
Fundamental analysis and technical analysis can co-exist in peace and complement each other Since
all the investors in the stock market want to make the maximum profits possible they just cannot
afford to ignore either fundamental or technical analysis
13 OBJECTIVES OF THE STUDY
Primary Objective a) To do technical and fundamental analysis of chosen securities
Sub-Objectives
a) to study the various theories of technical analysis and fundamental analysis
b) understand the movement and performance of stocks
c) understanding and analyzing the factors that affect the movement of stock
prices in the Indian Stock Markets
6
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
14 RESEARCH METHODOLOGY amp DESIGN
TYPE OF STUDY
The research has been based on secondary data analysis The study has been exploratory
as it aims at examining the secondary data for analyzing the previous researches that have
been done in the area of technical and fundamental analysis of stocks The knowledge
thus gained from this preliminary study forms the basis for the further detailed
Descriptive research In the exploratory study the various technical indicators that are
important for analyzing stock were actually identified and important ones short listed
SAMPLE DESIGN
The sample of the stocks for the purpose of collecting secondary data has been selected
on the basis of Random Sampling The stocks are chosen in an unbiased manner and each
stock is chosen independent of the other stocks chosen
SAMPLE SIZE
The sample size for the number of stocks is taken as 10 for technical analysis and 4 for
fundamental analysis of stocks as fundamental analysis is very exhaustive and requires
detailed study
7
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER- 2
TECHNICAL ANALYSIS
A CONCEPTUAL OVERVIEW
TECHNICAL ANALYSIS
Technical analysis can be conditionally divided into some main parts such as
8
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Types of charts Graphical methods Analytical methods Technical indicators
Technical analysis is concerned with predicting future price trends from historical price and volume data The underlying axiom of technical analysis is that all fundamentals (including expectations) are factored into the market and are reflected in exchange rates
A technical analysis is based on three axioms
Movement of the market considers everything Movement of prices is purposeful History repeats itself
SUPPORT AND RESISTANCE
Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
Resistance on the other hand is the point at which sellers (bears) take control of prices and prevent them from rising higher The price at which a trade takes place is the price at which a bull and bear agree to do business It represents the consensus of their expectations
9
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Support levels indicate the price where the most of investors believe that prices will move higher Resistance levels indicate the price at which the most of investors feel prices will move lower
Role Reversal
When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
31 DOW THEORYndash TRENDS
The ideas of Charles Dow the first editor of the Wall Street Journal form the basis of technical analysis The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages Dow created the Industrial Average of top blue chip stocks and a second average of top railroad stocks (now the Transport Average) He believed that the behavior of the averages reflected the hopes and fears of the entire market The behavior patterns that he observed apply to markets throughout the world
Three Movements
Markets fluctuate in more than one time frame at the same time
10
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Nothing is more certain than that the market has three well defined movements which fit into each other
The first is the daily variation due to local causes and the balance of buying and
selling at that particular time
The secondary movement covers a period ranging from ten days to sixty days
averaging probably between thirty and forty days
The third move is the great swing covering from four to six years
Bull markets are broad upward movements of the market that may last several
years interrupted by secondary reactions Bear markets are long declines
interrupted by secondary rallies These movements are referred to as the primary
trend
Secondary movements normally retrace from one third to two thirds of the
primary trend since the previous secondary movement
Daily fluctuations are important for short-term trading but are unimportant in
analysis of broad market movements
Various cycles have subsequently been identified within these broad categories
Primary Movements have Three Phases
The general conditions in the market
Bull markets
Bull markets commence with reviving confidence as business conditions improve
Prices rise as the market responds to improved earnings
11
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Rampant speculation dominates the market and price advances are based on hopes and
expectations rather than actual results
Bear markets
Bear markets start with abandonment of the hopes and expectations that sustained
inflated prices
Prices decline in response to disappointing earnings
Distress selling follows as speculators attempt to close out their positions and
securities are sold without regard to their true value
Ranging Markets
A secondary reaction may take the form of a lsquolinersquo which may endure for several weeks Price fluctuates within a narrow range of about five per cent
Breakouts from a range can occur in either direction
Advances above the upper limit of the line signal accumulation and higher prices
Declines below the lower limit indicate distribution and lower prices
Volume is used to confirm price breakouts
Trends
Bull Trends
A bull trend is identified by a series of rallies where each rally exceeds the highest point of the previous rally The decline between rallies ends above the lowest point of the previous decline
Successive higher highs and higher lows
12
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
Start = higher Low + break above previous High
The end is signaled by a lower high (peak) followed by a decline below the previous low (trough)
End = lower High + break below previous Low
A bear trend starts at the end of a bull trend when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
Large Corrections
A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
13
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A bull trend starts when price rallies above the previous high
A bull trend ends when price declines below the previous low
A bear trend starts at the end of a bull trend (and vice versa)
32 ELLIOT WAVES THEORY BASICS
TRENDLINES
Breaking through support or resistance levels results in a change of tradersrsquo expectations (which causes supplydemand lines to shift)
14
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
An Uptrend is defined by successively higher low-prices A rising trend can be thought of as a rising support level the bulls are in control and are pushing prices higher A Downtrend is defined by successively lower high-prices A falling trend can be thought of as a falling resistance level the bears are in control and are pushing prices lower
33 MOVING AVERAGES
Moving averages are one of the oldest and most popular technical analysis tools A moving average is the average price of a financial instrument over a given time
The moving average represents the consensus of investorrsquos expectations over the indicated period of time
The classic interpretation of a moving average is to use it in observing changes in prices Investors typically buy when the price of an instrument rises above its moving average and sell when the it falls below its moving average
TECHNICAL INDICATORS
There is a vast number of elaborated technical indicators
15
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
MOVING AVERAGE ndashMA
RELATIVE STRENGTH INDEX mdash RSI The Relative Strength Index Technical Indicator (RSI) is a price-following oscillator that ranges between 0 and 100 When Wilder introduced the Relative Strength Index he recommended using a 14-day RSI Since then the 9-day and 25-day Relative Strength Index indicators have also gained popularity
ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the cumulative difference between advancing and declining issues
CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that closed on an uptick and those that closed on a downtick
CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading volume in declining issues to average trading volume in advancing issues
Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 shares HI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price CANDLESTICK CHART A candlestick chart is an extended version of the hi-lo-close
chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation When the stock price ldquopierces the necklinerdquo after the right shoulder is finished itrsquos time to sell
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins A win by the National Football Conference is bullish
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
16
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER- 3
FUNDAMENTAL ANALYSIS
A CONCEPTUAL OVERVIEW
17
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Fundamental analysis refers to the study of the core underlying elements that influence the economy of a particular entity It is a method of study that attempts to predict price action and market trends by analyzing economic indicators government policy and societal factors (to name just a few elements) within a business cycle framework
I ECONOMIC ANALYSIS
POLITICO-ECONOMIC ANALYSIS No industry or company can exist in isolation It may have splendid managers and a tremendous product However its sales and its costs are affected by factors some of which are beyond its control - the world economy price inflation taxes and a host of others It is important therefore to have an appreciation of the politico-economic factors that affect an industry and a company
The political equationA stable political environment is necessary for steady balanced growth If a country is ruled by a stable government which takes decisions for the long-term development of the country industry and companies will prosper Foreign Exchange ReservesA country needs foreign exchange reserves to meet its commitments pay for its imports and service foreign debts
Foreign Exchange RiskThis is a real risk and one must be cognizant of the effect of a revaluation or devaluation of the currency either in the home country or in the country the company deals in
Restrictive PracticesRestrictive practices or cartels imposed by countries can affect companies and industries crystallizing the exposure
Foreign Debt and the Balance of TradeForeign debt especially if it is very large can be a tremendous burden on an economy India pays around $ 5 billion a year in principal repayments and interest payments InflationInflation has an enormous effect in the economy Within the country it erodes purchasing power As a consequence demand falls If the rate of inflation in the country from which a company imports is high then the cost of production in that country will automatically go up
The Threat of NationalizationThe threat of nationalization is a real threat in many countries ndash the fear that a company may become nationalized
Interest Rates
18
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A low interest rate stimulates investment and industry Conversely high interest rates result in higher cost of production and lower consumption
TaxationThe level of taxation in a country has a direct effect on the economy If tax rates are low people have more disposable income
Government PolicyGovernment policy has a direct impact on the economy A government that is perceived to be proindustry will attract investment
THE ECONOMIC CYCLE
It affects investment decisions employment demand and the profitability of companiesThe four stages of an economic cycle are DepressionRecoveryBoom Recession DepressionAt the time of depression demand is low and falling Inflation is high and so are interest rates Companies crippled by high borrowing and falling sales are forced to curtail production close down plants built at times of higher demand and let workers go
RecoveryDuring this phase the economy begins to recover Investment begins anew and the demand grows Companies begin to post profits Conspicuous spending begins once again
BoomIn the boom phase demand reaches an all time high Investment is also high Interest rates are low Gradually as time goes on supply begins to exceed the demand Prices that had been rising begin to stabilize and even fall There is an increase in demand Then as the boom period matures prices begin to rise again
RecessionThe economy slowly begins to downturn Demand starts falling Interest rates and inflation are high Companies start finding it difficult to sell their goods The economy slowly begins to downturn
19
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II INDUSTRY ANALYSIS
The importance of industry analysis is now dawning on the Indian investor as never before
CycleThe first step in industry is to determine the cycle it is in or the stage of maturity of the industry All industries evolve through the following stages1 Entrepreneurial sunrise or nascent stage2 Expansion or growth stage3 Stabilization stagnation or maturity stage and4 Decline or sunset stage to properly establish itself In the early days it may actually make losses
The Entrepreneurial or Nascent StageAt the first stage the industry is new and it can take some time for it to properly establish itself
The Expansion or Growth StageOnce the industry has established itself it enters a growth stage As the industry grows many new companies enter the industry
The Stabilization or Maturity StageAfter the halcyon days of growth an industry matures and stabilizes Rewards are low and so too is the risk Growth is moderate Though sales may increase they do so at a
20
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
slower rate than before Products are more standardized and less innovative and there are several competitors
The Decline or Sunset StageFinally the industry declines This occurs when its products are no longer popular This may be on account of several factors such as a change in social habits The film and video industries
1 BARRIER TO ENTRYNew entrants increase the capacity in an industry and the inflow of funds The question that arises is how easy is it to enter an industry There are some barriers to entry
a) Economies of scaleb) Product differentiation c) Capital requirementd) Switching costse) Access to distribution channelsf) Cost disadvantages independent of scaleg) Government policyh) Expected retaliationj) International cartels
2 THE THREAT OF SUBSTITUTIONNew inventions are always taking place and new and better products replace existing ones An industry that can be replaced by substitutes or is threatened by substitutes is normally an industry one must be careful of investing in An industry where this occurs constantly is the packaging industry -bottles replaced by cans cans replaced by plastic bottles and the like To ward off the threat of substitution companies often have to spend large sums of money in advertising and promotion
3 BARGAINING POWER OF THE BUYERSIn an industry where buyers have control ie in a buyers market buyers are constantly forcing prices down demanding better services or higher quality and this often erodes profitability The factors one should check are whether a) A particular buyer buys most of the products (large purchase volumes) If such buyers withdraw their patronage they can destroy an industry They can also force prices downb) Buyers can play one company against another to bring prices down
4 BARGAINING POWER FOR THE SUPPLIERSAn industry unduly controlled by its suppliers is also under threat This occurs whena) The suppliers have a monopoly or if there are few suppliersb) Suppliers control an essential c) Demand for the product exceeds d) The supplier supplies to various industriese) The switching costs are high
21
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
f) The suppliers product does not have a substituteg) The suppliers product is an important input for the buyersh) The buyer is not important to the supplieri) The suppliers product is unique
5 RIVALRY AMONG COMPETITORSRivalry among competitors can cause an industry great harm This occurs mainly by price cuts heavy advertising additional high cost services or offers and the like This rivalry occurs mainly whena) There are many competitors and supply exceeds demand Companies resort to price cuts and advertise heavily in order to attract customers for their goodsb) The industry growth is slow and companies are competing with each other for a greater market sharec) The economy is in a recession and companies cut the price of their products and offer better service to stimulate demandd) There is lack of differentiation between the product of one company and that of another In such cases the buyer makes his choice on the basis of price or servicee) In some industries economies of scale will necessitate large additions to existing capacities in a company The increase in production could result in over capacity amp price cuttingf) Competitors may have very different strategies in selling their goods and in competing they may be continuously trying to stay ahead
III COMPANY ANALYSIS
At the final stage of fundamental analysis the investor analyzes the company This analysis has two thrustsHow has the company performed vis-agrave-vis other similar companies and How has the company performed in comparison to earlier years It is imperative that one completes the politico economic analysis and the industry analysis before a company is analyzed because the companys performance at a period of time is to an extent a reflection of the economy the political situation and the industry What does one look at when analyzing a company The different issues regarding a company that should be examined are The Management The Company The Annual Report Ratios Cash flow
THE MANAGEMENT
The single most important factor one should consider when investing in a company and one often never considered is its management In India management can be broadly
22
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
divided in two types Family Management Professional Management
THE COMPANY
An aspect not necessarily examined during an analysis of fundamentals is the company A company may have made losses consecutively for two years or more and one may not wish to touch its shares - yet it may be a good company and worth purchasing into There are several factors one should look at
1 How a company is perceived by its competitorsOne of the key factors to ascertain is how a company is perceived by its competitors It is held in high regard Its management may be known for its maturity vision competence and aggressiveness The investor must ascertain the reason and then determine whetherthe reason will continue into the foreseeable future
2 Whether the company is the market leader in its products or in its segmentAnother aspect that should be ascertained is whether the company is the market leader in its products or in its segment When you invest in market leaders the risk is less Theshares of market leaders do not fall as quickly as those of other companies There is a magic to their name that would make individuals prefer to buy their products as opposed to others
3 Company PoliciesThe policy a company follows is also important What is its plans for growth What is its vision Every company has a life If it is allowed to live a normal life it will grow upto a point and then begin to level out and eventually die It is at the point of leveling out that it must be given new life This can give it renewed vigour and a new lease of life
4 Labour RelationsLabour relations are extremely important A company that has motivated industrious work force has high productivity and practically no disruption of work On the other hand a company that has bad industrial relations will lose several hundred mandays as a consequence of strikes and go slows
5 Where the company is located and where its factories are One must also consider where the companies Plants and Factories are located
THE ANNUAL REPORT
The primary and most important source of information about a company is its Annual Report By law this is prepared every year and distributed to the shareholders Annual Reports are usually very well presented A tremendous amount of data is given about the performance of a company over a period of time The Annual Report is broken down into the following specific parts
23
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the Accounts
A The Directorrsquos ReportThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship 1 It enunciates the opinion of the directors on the state of the economy and the political situation vis-agrave-vis the company 2 Explains the performance and the financial results of the company in the period under review This is an extremely important part The results and operations of the various separate divisions are usually detailed and investors can determine the reasons for their good or bad performance3 The Directorrsquos Report details the companys plans for modernization expansion and diversification Without these a company will remain static and eventually decline4 Discusses the profit earned in the period under review and the dividend Recommended by the directors This paragraph should normally be read with some skepticism as the directors will always argue that the performance was satisfactory If adverse economic conditions are usually at fault 5 Elaborates on the directors views of the companys prospects in the future6 Discusses plans for new acquisition and investments An investor must intelligently evaluate the issues raised in a Directorrsquos Report Industry conditions and the managements knowledge of the business must be considered
B The Auditors ReportThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors Auditors are required to report whether the financial statements presented do in fact present a true and fair view of the state of the company Investors must remember that the auditors are their representatives and that they are required by law to point out if the financial statements are not true and fair
CFinancial StatementsThe published financial statements of a company in an Annual Report consist of its Balance Sheet as at the end of the accounting period detailing the financing condition of the company at that date and the Profit and Loss Account or Income Statement summarizing the activities of the company for the accounting period
BALANCE SHEETThe Balance Sheet details the financial position of a company on a particular date of the companys assets (that which the company owns) and liabilities (that which the companyowes) grouped logically under specific heads It must however be noted that the Balance Sheet details the financial position on a particular day and that the position can be materially different on the next day or the day after
24
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOURCES OF FUNDSSHAREHOLDERS FUNDSSHARE CAPITAL(i) Private Placement(ii) Public Issueiii) Rights issuesRESERVESi) Capital Reservesii) Revenue ReservesLOAN FUNDSi) Secured loansii) Unsecured loansFIXED ASSETSINVESTMENTSSTOCK OR INVENTORIESi) Raw materialsii) Work in progressiii) Finished goodsCASH AND BANK BALANCESLOANS AND ADVANCES
PROFIT AND LOSS ACCOUNTThe Profit and Loss account summarizes the activities of a company during an accounting period which may be a month a quarter six months a year or longer and the result achieved by the company It details the income earned by the company its cost and the resulting profit or loss It is in effect the performance appraisal not only of the company but also of its management- its competence foresight and ability to lead
RATIOS
Ratios express mathematically the relationship between performance figures andor assetsliabilities in a form that can be easily understood and interpretedNo single ratio tells the complete storyRatios can be broken down into four broad categories
(A) Profit and Loss RatiosThese show the relationship between two items or groups of items in a profit and loss account or income statement The more common of these ratios are1 Sales to cost of goods sold2 Selling expenses to sales3 Net profit to sales and4 Gross profit to sales
(B) Balance Sheet RatiosThese deal with the relationship in the balance sheet such as 1 Shareholders equity to borrowed funds
25
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
2 Current assets to current liabilities3 Liabilities to net worth4 Debt to assets and5 Liabilities to assets
(C) Balance Sheet and Profit and Loss Account RatiosThese relate an item on the balance sheet to another in the profit and loss account such as1 Earnings to shareholders funds2 Net income to assets employed3 Sales to stock4 Sales to debtors and5 Cost of goods sold to creditors
(D) Financial Statements and Market RatiosThese are normally known as market ratios and are arrived at by relative financial figures to market prices1 Market value to earnings and2 Book value to market value(a) Market value(b) Earnings(c) Profitability(d) Liquidity(e) Leverage(f) Debt Service Capacity(g) Asset ManagementEfficiency(h) Margins
The major ratios that are considered(i) Market value(ii) Price- earnings ratio(iii) Market-to-book ratio(iv) Earnings(v) Earning per share(vi) Dividend per share(vii) Dividend payout ratio(viii) Leverage ratios(ix) Return on investmentstotal assets
CASH FLOW A statement of sources and uses begins with the profit for the year to which are added the increases in liability accounts (sources) and from which are reduced the increases in asset accounts (uses) The net result shows whether there has been an excess or deficit of funds and how this was financed Investors must examine a companys cash flow as it reveals exactly where the money came from how it was utilized Investors must be
26
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
concerned if a company is financing either its inventories or paying dividends from borrowings without real growth as that shows deterioration
27
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-4 ANALYSIS
28
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
I FUNDAMENTAL ANALYSIS OF STOCKS
Basically fundamental analysis is covered in 3 parts
1 Market economy analysis
2 Industry Analysis
3 Company Analysis
1) TATA MOTORS
I Market Economy Analysis
It covers the macro economy analysis and the various macro economic factors on the national level like GDP Monetary policies of India Fiscal Policies and Inflation and money supply etc
GDP
Real GDP growth accelerated from 75 per cent during 2004-05 to 84 per cent during
2005-06 on the back of buoyant manufacturing and services activity supported by a
recovery in the agricultural sector Real GDP growth has thus averaged over eight per
cent during the last three years and over seven per cent in the first four years (2002-03 to
2005-06) of the Tenth Five Year Plan
Strengths of India today are
A well diversified industrial base which profits from self-reliance in all core industries A
large amp sophisticated financial architecture - The robust capital Markets today have over
9000 listed companies and boast of a massive Market capitalization
A healthy GDP composition with agriculture contributing 22 Industry 22 and
services which have gone strength to strength accounting For 56 of the GDP an
29
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
acknowledged strength in knowledge driven industries like Information technology
biotechnology entertainment Software etc
India has Over 3 million scientific amp technical manpower Over 06 million SampT post
graduates Over 07 million graduate engineers Over 3500 doctorates in sciences every
year
Assuming trend growth in agriculture under normal monsoon conditions and barring
domestic or external shocks the Reserve Bank in its Annual Policy Statement for 2007-
08 (April 2007) placed real GDP growth for policy purposes in the range of 75-80 per
cent during 2007-08 Growth prospects are however subject to a number of downside
risks The risks emanating from the global economy are potential escalation and
volatility in international crude oil prices firming up of overall inflationary pressures and
expectations and a hardening of international interest rates along with the withdrawal of
monetary accommodation
Indiarsquos demographic advantage ndash In contrast to developed Countries India will have a
younger population for the next 50 years Hence India would be the hub for RampD
Inflation
Inflation was contained to 63 per cent by end-March 2007 within the indicative
trajectory of 50-55 per cent during 2007-08 The actual inflation was considerably lower
than the indicative trajectory and this could be mainly attributed to the deferred pass-
through of even the cognisable permanent component of international crude oil prices
Money Supply
Monetary and liquidity conditions remained largely comfortable during 2006-07reflecting
proactive liquidity management operations by the Reserve Bank under the liquidity
adjustment facility flexible management of issuances under the market stabilisation
scheme and some private placement of Government securities
30
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
In short the Indian economy is exhibiting strong fundamentals and displaying
considerable resilience At the same time there are continuing signs of demand pressures
especially high credit growth that could exert upward pressure on prices when associated
with supply shocks such as from oil These pressures have the potential for impacting
stability and inflation expectations While domestic developments continue to dominate
the economy global factors tend to gain more attention now than before The global
outlook for growth is positive but downside risks in regard to inflation also RBI is
applying new repo and reverse repo for the balance of inflation and monetary policies
The following are macroeconomic policies generally found as part of government-
directed industrial auto policies
(a) Restrictions on domestic and foreign investment
(b) Domestic content requirements
(c) High tariff walls
(d) Auto export requirements
(e) National production to sales ratios
(f) Distribution controls
(g) Quotas and licensing requirements that significantly restrict imports
(h) Government approval for product related decisions including vehicle make
body type engine size etc
(i) Special government categories for auto taxes
II INDUSTRY ANALYSIS
Since 1991 opening of the economy has changed the face of auto industry Today it is
amongst the main drivers of growth of Indian economy with an output multiplier of
224(for every Re1 invested auto sector gives back Rs224 to the economy) In recent
years we have seen increasing number of global players entering Indian market by way of
Joint ventures collaborations or wholly owned subsidiary
The automobile industry is torn between trying to reduce costs on the one hand and on
the other dealing with the high price of performance-enhancing technology and
environmental compliance Key drivers in the automotive industry are
31
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Reducing air pollution
Reduction of weight
Recyclability
Safety
Better performance and engine efficiency
Aesthetics
Longer service Life
INDUSTRY LIFE CYCLE
The automobile market is at the maturity stage of the life cycle locally and globally due
to an increased number of competitors from domestic and foreign markets The
automobile market is characterized by a low potential for market growth but high sales
and profit potential as the products have still not saturated the market as a whole
MAJOR COMPETITORS OF TATA MOTORS ARE
Maruti Udyog Ltd
General Motors India
Ford India Ltd
Eicher Motors
Bajaj Auto
Hero Motors
Hindustan Motors
32
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Hyundai Motor India Ltd
Royal Enfield Motors
Telco
TVS Motors
FINANCIALS
Description 1 Day PriceChange
MarketCap
PEROE
Div Yield
Long-Term Debt toEquity
Price toBook Value
NetProfit Margin (mrq)
Price toFree Cash Flow (mrq)
Sector Consumer Goods 01125178B
2488
1707
222
1171076
706 40842
Industry Auto Manufacturers - Major (More Info)
0613310B
3000
750171
181 155 160 -440
Companies
Daimlerchrysler AG (DCX) 021 539B1072
1119
350
217 116 469 -354
Ford Motor Co (F) 121 157B NA-951
240
1107
115 -060 -8205
General Motors Corporation (GM) -024 165B NA
-6285
340
390 142 -621 014
Honda Motor Co Ltd (HMC) 083 622B1152
1654
100
083 173 552 20748
Tata Motors Ltd (TTM) -038 71B1864
NA150
NA 535 564 NA
Toyota Motor Corp (TM) 0731756B
1394
1505
120
103 197 659 NA
Opportunities and Threats
a) Opportunities
Road Development The ongoing road development program would improve
connectivity to ports cities and villages through a network of highways and
interconnecting roads by 2010-11 Improved road network would help in faster
33
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
movement of goods between various cities and towns The Company launched TATA
Novus range of vehicles in the heavy segment and TATA ACE for last mile distribution
Car penetration in India Car penetration in India is 7 cars per 1000 persons
International In FY 2006-07 the Company increased share of its overseas vehicle sales
from 76 last year to record high of 111 (as of its total sales) and has planned
further increase in this year
b) Threats
Global Competition India is increasingly attracting global players to set up
manufacturing facility for producing cars especially small cars Global automobile
manufacturers are also entering India in commercial vehicle segment to leverage Indiarsquos
low cost production advantage to their favor
Fuel Prices The continuing fuel price increase in the domestic market could
significantly impact demand of commercial and passenger vehicles
Input costs Commodity items particularly steel non-ferrous metals rubber and
engineering plastics have witnessed huge price increases in the past These prices are
expected to increase further affecting the Companyrsquos profitability
Interest rate hardening and other inflationary trends With interest rates hardening and
liquidity crunch in the system growth in sales may be adversely impacted
Government Regulations Stringent emission and safety requirements could bring new
complexities for automotive and component manufacturers impacting the Companyrsquos
business
Risks and Concerns
Interest Rates FY 2007-08 started with increasing interest rate regime and tightening
liquidity position in the economy Increasing interest rates could further affect vehicle
demand which could have an adverse impact on the Companyrsquos revenues and profits
Exchange rates The Company exports vehicles to many countries and exchange rate
fluctuations in the order execution period could impact the Companyrsquos business
34
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Freight rates In FY 2006-07 freight rates in road transport sector moved up mainly
due to surge in construction activity ongoing road development projects and severe
restriction on over-loading Demand for commercial vehicles could be impacted by
further change in freight rates and change in fuel prices
Domestic market The Company plans to reduce the impact of this cyclicality on its
business by strengthening its less cyclical businesses like buses light trucks small
commercial vehicles
Overseas market In overseas markets the Company competes with global players
which have multiple vehicle platforms large financial capability and global branding
Manufacturing The Company manufactures vehicles at multiple locations and given
the geographical dispersion of its suppliers it faces Logistics Problems
New Competition Competitive activity is expected to increase in commercial vehicle
and passenger vehicle domestic market in coming years
New projects The Company currently is in midst of executing many new projects
ranging from launch of new car platforms to development of new Truck models
III Company Analysis
Key Highlights
Symbol TTL
Sector Consumer Goods
Industry Auto Manufacturers Major
Market Cap Rs29232 crores
Data Since 1945
Last close Rs 74290
Brief Summary of the company
35
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Tata Motors is one of the largest companies in the Tata Group with a total income of US$
235 billion More than 3 million Tata vehicles ply on Indian roads making Tata a
dominant force in the Indian automobile industry
Joint Venture with Fiat and Hitachi
Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing
passenger vehicles engines and transmissions for both domestic and international
markets The Company has also entered into a JV with Hitachi to set up a new plant in
Kharagpur
Product Mix
Tata Motors is Indias only fully integrated automobile manufacturer with a portfolio that
covers trucks buses utility vehicles and passenger cars It would be no exaggeration to
say that Tata Motors provides the wheels for Indias growth
Segmental Overview
Commercial Vehicle Segment
The Company registered 696 volume growth in the domestic CV segment during
4QFY06 from 37228 units in Q3FY05 to 63082 units in Q3FY06 The market share in
this segment was 658 in Q4FY06 as compared to 552 in Q1FY06 The MHCV
goods-carrier segment registered a 544 growth YoY with sale of 33515 units and a
market share of 645 up by around 410 bps driven by infrastructure development and
increase in international trade
Passenger Vehicle Segment
The Company reported a growth of 212 YoY to 49907 vehicles in the domestic
passenger vehicle segment and a market share of 162 in the quarter The passenger
vehicle industry registered a volume growth of 204 during Q4FY06
36
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Plants
Tata Motors owes its leading position in the Indian automobile industry to its strong
focus on indigenisation Their manufacturing plants are situated at Jamshedpur in the
East Pune in the West and Lucknow in the North
Charts showing Key Statistics of tata motors
37
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Share holding pattern as on 31-Mar
shareholding pattern
34
1425
17
10
promotors
MF Banks Fis
FIIs
Others
Public
Financial highlights
38
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
39
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
RATIO ANALYSIS
Ratios 2006 2005 2004
Debtequity 056 049 044
Current ratio 108 087 076
Operating profit margin 1211 1151 1238
Gross profit margin 1087 1043 1104
ROCE 3125 3276 3377
total assets turnover ratio 315 353 343
ROE 2761 3009 2257
Dividend-equity 49794 45373 28211
Retention Ratio 6743 6332 6519
DPS (Rs) 1301 125 799
EPS (Rs) 25 34 41
Dividend Payout Ratio 039 042 037
CAGR of EPS 0177
CAGR of Dividend Payout Ratio -0017
Average ROE 2574
average retention 6354
Growth (g = Avg RR times Avg ROE ) 1636
Market return 1454
40
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
PE ratio (on the basis of historical analysis) = 1812
Therefore the Weighted PE ratio =(1812+2424)2 = 21181
Projected EPS = EPS OF 2006 + CAGR of EPSEPS OF 2006
= Rs48271
Value of Share at the end of financial year 06-07
= Projected EPS Weighted PE Ratio
= Rs1022
2) HPCL
Globalization and the Indian Petroleum Industry
Indian petroleum industry in the post independent period (1947-2001) it may be divided
into three distinct phases
(i) early phase (1947 to 1969)- when the government consolidated its control over
the industry with Soviet assistance
(ii) development phase (1970 to 1989)- in this period the US companies played
dominant role replacing the Soviets and
41
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
(iii) the economic liberalisation phase of 1990s
PORTERrsquoS MODEL
SWOT ANALYSIS
STRENGHS
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
WEAKNESSES
Dependence on refining function high
Moderate share in high profitable retail segment
42
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Diversifications in petrochemicals could trouble the company
High burden of subsidy loss on cooking gas and kerosene
OPPORTUNITIES
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
Overseas presence in upstream and downstream will determine growth
THREATS
Rising oil prices could dampen demand
High regulatory risk
Loss of market share to private players
Entrance of private players in pipelines will take away monopoly of company in
north India
COMPANY ANALYSIS
The Annual Report is broken down into the following specific parts
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the AccountsATHE DIRECTORrsquoS REPORTThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship Fundamental AnalysisB THE AUDITORS REPORTThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors
C FINANCIAL STATEMENTSIt comprises of Balance Sheet Profit and Loss account Cash Flows Its analysis would be discussed later
DSCHEDULES
43
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The schedules detail pertinent information about the items of Balance Sheet and Profit amp Loss Account It also details information about sales manufacturing costs administration costs interest and other income and expenses
1 THE MANAGEMENT
HPCL is a public sector undertaking Thus it is a professionally managed company
There are some parameters of management on which a company is analysed
a integrity of management
b past record of management
c how highly is the management rated by its peers in the same industry
d how the management fares in adversity
e the depth of the knowledge of management
f open and innovative management
on all these parameters HPCL scores good
2 COMPANY
Many times a company has made losses in the previous years but that does not mean
that the company is bad to invest Thus many factors are studied while studying a
company
a) perception of competitors
HPCL is the second largest petroleum company after IOCL Thus it is a competitor of
IOCL and it is trying hard to compete with IOCL on every front That is why now it
has decided to diversify itself in the oil exploration sector
b) company policies
As this is a PSU thus the policies are made by the government The oil sector is one
which is highly regulated by government Thus from time to time it is required to
watch out the various policies changed
3 ANNUAL REPORT
The most primary and most important source of information about a company is its
Annual Report This is prepared every year and distributed to its shareholders
44
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Ratio Analysis
Evaluation of Intrinsic Value of the Security
stdev mkt 0011934stdev sec 003831 Average
Retention Ratio 060504
correlation 0485958 ROE 019842Beta 156765 g 0120052Risk Free Rate 650
Mkt Rate 14
45
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
k 1826
Hence we see that here our g is less than k Thus we see that as per Dividend Discount Model our Intrinsic value is div=22(1+012)=240626= 387
Price= Projected EPS + Weighted PE ratioUsing CAGR EPS = 43468Weighted PE Ratio = 75+6652=33625
Price = 43468+33625 = 381
3) HDFC BANK
The Indian banking industry sector overview
With the economic growth picking up pace and the investment cycle on the way to recovery the banking sector has witnessed a transformation in its vital role of intermediating between the demand and supply of funds
Public sector banks have been very proactive in their restructuring initiatives be it in technology implementation or pruning their loss assets Windfall treasury gains made in the falling interest rate regime were used for writing off the doubtful and loss assets
Retail lending (especially mortgage financing) formed a significant portion of the portfolio for most banks and they customized their products to cater to the diverse demands
Apart from streamlining their processes through technology initiatives such as ATMs telephone banking online banking and web based products banks also resorted to cross selling of financial products such as credit cards mutual funds and insurance policies to augment their fee based income
PORTERrsquoS FIVE FORCES MODEL FOR THE BANKING INDUSTRY
1) BARRIERS TO ENTRY a Economies of scale Since the existing players in the market are well
established and already have a customer base they are able to bear the cost of using the advantages of technology to their maximum advantage
46
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Capital requirement for entry i The Banking Regulation Act prescribes the minimum capital
requirements for a bank Moreover banks have to maintain a capital adequacy ratio of 9 under the Basel I norms
ii Government has declared that the foreign banks will be permitted to establish their presence in India by way of setting up a wholly owned banking subsidiary (WOS) with a minimum capital of Rs300 crore
c Access to distribution channels Since banks have to set up their own distribution channels all the cost has to be directly born by them
d Cost advantage independent of size Existing banks have huge databases of customers which they use when they want to sell a new product launched by them
e Legislation or Government action Banks are governed by Banking Regulation Act 1949 which specifies the rules and regulations applicable to banks RBI is the governing body of banks in India
2) BARGAINING POWER OF BUYERS
Due to increased competition the services offered by banks to customers have improved considerably
3) BARGAINING POWER OF THE SUPPLIERS
Suppliers to banks can be both - the customers and RBIa Customers of banks provide money to banks in the form of deposits and in
return earn some interest on that b RBI acts as a supplier to banks by selling govt securities treasury bills
govt bonds etc c Call money market Banks sometimes have to borrow from other banks to
meet CRR and SLR requirements or other capital requirements as provided by RBI
4) THREAT OF SUBSTITUTES
a Product-for-product substitutioni Banks provide interest on deposits made by people Similar
services are offered by post offices which may act as substitutes to the deposit schemes of banks
ii Some banks offer locker services to customers for yearly rates Similar services are provided by many post offices
47
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Generic substitution People who deposit their savings in banks can invest their money in other sources like mutual funds shares and other securities and life insurance schemes
5) COMPETITIVE RIVALRY
a Extent of competitor balance b Market growth ratesc High Exit Barriers
PEST Analysis for Banking Industry
1 Political factors - The major factors affecting the banking sector are the following
Banking sector reforms ndash As per the RBI roadmap for reforms in the first stage from 2005 to 2009 foreign banks will be allowed to set up wholly owned subsidiaries as well as get greater freedom to set up new branches Fulfilling the minimum priority sector credit -The government mandation of fulfilling the minimum priority sector credit (of which 18 per cent is food credit) has forced the domestic banks to cater to this segment despite the low profitability and vulnerability of asset quality
Banks have also been allowed to set up Offshore Banking Units in SEZrsquos
2 Economic factors -
Basell II norms for the risk management in banking sector - The new Basel Accord has its foundation on three mutually reinforcing pillars The first pillar is compatible with the credit risk market risk and operational risk The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bankConcurrently it also casts responsibility on the supervisors to review and validate banksrsquo risk measurement models
Consolidation and merger and acquisitions in the banking sector- HDFC bank also acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Universal Banking has been introduced ICICI Bank HDFCs closest competitor is already into Universal Banking so HDFC is also getting into it as now it is providing retail banking and also depository facilities in the form of demat account
48
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
3 Social factors-
Big and growing middle class in India - This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans car loans education loans auto loans etc Retail loans have grown from 19 in FYrsquo99 to 51 FYrsquo06Consumer credit accounts for a meager 286 per cent of the countrys GDP and the buoyancy in the economy offers sufficient scope for it to grow
Geographical and Cultural diversity- This is leading to a greater demand for financial products and customization by the customers
4 Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999 It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector
Banks (All) No of players = 40
Sector statistics
We see the sector aggregates and make a financial comparison for the major banks
Top PlayersFY2006
Based on Total Income Based on OPBDT Total Income Change OPBDT Change
(Rs Mn) () (Rs Mn) ()ICICI BANK 631619 5450 S B I 763528 -129 PUNJAB NATIONAL B 29218 1491 ICICI BANK 37174 1936
CAN BANK 277095 2378 PUNJAB NATIONAL B 222052 3936
BANK OF INDIA 23317 2543 CAN BANK 168825 1953
H D F C BANK 185508 6024 H D F C BANK 14324 2748 change - indicates the change between current and corresponding quarter
49
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
14 RESEARCH METHODOLOGY amp DESIGN
TYPE OF STUDY
The research has been based on secondary data analysis The study has been exploratory
as it aims at examining the secondary data for analyzing the previous researches that have
been done in the area of technical and fundamental analysis of stocks The knowledge
thus gained from this preliminary study forms the basis for the further detailed
Descriptive research In the exploratory study the various technical indicators that are
important for analyzing stock were actually identified and important ones short listed
SAMPLE DESIGN
The sample of the stocks for the purpose of collecting secondary data has been selected
on the basis of Random Sampling The stocks are chosen in an unbiased manner and each
stock is chosen independent of the other stocks chosen
SAMPLE SIZE
The sample size for the number of stocks is taken as 10 for technical analysis and 4 for
fundamental analysis of stocks as fundamental analysis is very exhaustive and requires
detailed study
7
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER- 2
TECHNICAL ANALYSIS
A CONCEPTUAL OVERVIEW
TECHNICAL ANALYSIS
Technical analysis can be conditionally divided into some main parts such as
8
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Types of charts Graphical methods Analytical methods Technical indicators
Technical analysis is concerned with predicting future price trends from historical price and volume data The underlying axiom of technical analysis is that all fundamentals (including expectations) are factored into the market and are reflected in exchange rates
A technical analysis is based on three axioms
Movement of the market considers everything Movement of prices is purposeful History repeats itself
SUPPORT AND RESISTANCE
Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
Resistance on the other hand is the point at which sellers (bears) take control of prices and prevent them from rising higher The price at which a trade takes place is the price at which a bull and bear agree to do business It represents the consensus of their expectations
9
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Support levels indicate the price where the most of investors believe that prices will move higher Resistance levels indicate the price at which the most of investors feel prices will move lower
Role Reversal
When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
31 DOW THEORYndash TRENDS
The ideas of Charles Dow the first editor of the Wall Street Journal form the basis of technical analysis The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages Dow created the Industrial Average of top blue chip stocks and a second average of top railroad stocks (now the Transport Average) He believed that the behavior of the averages reflected the hopes and fears of the entire market The behavior patterns that he observed apply to markets throughout the world
Three Movements
Markets fluctuate in more than one time frame at the same time
10
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Nothing is more certain than that the market has three well defined movements which fit into each other
The first is the daily variation due to local causes and the balance of buying and
selling at that particular time
The secondary movement covers a period ranging from ten days to sixty days
averaging probably between thirty and forty days
The third move is the great swing covering from four to six years
Bull markets are broad upward movements of the market that may last several
years interrupted by secondary reactions Bear markets are long declines
interrupted by secondary rallies These movements are referred to as the primary
trend
Secondary movements normally retrace from one third to two thirds of the
primary trend since the previous secondary movement
Daily fluctuations are important for short-term trading but are unimportant in
analysis of broad market movements
Various cycles have subsequently been identified within these broad categories
Primary Movements have Three Phases
The general conditions in the market
Bull markets
Bull markets commence with reviving confidence as business conditions improve
Prices rise as the market responds to improved earnings
11
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Rampant speculation dominates the market and price advances are based on hopes and
expectations rather than actual results
Bear markets
Bear markets start with abandonment of the hopes and expectations that sustained
inflated prices
Prices decline in response to disappointing earnings
Distress selling follows as speculators attempt to close out their positions and
securities are sold without regard to their true value
Ranging Markets
A secondary reaction may take the form of a lsquolinersquo which may endure for several weeks Price fluctuates within a narrow range of about five per cent
Breakouts from a range can occur in either direction
Advances above the upper limit of the line signal accumulation and higher prices
Declines below the lower limit indicate distribution and lower prices
Volume is used to confirm price breakouts
Trends
Bull Trends
A bull trend is identified by a series of rallies where each rally exceeds the highest point of the previous rally The decline between rallies ends above the lowest point of the previous decline
Successive higher highs and higher lows
12
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
Start = higher Low + break above previous High
The end is signaled by a lower high (peak) followed by a decline below the previous low (trough)
End = lower High + break below previous Low
A bear trend starts at the end of a bull trend when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
Large Corrections
A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
13
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A bull trend starts when price rallies above the previous high
A bull trend ends when price declines below the previous low
A bear trend starts at the end of a bull trend (and vice versa)
32 ELLIOT WAVES THEORY BASICS
TRENDLINES
Breaking through support or resistance levels results in a change of tradersrsquo expectations (which causes supplydemand lines to shift)
14
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
An Uptrend is defined by successively higher low-prices A rising trend can be thought of as a rising support level the bulls are in control and are pushing prices higher A Downtrend is defined by successively lower high-prices A falling trend can be thought of as a falling resistance level the bears are in control and are pushing prices lower
33 MOVING AVERAGES
Moving averages are one of the oldest and most popular technical analysis tools A moving average is the average price of a financial instrument over a given time
The moving average represents the consensus of investorrsquos expectations over the indicated period of time
The classic interpretation of a moving average is to use it in observing changes in prices Investors typically buy when the price of an instrument rises above its moving average and sell when the it falls below its moving average
TECHNICAL INDICATORS
There is a vast number of elaborated technical indicators
15
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
MOVING AVERAGE ndashMA
RELATIVE STRENGTH INDEX mdash RSI The Relative Strength Index Technical Indicator (RSI) is a price-following oscillator that ranges between 0 and 100 When Wilder introduced the Relative Strength Index he recommended using a 14-day RSI Since then the 9-day and 25-day Relative Strength Index indicators have also gained popularity
ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the cumulative difference between advancing and declining issues
CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that closed on an uptick and those that closed on a downtick
CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading volume in declining issues to average trading volume in advancing issues
Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 shares HI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price CANDLESTICK CHART A candlestick chart is an extended version of the hi-lo-close
chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation When the stock price ldquopierces the necklinerdquo after the right shoulder is finished itrsquos time to sell
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins A win by the National Football Conference is bullish
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
16
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER- 3
FUNDAMENTAL ANALYSIS
A CONCEPTUAL OVERVIEW
17
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Fundamental analysis refers to the study of the core underlying elements that influence the economy of a particular entity It is a method of study that attempts to predict price action and market trends by analyzing economic indicators government policy and societal factors (to name just a few elements) within a business cycle framework
I ECONOMIC ANALYSIS
POLITICO-ECONOMIC ANALYSIS No industry or company can exist in isolation It may have splendid managers and a tremendous product However its sales and its costs are affected by factors some of which are beyond its control - the world economy price inflation taxes and a host of others It is important therefore to have an appreciation of the politico-economic factors that affect an industry and a company
The political equationA stable political environment is necessary for steady balanced growth If a country is ruled by a stable government which takes decisions for the long-term development of the country industry and companies will prosper Foreign Exchange ReservesA country needs foreign exchange reserves to meet its commitments pay for its imports and service foreign debts
Foreign Exchange RiskThis is a real risk and one must be cognizant of the effect of a revaluation or devaluation of the currency either in the home country or in the country the company deals in
Restrictive PracticesRestrictive practices or cartels imposed by countries can affect companies and industries crystallizing the exposure
Foreign Debt and the Balance of TradeForeign debt especially if it is very large can be a tremendous burden on an economy India pays around $ 5 billion a year in principal repayments and interest payments InflationInflation has an enormous effect in the economy Within the country it erodes purchasing power As a consequence demand falls If the rate of inflation in the country from which a company imports is high then the cost of production in that country will automatically go up
The Threat of NationalizationThe threat of nationalization is a real threat in many countries ndash the fear that a company may become nationalized
Interest Rates
18
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A low interest rate stimulates investment and industry Conversely high interest rates result in higher cost of production and lower consumption
TaxationThe level of taxation in a country has a direct effect on the economy If tax rates are low people have more disposable income
Government PolicyGovernment policy has a direct impact on the economy A government that is perceived to be proindustry will attract investment
THE ECONOMIC CYCLE
It affects investment decisions employment demand and the profitability of companiesThe four stages of an economic cycle are DepressionRecoveryBoom Recession DepressionAt the time of depression demand is low and falling Inflation is high and so are interest rates Companies crippled by high borrowing and falling sales are forced to curtail production close down plants built at times of higher demand and let workers go
RecoveryDuring this phase the economy begins to recover Investment begins anew and the demand grows Companies begin to post profits Conspicuous spending begins once again
BoomIn the boom phase demand reaches an all time high Investment is also high Interest rates are low Gradually as time goes on supply begins to exceed the demand Prices that had been rising begin to stabilize and even fall There is an increase in demand Then as the boom period matures prices begin to rise again
RecessionThe economy slowly begins to downturn Demand starts falling Interest rates and inflation are high Companies start finding it difficult to sell their goods The economy slowly begins to downturn
19
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II INDUSTRY ANALYSIS
The importance of industry analysis is now dawning on the Indian investor as never before
CycleThe first step in industry is to determine the cycle it is in or the stage of maturity of the industry All industries evolve through the following stages1 Entrepreneurial sunrise or nascent stage2 Expansion or growth stage3 Stabilization stagnation or maturity stage and4 Decline or sunset stage to properly establish itself In the early days it may actually make losses
The Entrepreneurial or Nascent StageAt the first stage the industry is new and it can take some time for it to properly establish itself
The Expansion or Growth StageOnce the industry has established itself it enters a growth stage As the industry grows many new companies enter the industry
The Stabilization or Maturity StageAfter the halcyon days of growth an industry matures and stabilizes Rewards are low and so too is the risk Growth is moderate Though sales may increase they do so at a
20
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
slower rate than before Products are more standardized and less innovative and there are several competitors
The Decline or Sunset StageFinally the industry declines This occurs when its products are no longer popular This may be on account of several factors such as a change in social habits The film and video industries
1 BARRIER TO ENTRYNew entrants increase the capacity in an industry and the inflow of funds The question that arises is how easy is it to enter an industry There are some barriers to entry
a) Economies of scaleb) Product differentiation c) Capital requirementd) Switching costse) Access to distribution channelsf) Cost disadvantages independent of scaleg) Government policyh) Expected retaliationj) International cartels
2 THE THREAT OF SUBSTITUTIONNew inventions are always taking place and new and better products replace existing ones An industry that can be replaced by substitutes or is threatened by substitutes is normally an industry one must be careful of investing in An industry where this occurs constantly is the packaging industry -bottles replaced by cans cans replaced by plastic bottles and the like To ward off the threat of substitution companies often have to spend large sums of money in advertising and promotion
3 BARGAINING POWER OF THE BUYERSIn an industry where buyers have control ie in a buyers market buyers are constantly forcing prices down demanding better services or higher quality and this often erodes profitability The factors one should check are whether a) A particular buyer buys most of the products (large purchase volumes) If such buyers withdraw their patronage they can destroy an industry They can also force prices downb) Buyers can play one company against another to bring prices down
4 BARGAINING POWER FOR THE SUPPLIERSAn industry unduly controlled by its suppliers is also under threat This occurs whena) The suppliers have a monopoly or if there are few suppliersb) Suppliers control an essential c) Demand for the product exceeds d) The supplier supplies to various industriese) The switching costs are high
21
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
f) The suppliers product does not have a substituteg) The suppliers product is an important input for the buyersh) The buyer is not important to the supplieri) The suppliers product is unique
5 RIVALRY AMONG COMPETITORSRivalry among competitors can cause an industry great harm This occurs mainly by price cuts heavy advertising additional high cost services or offers and the like This rivalry occurs mainly whena) There are many competitors and supply exceeds demand Companies resort to price cuts and advertise heavily in order to attract customers for their goodsb) The industry growth is slow and companies are competing with each other for a greater market sharec) The economy is in a recession and companies cut the price of their products and offer better service to stimulate demandd) There is lack of differentiation between the product of one company and that of another In such cases the buyer makes his choice on the basis of price or servicee) In some industries economies of scale will necessitate large additions to existing capacities in a company The increase in production could result in over capacity amp price cuttingf) Competitors may have very different strategies in selling their goods and in competing they may be continuously trying to stay ahead
III COMPANY ANALYSIS
At the final stage of fundamental analysis the investor analyzes the company This analysis has two thrustsHow has the company performed vis-agrave-vis other similar companies and How has the company performed in comparison to earlier years It is imperative that one completes the politico economic analysis and the industry analysis before a company is analyzed because the companys performance at a period of time is to an extent a reflection of the economy the political situation and the industry What does one look at when analyzing a company The different issues regarding a company that should be examined are The Management The Company The Annual Report Ratios Cash flow
THE MANAGEMENT
The single most important factor one should consider when investing in a company and one often never considered is its management In India management can be broadly
22
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
divided in two types Family Management Professional Management
THE COMPANY
An aspect not necessarily examined during an analysis of fundamentals is the company A company may have made losses consecutively for two years or more and one may not wish to touch its shares - yet it may be a good company and worth purchasing into There are several factors one should look at
1 How a company is perceived by its competitorsOne of the key factors to ascertain is how a company is perceived by its competitors It is held in high regard Its management may be known for its maturity vision competence and aggressiveness The investor must ascertain the reason and then determine whetherthe reason will continue into the foreseeable future
2 Whether the company is the market leader in its products or in its segmentAnother aspect that should be ascertained is whether the company is the market leader in its products or in its segment When you invest in market leaders the risk is less Theshares of market leaders do not fall as quickly as those of other companies There is a magic to their name that would make individuals prefer to buy their products as opposed to others
3 Company PoliciesThe policy a company follows is also important What is its plans for growth What is its vision Every company has a life If it is allowed to live a normal life it will grow upto a point and then begin to level out and eventually die It is at the point of leveling out that it must be given new life This can give it renewed vigour and a new lease of life
4 Labour RelationsLabour relations are extremely important A company that has motivated industrious work force has high productivity and practically no disruption of work On the other hand a company that has bad industrial relations will lose several hundred mandays as a consequence of strikes and go slows
5 Where the company is located and where its factories are One must also consider where the companies Plants and Factories are located
THE ANNUAL REPORT
The primary and most important source of information about a company is its Annual Report By law this is prepared every year and distributed to the shareholders Annual Reports are usually very well presented A tremendous amount of data is given about the performance of a company over a period of time The Annual Report is broken down into the following specific parts
23
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the Accounts
A The Directorrsquos ReportThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship 1 It enunciates the opinion of the directors on the state of the economy and the political situation vis-agrave-vis the company 2 Explains the performance and the financial results of the company in the period under review This is an extremely important part The results and operations of the various separate divisions are usually detailed and investors can determine the reasons for their good or bad performance3 The Directorrsquos Report details the companys plans for modernization expansion and diversification Without these a company will remain static and eventually decline4 Discusses the profit earned in the period under review and the dividend Recommended by the directors This paragraph should normally be read with some skepticism as the directors will always argue that the performance was satisfactory If adverse economic conditions are usually at fault 5 Elaborates on the directors views of the companys prospects in the future6 Discusses plans for new acquisition and investments An investor must intelligently evaluate the issues raised in a Directorrsquos Report Industry conditions and the managements knowledge of the business must be considered
B The Auditors ReportThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors Auditors are required to report whether the financial statements presented do in fact present a true and fair view of the state of the company Investors must remember that the auditors are their representatives and that they are required by law to point out if the financial statements are not true and fair
CFinancial StatementsThe published financial statements of a company in an Annual Report consist of its Balance Sheet as at the end of the accounting period detailing the financing condition of the company at that date and the Profit and Loss Account or Income Statement summarizing the activities of the company for the accounting period
BALANCE SHEETThe Balance Sheet details the financial position of a company on a particular date of the companys assets (that which the company owns) and liabilities (that which the companyowes) grouped logically under specific heads It must however be noted that the Balance Sheet details the financial position on a particular day and that the position can be materially different on the next day or the day after
24
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOURCES OF FUNDSSHAREHOLDERS FUNDSSHARE CAPITAL(i) Private Placement(ii) Public Issueiii) Rights issuesRESERVESi) Capital Reservesii) Revenue ReservesLOAN FUNDSi) Secured loansii) Unsecured loansFIXED ASSETSINVESTMENTSSTOCK OR INVENTORIESi) Raw materialsii) Work in progressiii) Finished goodsCASH AND BANK BALANCESLOANS AND ADVANCES
PROFIT AND LOSS ACCOUNTThe Profit and Loss account summarizes the activities of a company during an accounting period which may be a month a quarter six months a year or longer and the result achieved by the company It details the income earned by the company its cost and the resulting profit or loss It is in effect the performance appraisal not only of the company but also of its management- its competence foresight and ability to lead
RATIOS
Ratios express mathematically the relationship between performance figures andor assetsliabilities in a form that can be easily understood and interpretedNo single ratio tells the complete storyRatios can be broken down into four broad categories
(A) Profit and Loss RatiosThese show the relationship between two items or groups of items in a profit and loss account or income statement The more common of these ratios are1 Sales to cost of goods sold2 Selling expenses to sales3 Net profit to sales and4 Gross profit to sales
(B) Balance Sheet RatiosThese deal with the relationship in the balance sheet such as 1 Shareholders equity to borrowed funds
25
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
2 Current assets to current liabilities3 Liabilities to net worth4 Debt to assets and5 Liabilities to assets
(C) Balance Sheet and Profit and Loss Account RatiosThese relate an item on the balance sheet to another in the profit and loss account such as1 Earnings to shareholders funds2 Net income to assets employed3 Sales to stock4 Sales to debtors and5 Cost of goods sold to creditors
(D) Financial Statements and Market RatiosThese are normally known as market ratios and are arrived at by relative financial figures to market prices1 Market value to earnings and2 Book value to market value(a) Market value(b) Earnings(c) Profitability(d) Liquidity(e) Leverage(f) Debt Service Capacity(g) Asset ManagementEfficiency(h) Margins
The major ratios that are considered(i) Market value(ii) Price- earnings ratio(iii) Market-to-book ratio(iv) Earnings(v) Earning per share(vi) Dividend per share(vii) Dividend payout ratio(viii) Leverage ratios(ix) Return on investmentstotal assets
CASH FLOW A statement of sources and uses begins with the profit for the year to which are added the increases in liability accounts (sources) and from which are reduced the increases in asset accounts (uses) The net result shows whether there has been an excess or deficit of funds and how this was financed Investors must examine a companys cash flow as it reveals exactly where the money came from how it was utilized Investors must be
26
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
concerned if a company is financing either its inventories or paying dividends from borrowings without real growth as that shows deterioration
27
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-4 ANALYSIS
28
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
I FUNDAMENTAL ANALYSIS OF STOCKS
Basically fundamental analysis is covered in 3 parts
1 Market economy analysis
2 Industry Analysis
3 Company Analysis
1) TATA MOTORS
I Market Economy Analysis
It covers the macro economy analysis and the various macro economic factors on the national level like GDP Monetary policies of India Fiscal Policies and Inflation and money supply etc
GDP
Real GDP growth accelerated from 75 per cent during 2004-05 to 84 per cent during
2005-06 on the back of buoyant manufacturing and services activity supported by a
recovery in the agricultural sector Real GDP growth has thus averaged over eight per
cent during the last three years and over seven per cent in the first four years (2002-03 to
2005-06) of the Tenth Five Year Plan
Strengths of India today are
A well diversified industrial base which profits from self-reliance in all core industries A
large amp sophisticated financial architecture - The robust capital Markets today have over
9000 listed companies and boast of a massive Market capitalization
A healthy GDP composition with agriculture contributing 22 Industry 22 and
services which have gone strength to strength accounting For 56 of the GDP an
29
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
acknowledged strength in knowledge driven industries like Information technology
biotechnology entertainment Software etc
India has Over 3 million scientific amp technical manpower Over 06 million SampT post
graduates Over 07 million graduate engineers Over 3500 doctorates in sciences every
year
Assuming trend growth in agriculture under normal monsoon conditions and barring
domestic or external shocks the Reserve Bank in its Annual Policy Statement for 2007-
08 (April 2007) placed real GDP growth for policy purposes in the range of 75-80 per
cent during 2007-08 Growth prospects are however subject to a number of downside
risks The risks emanating from the global economy are potential escalation and
volatility in international crude oil prices firming up of overall inflationary pressures and
expectations and a hardening of international interest rates along with the withdrawal of
monetary accommodation
Indiarsquos demographic advantage ndash In contrast to developed Countries India will have a
younger population for the next 50 years Hence India would be the hub for RampD
Inflation
Inflation was contained to 63 per cent by end-March 2007 within the indicative
trajectory of 50-55 per cent during 2007-08 The actual inflation was considerably lower
than the indicative trajectory and this could be mainly attributed to the deferred pass-
through of even the cognisable permanent component of international crude oil prices
Money Supply
Monetary and liquidity conditions remained largely comfortable during 2006-07reflecting
proactive liquidity management operations by the Reserve Bank under the liquidity
adjustment facility flexible management of issuances under the market stabilisation
scheme and some private placement of Government securities
30
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
In short the Indian economy is exhibiting strong fundamentals and displaying
considerable resilience At the same time there are continuing signs of demand pressures
especially high credit growth that could exert upward pressure on prices when associated
with supply shocks such as from oil These pressures have the potential for impacting
stability and inflation expectations While domestic developments continue to dominate
the economy global factors tend to gain more attention now than before The global
outlook for growth is positive but downside risks in regard to inflation also RBI is
applying new repo and reverse repo for the balance of inflation and monetary policies
The following are macroeconomic policies generally found as part of government-
directed industrial auto policies
(a) Restrictions on domestic and foreign investment
(b) Domestic content requirements
(c) High tariff walls
(d) Auto export requirements
(e) National production to sales ratios
(f) Distribution controls
(g) Quotas and licensing requirements that significantly restrict imports
(h) Government approval for product related decisions including vehicle make
body type engine size etc
(i) Special government categories for auto taxes
II INDUSTRY ANALYSIS
Since 1991 opening of the economy has changed the face of auto industry Today it is
amongst the main drivers of growth of Indian economy with an output multiplier of
224(for every Re1 invested auto sector gives back Rs224 to the economy) In recent
years we have seen increasing number of global players entering Indian market by way of
Joint ventures collaborations or wholly owned subsidiary
The automobile industry is torn between trying to reduce costs on the one hand and on
the other dealing with the high price of performance-enhancing technology and
environmental compliance Key drivers in the automotive industry are
31
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Reducing air pollution
Reduction of weight
Recyclability
Safety
Better performance and engine efficiency
Aesthetics
Longer service Life
INDUSTRY LIFE CYCLE
The automobile market is at the maturity stage of the life cycle locally and globally due
to an increased number of competitors from domestic and foreign markets The
automobile market is characterized by a low potential for market growth but high sales
and profit potential as the products have still not saturated the market as a whole
MAJOR COMPETITORS OF TATA MOTORS ARE
Maruti Udyog Ltd
General Motors India
Ford India Ltd
Eicher Motors
Bajaj Auto
Hero Motors
Hindustan Motors
32
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Hyundai Motor India Ltd
Royal Enfield Motors
Telco
TVS Motors
FINANCIALS
Description 1 Day PriceChange
MarketCap
PEROE
Div Yield
Long-Term Debt toEquity
Price toBook Value
NetProfit Margin (mrq)
Price toFree Cash Flow (mrq)
Sector Consumer Goods 01125178B
2488
1707
222
1171076
706 40842
Industry Auto Manufacturers - Major (More Info)
0613310B
3000
750171
181 155 160 -440
Companies
Daimlerchrysler AG (DCX) 021 539B1072
1119
350
217 116 469 -354
Ford Motor Co (F) 121 157B NA-951
240
1107
115 -060 -8205
General Motors Corporation (GM) -024 165B NA
-6285
340
390 142 -621 014
Honda Motor Co Ltd (HMC) 083 622B1152
1654
100
083 173 552 20748
Tata Motors Ltd (TTM) -038 71B1864
NA150
NA 535 564 NA
Toyota Motor Corp (TM) 0731756B
1394
1505
120
103 197 659 NA
Opportunities and Threats
a) Opportunities
Road Development The ongoing road development program would improve
connectivity to ports cities and villages through a network of highways and
interconnecting roads by 2010-11 Improved road network would help in faster
33
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
movement of goods between various cities and towns The Company launched TATA
Novus range of vehicles in the heavy segment and TATA ACE for last mile distribution
Car penetration in India Car penetration in India is 7 cars per 1000 persons
International In FY 2006-07 the Company increased share of its overseas vehicle sales
from 76 last year to record high of 111 (as of its total sales) and has planned
further increase in this year
b) Threats
Global Competition India is increasingly attracting global players to set up
manufacturing facility for producing cars especially small cars Global automobile
manufacturers are also entering India in commercial vehicle segment to leverage Indiarsquos
low cost production advantage to their favor
Fuel Prices The continuing fuel price increase in the domestic market could
significantly impact demand of commercial and passenger vehicles
Input costs Commodity items particularly steel non-ferrous metals rubber and
engineering plastics have witnessed huge price increases in the past These prices are
expected to increase further affecting the Companyrsquos profitability
Interest rate hardening and other inflationary trends With interest rates hardening and
liquidity crunch in the system growth in sales may be adversely impacted
Government Regulations Stringent emission and safety requirements could bring new
complexities for automotive and component manufacturers impacting the Companyrsquos
business
Risks and Concerns
Interest Rates FY 2007-08 started with increasing interest rate regime and tightening
liquidity position in the economy Increasing interest rates could further affect vehicle
demand which could have an adverse impact on the Companyrsquos revenues and profits
Exchange rates The Company exports vehicles to many countries and exchange rate
fluctuations in the order execution period could impact the Companyrsquos business
34
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Freight rates In FY 2006-07 freight rates in road transport sector moved up mainly
due to surge in construction activity ongoing road development projects and severe
restriction on over-loading Demand for commercial vehicles could be impacted by
further change in freight rates and change in fuel prices
Domestic market The Company plans to reduce the impact of this cyclicality on its
business by strengthening its less cyclical businesses like buses light trucks small
commercial vehicles
Overseas market In overseas markets the Company competes with global players
which have multiple vehicle platforms large financial capability and global branding
Manufacturing The Company manufactures vehicles at multiple locations and given
the geographical dispersion of its suppliers it faces Logistics Problems
New Competition Competitive activity is expected to increase in commercial vehicle
and passenger vehicle domestic market in coming years
New projects The Company currently is in midst of executing many new projects
ranging from launch of new car platforms to development of new Truck models
III Company Analysis
Key Highlights
Symbol TTL
Sector Consumer Goods
Industry Auto Manufacturers Major
Market Cap Rs29232 crores
Data Since 1945
Last close Rs 74290
Brief Summary of the company
35
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Tata Motors is one of the largest companies in the Tata Group with a total income of US$
235 billion More than 3 million Tata vehicles ply on Indian roads making Tata a
dominant force in the Indian automobile industry
Joint Venture with Fiat and Hitachi
Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing
passenger vehicles engines and transmissions for both domestic and international
markets The Company has also entered into a JV with Hitachi to set up a new plant in
Kharagpur
Product Mix
Tata Motors is Indias only fully integrated automobile manufacturer with a portfolio that
covers trucks buses utility vehicles and passenger cars It would be no exaggeration to
say that Tata Motors provides the wheels for Indias growth
Segmental Overview
Commercial Vehicle Segment
The Company registered 696 volume growth in the domestic CV segment during
4QFY06 from 37228 units in Q3FY05 to 63082 units in Q3FY06 The market share in
this segment was 658 in Q4FY06 as compared to 552 in Q1FY06 The MHCV
goods-carrier segment registered a 544 growth YoY with sale of 33515 units and a
market share of 645 up by around 410 bps driven by infrastructure development and
increase in international trade
Passenger Vehicle Segment
The Company reported a growth of 212 YoY to 49907 vehicles in the domestic
passenger vehicle segment and a market share of 162 in the quarter The passenger
vehicle industry registered a volume growth of 204 during Q4FY06
36
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Plants
Tata Motors owes its leading position in the Indian automobile industry to its strong
focus on indigenisation Their manufacturing plants are situated at Jamshedpur in the
East Pune in the West and Lucknow in the North
Charts showing Key Statistics of tata motors
37
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Share holding pattern as on 31-Mar
shareholding pattern
34
1425
17
10
promotors
MF Banks Fis
FIIs
Others
Public
Financial highlights
38
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
39
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
RATIO ANALYSIS
Ratios 2006 2005 2004
Debtequity 056 049 044
Current ratio 108 087 076
Operating profit margin 1211 1151 1238
Gross profit margin 1087 1043 1104
ROCE 3125 3276 3377
total assets turnover ratio 315 353 343
ROE 2761 3009 2257
Dividend-equity 49794 45373 28211
Retention Ratio 6743 6332 6519
DPS (Rs) 1301 125 799
EPS (Rs) 25 34 41
Dividend Payout Ratio 039 042 037
CAGR of EPS 0177
CAGR of Dividend Payout Ratio -0017
Average ROE 2574
average retention 6354
Growth (g = Avg RR times Avg ROE ) 1636
Market return 1454
40
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
PE ratio (on the basis of historical analysis) = 1812
Therefore the Weighted PE ratio =(1812+2424)2 = 21181
Projected EPS = EPS OF 2006 + CAGR of EPSEPS OF 2006
= Rs48271
Value of Share at the end of financial year 06-07
= Projected EPS Weighted PE Ratio
= Rs1022
2) HPCL
Globalization and the Indian Petroleum Industry
Indian petroleum industry in the post independent period (1947-2001) it may be divided
into three distinct phases
(i) early phase (1947 to 1969)- when the government consolidated its control over
the industry with Soviet assistance
(ii) development phase (1970 to 1989)- in this period the US companies played
dominant role replacing the Soviets and
41
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
(iii) the economic liberalisation phase of 1990s
PORTERrsquoS MODEL
SWOT ANALYSIS
STRENGHS
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
WEAKNESSES
Dependence on refining function high
Moderate share in high profitable retail segment
42
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Diversifications in petrochemicals could trouble the company
High burden of subsidy loss on cooking gas and kerosene
OPPORTUNITIES
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
Overseas presence in upstream and downstream will determine growth
THREATS
Rising oil prices could dampen demand
High regulatory risk
Loss of market share to private players
Entrance of private players in pipelines will take away monopoly of company in
north India
COMPANY ANALYSIS
The Annual Report is broken down into the following specific parts
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the AccountsATHE DIRECTORrsquoS REPORTThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship Fundamental AnalysisB THE AUDITORS REPORTThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors
C FINANCIAL STATEMENTSIt comprises of Balance Sheet Profit and Loss account Cash Flows Its analysis would be discussed later
DSCHEDULES
43
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The schedules detail pertinent information about the items of Balance Sheet and Profit amp Loss Account It also details information about sales manufacturing costs administration costs interest and other income and expenses
1 THE MANAGEMENT
HPCL is a public sector undertaking Thus it is a professionally managed company
There are some parameters of management on which a company is analysed
a integrity of management
b past record of management
c how highly is the management rated by its peers in the same industry
d how the management fares in adversity
e the depth of the knowledge of management
f open and innovative management
on all these parameters HPCL scores good
2 COMPANY
Many times a company has made losses in the previous years but that does not mean
that the company is bad to invest Thus many factors are studied while studying a
company
a) perception of competitors
HPCL is the second largest petroleum company after IOCL Thus it is a competitor of
IOCL and it is trying hard to compete with IOCL on every front That is why now it
has decided to diversify itself in the oil exploration sector
b) company policies
As this is a PSU thus the policies are made by the government The oil sector is one
which is highly regulated by government Thus from time to time it is required to
watch out the various policies changed
3 ANNUAL REPORT
The most primary and most important source of information about a company is its
Annual Report This is prepared every year and distributed to its shareholders
44
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Ratio Analysis
Evaluation of Intrinsic Value of the Security
stdev mkt 0011934stdev sec 003831 Average
Retention Ratio 060504
correlation 0485958 ROE 019842Beta 156765 g 0120052Risk Free Rate 650
Mkt Rate 14
45
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
k 1826
Hence we see that here our g is less than k Thus we see that as per Dividend Discount Model our Intrinsic value is div=22(1+012)=240626= 387
Price= Projected EPS + Weighted PE ratioUsing CAGR EPS = 43468Weighted PE Ratio = 75+6652=33625
Price = 43468+33625 = 381
3) HDFC BANK
The Indian banking industry sector overview
With the economic growth picking up pace and the investment cycle on the way to recovery the banking sector has witnessed a transformation in its vital role of intermediating between the demand and supply of funds
Public sector banks have been very proactive in their restructuring initiatives be it in technology implementation or pruning their loss assets Windfall treasury gains made in the falling interest rate regime were used for writing off the doubtful and loss assets
Retail lending (especially mortgage financing) formed a significant portion of the portfolio for most banks and they customized their products to cater to the diverse demands
Apart from streamlining their processes through technology initiatives such as ATMs telephone banking online banking and web based products banks also resorted to cross selling of financial products such as credit cards mutual funds and insurance policies to augment their fee based income
PORTERrsquoS FIVE FORCES MODEL FOR THE BANKING INDUSTRY
1) BARRIERS TO ENTRY a Economies of scale Since the existing players in the market are well
established and already have a customer base they are able to bear the cost of using the advantages of technology to their maximum advantage
46
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Capital requirement for entry i The Banking Regulation Act prescribes the minimum capital
requirements for a bank Moreover banks have to maintain a capital adequacy ratio of 9 under the Basel I norms
ii Government has declared that the foreign banks will be permitted to establish their presence in India by way of setting up a wholly owned banking subsidiary (WOS) with a minimum capital of Rs300 crore
c Access to distribution channels Since banks have to set up their own distribution channels all the cost has to be directly born by them
d Cost advantage independent of size Existing banks have huge databases of customers which they use when they want to sell a new product launched by them
e Legislation or Government action Banks are governed by Banking Regulation Act 1949 which specifies the rules and regulations applicable to banks RBI is the governing body of banks in India
2) BARGAINING POWER OF BUYERS
Due to increased competition the services offered by banks to customers have improved considerably
3) BARGAINING POWER OF THE SUPPLIERS
Suppliers to banks can be both - the customers and RBIa Customers of banks provide money to banks in the form of deposits and in
return earn some interest on that b RBI acts as a supplier to banks by selling govt securities treasury bills
govt bonds etc c Call money market Banks sometimes have to borrow from other banks to
meet CRR and SLR requirements or other capital requirements as provided by RBI
4) THREAT OF SUBSTITUTES
a Product-for-product substitutioni Banks provide interest on deposits made by people Similar
services are offered by post offices which may act as substitutes to the deposit schemes of banks
ii Some banks offer locker services to customers for yearly rates Similar services are provided by many post offices
47
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Generic substitution People who deposit their savings in banks can invest their money in other sources like mutual funds shares and other securities and life insurance schemes
5) COMPETITIVE RIVALRY
a Extent of competitor balance b Market growth ratesc High Exit Barriers
PEST Analysis for Banking Industry
1 Political factors - The major factors affecting the banking sector are the following
Banking sector reforms ndash As per the RBI roadmap for reforms in the first stage from 2005 to 2009 foreign banks will be allowed to set up wholly owned subsidiaries as well as get greater freedom to set up new branches Fulfilling the minimum priority sector credit -The government mandation of fulfilling the minimum priority sector credit (of which 18 per cent is food credit) has forced the domestic banks to cater to this segment despite the low profitability and vulnerability of asset quality
Banks have also been allowed to set up Offshore Banking Units in SEZrsquos
2 Economic factors -
Basell II norms for the risk management in banking sector - The new Basel Accord has its foundation on three mutually reinforcing pillars The first pillar is compatible with the credit risk market risk and operational risk The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bankConcurrently it also casts responsibility on the supervisors to review and validate banksrsquo risk measurement models
Consolidation and merger and acquisitions in the banking sector- HDFC bank also acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Universal Banking has been introduced ICICI Bank HDFCs closest competitor is already into Universal Banking so HDFC is also getting into it as now it is providing retail banking and also depository facilities in the form of demat account
48
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
3 Social factors-
Big and growing middle class in India - This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans car loans education loans auto loans etc Retail loans have grown from 19 in FYrsquo99 to 51 FYrsquo06Consumer credit accounts for a meager 286 per cent of the countrys GDP and the buoyancy in the economy offers sufficient scope for it to grow
Geographical and Cultural diversity- This is leading to a greater demand for financial products and customization by the customers
4 Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999 It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector
Banks (All) No of players = 40
Sector statistics
We see the sector aggregates and make a financial comparison for the major banks
Top PlayersFY2006
Based on Total Income Based on OPBDT Total Income Change OPBDT Change
(Rs Mn) () (Rs Mn) ()ICICI BANK 631619 5450 S B I 763528 -129 PUNJAB NATIONAL B 29218 1491 ICICI BANK 37174 1936
CAN BANK 277095 2378 PUNJAB NATIONAL B 222052 3936
BANK OF INDIA 23317 2543 CAN BANK 168825 1953
H D F C BANK 185508 6024 H D F C BANK 14324 2748 change - indicates the change between current and corresponding quarter
49
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER- 2
TECHNICAL ANALYSIS
A CONCEPTUAL OVERVIEW
TECHNICAL ANALYSIS
Technical analysis can be conditionally divided into some main parts such as
8
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Types of charts Graphical methods Analytical methods Technical indicators
Technical analysis is concerned with predicting future price trends from historical price and volume data The underlying axiom of technical analysis is that all fundamentals (including expectations) are factored into the market and are reflected in exchange rates
A technical analysis is based on three axioms
Movement of the market considers everything Movement of prices is purposeful History repeats itself
SUPPORT AND RESISTANCE
Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
Resistance on the other hand is the point at which sellers (bears) take control of prices and prevent them from rising higher The price at which a trade takes place is the price at which a bull and bear agree to do business It represents the consensus of their expectations
9
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Support levels indicate the price where the most of investors believe that prices will move higher Resistance levels indicate the price at which the most of investors feel prices will move lower
Role Reversal
When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
31 DOW THEORYndash TRENDS
The ideas of Charles Dow the first editor of the Wall Street Journal form the basis of technical analysis The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages Dow created the Industrial Average of top blue chip stocks and a second average of top railroad stocks (now the Transport Average) He believed that the behavior of the averages reflected the hopes and fears of the entire market The behavior patterns that he observed apply to markets throughout the world
Three Movements
Markets fluctuate in more than one time frame at the same time
10
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Nothing is more certain than that the market has three well defined movements which fit into each other
The first is the daily variation due to local causes and the balance of buying and
selling at that particular time
The secondary movement covers a period ranging from ten days to sixty days
averaging probably between thirty and forty days
The third move is the great swing covering from four to six years
Bull markets are broad upward movements of the market that may last several
years interrupted by secondary reactions Bear markets are long declines
interrupted by secondary rallies These movements are referred to as the primary
trend
Secondary movements normally retrace from one third to two thirds of the
primary trend since the previous secondary movement
Daily fluctuations are important for short-term trading but are unimportant in
analysis of broad market movements
Various cycles have subsequently been identified within these broad categories
Primary Movements have Three Phases
The general conditions in the market
Bull markets
Bull markets commence with reviving confidence as business conditions improve
Prices rise as the market responds to improved earnings
11
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Rampant speculation dominates the market and price advances are based on hopes and
expectations rather than actual results
Bear markets
Bear markets start with abandonment of the hopes and expectations that sustained
inflated prices
Prices decline in response to disappointing earnings
Distress selling follows as speculators attempt to close out their positions and
securities are sold without regard to their true value
Ranging Markets
A secondary reaction may take the form of a lsquolinersquo which may endure for several weeks Price fluctuates within a narrow range of about five per cent
Breakouts from a range can occur in either direction
Advances above the upper limit of the line signal accumulation and higher prices
Declines below the lower limit indicate distribution and lower prices
Volume is used to confirm price breakouts
Trends
Bull Trends
A bull trend is identified by a series of rallies where each rally exceeds the highest point of the previous rally The decline between rallies ends above the lowest point of the previous decline
Successive higher highs and higher lows
12
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
Start = higher Low + break above previous High
The end is signaled by a lower high (peak) followed by a decline below the previous low (trough)
End = lower High + break below previous Low
A bear trend starts at the end of a bull trend when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
Large Corrections
A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
13
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A bull trend starts when price rallies above the previous high
A bull trend ends when price declines below the previous low
A bear trend starts at the end of a bull trend (and vice versa)
32 ELLIOT WAVES THEORY BASICS
TRENDLINES
Breaking through support or resistance levels results in a change of tradersrsquo expectations (which causes supplydemand lines to shift)
14
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
An Uptrend is defined by successively higher low-prices A rising trend can be thought of as a rising support level the bulls are in control and are pushing prices higher A Downtrend is defined by successively lower high-prices A falling trend can be thought of as a falling resistance level the bears are in control and are pushing prices lower
33 MOVING AVERAGES
Moving averages are one of the oldest and most popular technical analysis tools A moving average is the average price of a financial instrument over a given time
The moving average represents the consensus of investorrsquos expectations over the indicated period of time
The classic interpretation of a moving average is to use it in observing changes in prices Investors typically buy when the price of an instrument rises above its moving average and sell when the it falls below its moving average
TECHNICAL INDICATORS
There is a vast number of elaborated technical indicators
15
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
MOVING AVERAGE ndashMA
RELATIVE STRENGTH INDEX mdash RSI The Relative Strength Index Technical Indicator (RSI) is a price-following oscillator that ranges between 0 and 100 When Wilder introduced the Relative Strength Index he recommended using a 14-day RSI Since then the 9-day and 25-day Relative Strength Index indicators have also gained popularity
ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the cumulative difference between advancing and declining issues
CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that closed on an uptick and those that closed on a downtick
CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading volume in declining issues to average trading volume in advancing issues
Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 shares HI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price CANDLESTICK CHART A candlestick chart is an extended version of the hi-lo-close
chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation When the stock price ldquopierces the necklinerdquo after the right shoulder is finished itrsquos time to sell
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins A win by the National Football Conference is bullish
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
16
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER- 3
FUNDAMENTAL ANALYSIS
A CONCEPTUAL OVERVIEW
17
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Fundamental analysis refers to the study of the core underlying elements that influence the economy of a particular entity It is a method of study that attempts to predict price action and market trends by analyzing economic indicators government policy and societal factors (to name just a few elements) within a business cycle framework
I ECONOMIC ANALYSIS
POLITICO-ECONOMIC ANALYSIS No industry or company can exist in isolation It may have splendid managers and a tremendous product However its sales and its costs are affected by factors some of which are beyond its control - the world economy price inflation taxes and a host of others It is important therefore to have an appreciation of the politico-economic factors that affect an industry and a company
The political equationA stable political environment is necessary for steady balanced growth If a country is ruled by a stable government which takes decisions for the long-term development of the country industry and companies will prosper Foreign Exchange ReservesA country needs foreign exchange reserves to meet its commitments pay for its imports and service foreign debts
Foreign Exchange RiskThis is a real risk and one must be cognizant of the effect of a revaluation or devaluation of the currency either in the home country or in the country the company deals in
Restrictive PracticesRestrictive practices or cartels imposed by countries can affect companies and industries crystallizing the exposure
Foreign Debt and the Balance of TradeForeign debt especially if it is very large can be a tremendous burden on an economy India pays around $ 5 billion a year in principal repayments and interest payments InflationInflation has an enormous effect in the economy Within the country it erodes purchasing power As a consequence demand falls If the rate of inflation in the country from which a company imports is high then the cost of production in that country will automatically go up
The Threat of NationalizationThe threat of nationalization is a real threat in many countries ndash the fear that a company may become nationalized
Interest Rates
18
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A low interest rate stimulates investment and industry Conversely high interest rates result in higher cost of production and lower consumption
TaxationThe level of taxation in a country has a direct effect on the economy If tax rates are low people have more disposable income
Government PolicyGovernment policy has a direct impact on the economy A government that is perceived to be proindustry will attract investment
THE ECONOMIC CYCLE
It affects investment decisions employment demand and the profitability of companiesThe four stages of an economic cycle are DepressionRecoveryBoom Recession DepressionAt the time of depression demand is low and falling Inflation is high and so are interest rates Companies crippled by high borrowing and falling sales are forced to curtail production close down plants built at times of higher demand and let workers go
RecoveryDuring this phase the economy begins to recover Investment begins anew and the demand grows Companies begin to post profits Conspicuous spending begins once again
BoomIn the boom phase demand reaches an all time high Investment is also high Interest rates are low Gradually as time goes on supply begins to exceed the demand Prices that had been rising begin to stabilize and even fall There is an increase in demand Then as the boom period matures prices begin to rise again
RecessionThe economy slowly begins to downturn Demand starts falling Interest rates and inflation are high Companies start finding it difficult to sell their goods The economy slowly begins to downturn
19
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II INDUSTRY ANALYSIS
The importance of industry analysis is now dawning on the Indian investor as never before
CycleThe first step in industry is to determine the cycle it is in or the stage of maturity of the industry All industries evolve through the following stages1 Entrepreneurial sunrise or nascent stage2 Expansion or growth stage3 Stabilization stagnation or maturity stage and4 Decline or sunset stage to properly establish itself In the early days it may actually make losses
The Entrepreneurial or Nascent StageAt the first stage the industry is new and it can take some time for it to properly establish itself
The Expansion or Growth StageOnce the industry has established itself it enters a growth stage As the industry grows many new companies enter the industry
The Stabilization or Maturity StageAfter the halcyon days of growth an industry matures and stabilizes Rewards are low and so too is the risk Growth is moderate Though sales may increase they do so at a
20
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
slower rate than before Products are more standardized and less innovative and there are several competitors
The Decline or Sunset StageFinally the industry declines This occurs when its products are no longer popular This may be on account of several factors such as a change in social habits The film and video industries
1 BARRIER TO ENTRYNew entrants increase the capacity in an industry and the inflow of funds The question that arises is how easy is it to enter an industry There are some barriers to entry
a) Economies of scaleb) Product differentiation c) Capital requirementd) Switching costse) Access to distribution channelsf) Cost disadvantages independent of scaleg) Government policyh) Expected retaliationj) International cartels
2 THE THREAT OF SUBSTITUTIONNew inventions are always taking place and new and better products replace existing ones An industry that can be replaced by substitutes or is threatened by substitutes is normally an industry one must be careful of investing in An industry where this occurs constantly is the packaging industry -bottles replaced by cans cans replaced by plastic bottles and the like To ward off the threat of substitution companies often have to spend large sums of money in advertising and promotion
3 BARGAINING POWER OF THE BUYERSIn an industry where buyers have control ie in a buyers market buyers are constantly forcing prices down demanding better services or higher quality and this often erodes profitability The factors one should check are whether a) A particular buyer buys most of the products (large purchase volumes) If such buyers withdraw their patronage they can destroy an industry They can also force prices downb) Buyers can play one company against another to bring prices down
4 BARGAINING POWER FOR THE SUPPLIERSAn industry unduly controlled by its suppliers is also under threat This occurs whena) The suppliers have a monopoly or if there are few suppliersb) Suppliers control an essential c) Demand for the product exceeds d) The supplier supplies to various industriese) The switching costs are high
21
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
f) The suppliers product does not have a substituteg) The suppliers product is an important input for the buyersh) The buyer is not important to the supplieri) The suppliers product is unique
5 RIVALRY AMONG COMPETITORSRivalry among competitors can cause an industry great harm This occurs mainly by price cuts heavy advertising additional high cost services or offers and the like This rivalry occurs mainly whena) There are many competitors and supply exceeds demand Companies resort to price cuts and advertise heavily in order to attract customers for their goodsb) The industry growth is slow and companies are competing with each other for a greater market sharec) The economy is in a recession and companies cut the price of their products and offer better service to stimulate demandd) There is lack of differentiation between the product of one company and that of another In such cases the buyer makes his choice on the basis of price or servicee) In some industries economies of scale will necessitate large additions to existing capacities in a company The increase in production could result in over capacity amp price cuttingf) Competitors may have very different strategies in selling their goods and in competing they may be continuously trying to stay ahead
III COMPANY ANALYSIS
At the final stage of fundamental analysis the investor analyzes the company This analysis has two thrustsHow has the company performed vis-agrave-vis other similar companies and How has the company performed in comparison to earlier years It is imperative that one completes the politico economic analysis and the industry analysis before a company is analyzed because the companys performance at a period of time is to an extent a reflection of the economy the political situation and the industry What does one look at when analyzing a company The different issues regarding a company that should be examined are The Management The Company The Annual Report Ratios Cash flow
THE MANAGEMENT
The single most important factor one should consider when investing in a company and one often never considered is its management In India management can be broadly
22
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
divided in two types Family Management Professional Management
THE COMPANY
An aspect not necessarily examined during an analysis of fundamentals is the company A company may have made losses consecutively for two years or more and one may not wish to touch its shares - yet it may be a good company and worth purchasing into There are several factors one should look at
1 How a company is perceived by its competitorsOne of the key factors to ascertain is how a company is perceived by its competitors It is held in high regard Its management may be known for its maturity vision competence and aggressiveness The investor must ascertain the reason and then determine whetherthe reason will continue into the foreseeable future
2 Whether the company is the market leader in its products or in its segmentAnother aspect that should be ascertained is whether the company is the market leader in its products or in its segment When you invest in market leaders the risk is less Theshares of market leaders do not fall as quickly as those of other companies There is a magic to their name that would make individuals prefer to buy their products as opposed to others
3 Company PoliciesThe policy a company follows is also important What is its plans for growth What is its vision Every company has a life If it is allowed to live a normal life it will grow upto a point and then begin to level out and eventually die It is at the point of leveling out that it must be given new life This can give it renewed vigour and a new lease of life
4 Labour RelationsLabour relations are extremely important A company that has motivated industrious work force has high productivity and practically no disruption of work On the other hand a company that has bad industrial relations will lose several hundred mandays as a consequence of strikes and go slows
5 Where the company is located and where its factories are One must also consider where the companies Plants and Factories are located
THE ANNUAL REPORT
The primary and most important source of information about a company is its Annual Report By law this is prepared every year and distributed to the shareholders Annual Reports are usually very well presented A tremendous amount of data is given about the performance of a company over a period of time The Annual Report is broken down into the following specific parts
23
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the Accounts
A The Directorrsquos ReportThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship 1 It enunciates the opinion of the directors on the state of the economy and the political situation vis-agrave-vis the company 2 Explains the performance and the financial results of the company in the period under review This is an extremely important part The results and operations of the various separate divisions are usually detailed and investors can determine the reasons for their good or bad performance3 The Directorrsquos Report details the companys plans for modernization expansion and diversification Without these a company will remain static and eventually decline4 Discusses the profit earned in the period under review and the dividend Recommended by the directors This paragraph should normally be read with some skepticism as the directors will always argue that the performance was satisfactory If adverse economic conditions are usually at fault 5 Elaborates on the directors views of the companys prospects in the future6 Discusses plans for new acquisition and investments An investor must intelligently evaluate the issues raised in a Directorrsquos Report Industry conditions and the managements knowledge of the business must be considered
B The Auditors ReportThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors Auditors are required to report whether the financial statements presented do in fact present a true and fair view of the state of the company Investors must remember that the auditors are their representatives and that they are required by law to point out if the financial statements are not true and fair
CFinancial StatementsThe published financial statements of a company in an Annual Report consist of its Balance Sheet as at the end of the accounting period detailing the financing condition of the company at that date and the Profit and Loss Account or Income Statement summarizing the activities of the company for the accounting period
BALANCE SHEETThe Balance Sheet details the financial position of a company on a particular date of the companys assets (that which the company owns) and liabilities (that which the companyowes) grouped logically under specific heads It must however be noted that the Balance Sheet details the financial position on a particular day and that the position can be materially different on the next day or the day after
24
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOURCES OF FUNDSSHAREHOLDERS FUNDSSHARE CAPITAL(i) Private Placement(ii) Public Issueiii) Rights issuesRESERVESi) Capital Reservesii) Revenue ReservesLOAN FUNDSi) Secured loansii) Unsecured loansFIXED ASSETSINVESTMENTSSTOCK OR INVENTORIESi) Raw materialsii) Work in progressiii) Finished goodsCASH AND BANK BALANCESLOANS AND ADVANCES
PROFIT AND LOSS ACCOUNTThe Profit and Loss account summarizes the activities of a company during an accounting period which may be a month a quarter six months a year or longer and the result achieved by the company It details the income earned by the company its cost and the resulting profit or loss It is in effect the performance appraisal not only of the company but also of its management- its competence foresight and ability to lead
RATIOS
Ratios express mathematically the relationship between performance figures andor assetsliabilities in a form that can be easily understood and interpretedNo single ratio tells the complete storyRatios can be broken down into four broad categories
(A) Profit and Loss RatiosThese show the relationship between two items or groups of items in a profit and loss account or income statement The more common of these ratios are1 Sales to cost of goods sold2 Selling expenses to sales3 Net profit to sales and4 Gross profit to sales
(B) Balance Sheet RatiosThese deal with the relationship in the balance sheet such as 1 Shareholders equity to borrowed funds
25
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
2 Current assets to current liabilities3 Liabilities to net worth4 Debt to assets and5 Liabilities to assets
(C) Balance Sheet and Profit and Loss Account RatiosThese relate an item on the balance sheet to another in the profit and loss account such as1 Earnings to shareholders funds2 Net income to assets employed3 Sales to stock4 Sales to debtors and5 Cost of goods sold to creditors
(D) Financial Statements and Market RatiosThese are normally known as market ratios and are arrived at by relative financial figures to market prices1 Market value to earnings and2 Book value to market value(a) Market value(b) Earnings(c) Profitability(d) Liquidity(e) Leverage(f) Debt Service Capacity(g) Asset ManagementEfficiency(h) Margins
The major ratios that are considered(i) Market value(ii) Price- earnings ratio(iii) Market-to-book ratio(iv) Earnings(v) Earning per share(vi) Dividend per share(vii) Dividend payout ratio(viii) Leverage ratios(ix) Return on investmentstotal assets
CASH FLOW A statement of sources and uses begins with the profit for the year to which are added the increases in liability accounts (sources) and from which are reduced the increases in asset accounts (uses) The net result shows whether there has been an excess or deficit of funds and how this was financed Investors must examine a companys cash flow as it reveals exactly where the money came from how it was utilized Investors must be
26
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
concerned if a company is financing either its inventories or paying dividends from borrowings without real growth as that shows deterioration
27
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-4 ANALYSIS
28
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
I FUNDAMENTAL ANALYSIS OF STOCKS
Basically fundamental analysis is covered in 3 parts
1 Market economy analysis
2 Industry Analysis
3 Company Analysis
1) TATA MOTORS
I Market Economy Analysis
It covers the macro economy analysis and the various macro economic factors on the national level like GDP Monetary policies of India Fiscal Policies and Inflation and money supply etc
GDP
Real GDP growth accelerated from 75 per cent during 2004-05 to 84 per cent during
2005-06 on the back of buoyant manufacturing and services activity supported by a
recovery in the agricultural sector Real GDP growth has thus averaged over eight per
cent during the last three years and over seven per cent in the first four years (2002-03 to
2005-06) of the Tenth Five Year Plan
Strengths of India today are
A well diversified industrial base which profits from self-reliance in all core industries A
large amp sophisticated financial architecture - The robust capital Markets today have over
9000 listed companies and boast of a massive Market capitalization
A healthy GDP composition with agriculture contributing 22 Industry 22 and
services which have gone strength to strength accounting For 56 of the GDP an
29
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
acknowledged strength in knowledge driven industries like Information technology
biotechnology entertainment Software etc
India has Over 3 million scientific amp technical manpower Over 06 million SampT post
graduates Over 07 million graduate engineers Over 3500 doctorates in sciences every
year
Assuming trend growth in agriculture under normal monsoon conditions and barring
domestic or external shocks the Reserve Bank in its Annual Policy Statement for 2007-
08 (April 2007) placed real GDP growth for policy purposes in the range of 75-80 per
cent during 2007-08 Growth prospects are however subject to a number of downside
risks The risks emanating from the global economy are potential escalation and
volatility in international crude oil prices firming up of overall inflationary pressures and
expectations and a hardening of international interest rates along with the withdrawal of
monetary accommodation
Indiarsquos demographic advantage ndash In contrast to developed Countries India will have a
younger population for the next 50 years Hence India would be the hub for RampD
Inflation
Inflation was contained to 63 per cent by end-March 2007 within the indicative
trajectory of 50-55 per cent during 2007-08 The actual inflation was considerably lower
than the indicative trajectory and this could be mainly attributed to the deferred pass-
through of even the cognisable permanent component of international crude oil prices
Money Supply
Monetary and liquidity conditions remained largely comfortable during 2006-07reflecting
proactive liquidity management operations by the Reserve Bank under the liquidity
adjustment facility flexible management of issuances under the market stabilisation
scheme and some private placement of Government securities
30
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
In short the Indian economy is exhibiting strong fundamentals and displaying
considerable resilience At the same time there are continuing signs of demand pressures
especially high credit growth that could exert upward pressure on prices when associated
with supply shocks such as from oil These pressures have the potential for impacting
stability and inflation expectations While domestic developments continue to dominate
the economy global factors tend to gain more attention now than before The global
outlook for growth is positive but downside risks in regard to inflation also RBI is
applying new repo and reverse repo for the balance of inflation and monetary policies
The following are macroeconomic policies generally found as part of government-
directed industrial auto policies
(a) Restrictions on domestic and foreign investment
(b) Domestic content requirements
(c) High tariff walls
(d) Auto export requirements
(e) National production to sales ratios
(f) Distribution controls
(g) Quotas and licensing requirements that significantly restrict imports
(h) Government approval for product related decisions including vehicle make
body type engine size etc
(i) Special government categories for auto taxes
II INDUSTRY ANALYSIS
Since 1991 opening of the economy has changed the face of auto industry Today it is
amongst the main drivers of growth of Indian economy with an output multiplier of
224(for every Re1 invested auto sector gives back Rs224 to the economy) In recent
years we have seen increasing number of global players entering Indian market by way of
Joint ventures collaborations or wholly owned subsidiary
The automobile industry is torn between trying to reduce costs on the one hand and on
the other dealing with the high price of performance-enhancing technology and
environmental compliance Key drivers in the automotive industry are
31
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Reducing air pollution
Reduction of weight
Recyclability
Safety
Better performance and engine efficiency
Aesthetics
Longer service Life
INDUSTRY LIFE CYCLE
The automobile market is at the maturity stage of the life cycle locally and globally due
to an increased number of competitors from domestic and foreign markets The
automobile market is characterized by a low potential for market growth but high sales
and profit potential as the products have still not saturated the market as a whole
MAJOR COMPETITORS OF TATA MOTORS ARE
Maruti Udyog Ltd
General Motors India
Ford India Ltd
Eicher Motors
Bajaj Auto
Hero Motors
Hindustan Motors
32
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Hyundai Motor India Ltd
Royal Enfield Motors
Telco
TVS Motors
FINANCIALS
Description 1 Day PriceChange
MarketCap
PEROE
Div Yield
Long-Term Debt toEquity
Price toBook Value
NetProfit Margin (mrq)
Price toFree Cash Flow (mrq)
Sector Consumer Goods 01125178B
2488
1707
222
1171076
706 40842
Industry Auto Manufacturers - Major (More Info)
0613310B
3000
750171
181 155 160 -440
Companies
Daimlerchrysler AG (DCX) 021 539B1072
1119
350
217 116 469 -354
Ford Motor Co (F) 121 157B NA-951
240
1107
115 -060 -8205
General Motors Corporation (GM) -024 165B NA
-6285
340
390 142 -621 014
Honda Motor Co Ltd (HMC) 083 622B1152
1654
100
083 173 552 20748
Tata Motors Ltd (TTM) -038 71B1864
NA150
NA 535 564 NA
Toyota Motor Corp (TM) 0731756B
1394
1505
120
103 197 659 NA
Opportunities and Threats
a) Opportunities
Road Development The ongoing road development program would improve
connectivity to ports cities and villages through a network of highways and
interconnecting roads by 2010-11 Improved road network would help in faster
33
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
movement of goods between various cities and towns The Company launched TATA
Novus range of vehicles in the heavy segment and TATA ACE for last mile distribution
Car penetration in India Car penetration in India is 7 cars per 1000 persons
International In FY 2006-07 the Company increased share of its overseas vehicle sales
from 76 last year to record high of 111 (as of its total sales) and has planned
further increase in this year
b) Threats
Global Competition India is increasingly attracting global players to set up
manufacturing facility for producing cars especially small cars Global automobile
manufacturers are also entering India in commercial vehicle segment to leverage Indiarsquos
low cost production advantage to their favor
Fuel Prices The continuing fuel price increase in the domestic market could
significantly impact demand of commercial and passenger vehicles
Input costs Commodity items particularly steel non-ferrous metals rubber and
engineering plastics have witnessed huge price increases in the past These prices are
expected to increase further affecting the Companyrsquos profitability
Interest rate hardening and other inflationary trends With interest rates hardening and
liquidity crunch in the system growth in sales may be adversely impacted
Government Regulations Stringent emission and safety requirements could bring new
complexities for automotive and component manufacturers impacting the Companyrsquos
business
Risks and Concerns
Interest Rates FY 2007-08 started with increasing interest rate regime and tightening
liquidity position in the economy Increasing interest rates could further affect vehicle
demand which could have an adverse impact on the Companyrsquos revenues and profits
Exchange rates The Company exports vehicles to many countries and exchange rate
fluctuations in the order execution period could impact the Companyrsquos business
34
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Freight rates In FY 2006-07 freight rates in road transport sector moved up mainly
due to surge in construction activity ongoing road development projects and severe
restriction on over-loading Demand for commercial vehicles could be impacted by
further change in freight rates and change in fuel prices
Domestic market The Company plans to reduce the impact of this cyclicality on its
business by strengthening its less cyclical businesses like buses light trucks small
commercial vehicles
Overseas market In overseas markets the Company competes with global players
which have multiple vehicle platforms large financial capability and global branding
Manufacturing The Company manufactures vehicles at multiple locations and given
the geographical dispersion of its suppliers it faces Logistics Problems
New Competition Competitive activity is expected to increase in commercial vehicle
and passenger vehicle domestic market in coming years
New projects The Company currently is in midst of executing many new projects
ranging from launch of new car platforms to development of new Truck models
III Company Analysis
Key Highlights
Symbol TTL
Sector Consumer Goods
Industry Auto Manufacturers Major
Market Cap Rs29232 crores
Data Since 1945
Last close Rs 74290
Brief Summary of the company
35
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Tata Motors is one of the largest companies in the Tata Group with a total income of US$
235 billion More than 3 million Tata vehicles ply on Indian roads making Tata a
dominant force in the Indian automobile industry
Joint Venture with Fiat and Hitachi
Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing
passenger vehicles engines and transmissions for both domestic and international
markets The Company has also entered into a JV with Hitachi to set up a new plant in
Kharagpur
Product Mix
Tata Motors is Indias only fully integrated automobile manufacturer with a portfolio that
covers trucks buses utility vehicles and passenger cars It would be no exaggeration to
say that Tata Motors provides the wheels for Indias growth
Segmental Overview
Commercial Vehicle Segment
The Company registered 696 volume growth in the domestic CV segment during
4QFY06 from 37228 units in Q3FY05 to 63082 units in Q3FY06 The market share in
this segment was 658 in Q4FY06 as compared to 552 in Q1FY06 The MHCV
goods-carrier segment registered a 544 growth YoY with sale of 33515 units and a
market share of 645 up by around 410 bps driven by infrastructure development and
increase in international trade
Passenger Vehicle Segment
The Company reported a growth of 212 YoY to 49907 vehicles in the domestic
passenger vehicle segment and a market share of 162 in the quarter The passenger
vehicle industry registered a volume growth of 204 during Q4FY06
36
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Plants
Tata Motors owes its leading position in the Indian automobile industry to its strong
focus on indigenisation Their manufacturing plants are situated at Jamshedpur in the
East Pune in the West and Lucknow in the North
Charts showing Key Statistics of tata motors
37
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Share holding pattern as on 31-Mar
shareholding pattern
34
1425
17
10
promotors
MF Banks Fis
FIIs
Others
Public
Financial highlights
38
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
39
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
RATIO ANALYSIS
Ratios 2006 2005 2004
Debtequity 056 049 044
Current ratio 108 087 076
Operating profit margin 1211 1151 1238
Gross profit margin 1087 1043 1104
ROCE 3125 3276 3377
total assets turnover ratio 315 353 343
ROE 2761 3009 2257
Dividend-equity 49794 45373 28211
Retention Ratio 6743 6332 6519
DPS (Rs) 1301 125 799
EPS (Rs) 25 34 41
Dividend Payout Ratio 039 042 037
CAGR of EPS 0177
CAGR of Dividend Payout Ratio -0017
Average ROE 2574
average retention 6354
Growth (g = Avg RR times Avg ROE ) 1636
Market return 1454
40
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
PE ratio (on the basis of historical analysis) = 1812
Therefore the Weighted PE ratio =(1812+2424)2 = 21181
Projected EPS = EPS OF 2006 + CAGR of EPSEPS OF 2006
= Rs48271
Value of Share at the end of financial year 06-07
= Projected EPS Weighted PE Ratio
= Rs1022
2) HPCL
Globalization and the Indian Petroleum Industry
Indian petroleum industry in the post independent period (1947-2001) it may be divided
into three distinct phases
(i) early phase (1947 to 1969)- when the government consolidated its control over
the industry with Soviet assistance
(ii) development phase (1970 to 1989)- in this period the US companies played
dominant role replacing the Soviets and
41
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
(iii) the economic liberalisation phase of 1990s
PORTERrsquoS MODEL
SWOT ANALYSIS
STRENGHS
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
WEAKNESSES
Dependence on refining function high
Moderate share in high profitable retail segment
42
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Diversifications in petrochemicals could trouble the company
High burden of subsidy loss on cooking gas and kerosene
OPPORTUNITIES
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
Overseas presence in upstream and downstream will determine growth
THREATS
Rising oil prices could dampen demand
High regulatory risk
Loss of market share to private players
Entrance of private players in pipelines will take away monopoly of company in
north India
COMPANY ANALYSIS
The Annual Report is broken down into the following specific parts
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the AccountsATHE DIRECTORrsquoS REPORTThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship Fundamental AnalysisB THE AUDITORS REPORTThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors
C FINANCIAL STATEMENTSIt comprises of Balance Sheet Profit and Loss account Cash Flows Its analysis would be discussed later
DSCHEDULES
43
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The schedules detail pertinent information about the items of Balance Sheet and Profit amp Loss Account It also details information about sales manufacturing costs administration costs interest and other income and expenses
1 THE MANAGEMENT
HPCL is a public sector undertaking Thus it is a professionally managed company
There are some parameters of management on which a company is analysed
a integrity of management
b past record of management
c how highly is the management rated by its peers in the same industry
d how the management fares in adversity
e the depth of the knowledge of management
f open and innovative management
on all these parameters HPCL scores good
2 COMPANY
Many times a company has made losses in the previous years but that does not mean
that the company is bad to invest Thus many factors are studied while studying a
company
a) perception of competitors
HPCL is the second largest petroleum company after IOCL Thus it is a competitor of
IOCL and it is trying hard to compete with IOCL on every front That is why now it
has decided to diversify itself in the oil exploration sector
b) company policies
As this is a PSU thus the policies are made by the government The oil sector is one
which is highly regulated by government Thus from time to time it is required to
watch out the various policies changed
3 ANNUAL REPORT
The most primary and most important source of information about a company is its
Annual Report This is prepared every year and distributed to its shareholders
44
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Ratio Analysis
Evaluation of Intrinsic Value of the Security
stdev mkt 0011934stdev sec 003831 Average
Retention Ratio 060504
correlation 0485958 ROE 019842Beta 156765 g 0120052Risk Free Rate 650
Mkt Rate 14
45
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
k 1826
Hence we see that here our g is less than k Thus we see that as per Dividend Discount Model our Intrinsic value is div=22(1+012)=240626= 387
Price= Projected EPS + Weighted PE ratioUsing CAGR EPS = 43468Weighted PE Ratio = 75+6652=33625
Price = 43468+33625 = 381
3) HDFC BANK
The Indian banking industry sector overview
With the economic growth picking up pace and the investment cycle on the way to recovery the banking sector has witnessed a transformation in its vital role of intermediating between the demand and supply of funds
Public sector banks have been very proactive in their restructuring initiatives be it in technology implementation or pruning their loss assets Windfall treasury gains made in the falling interest rate regime were used for writing off the doubtful and loss assets
Retail lending (especially mortgage financing) formed a significant portion of the portfolio for most banks and they customized their products to cater to the diverse demands
Apart from streamlining their processes through technology initiatives such as ATMs telephone banking online banking and web based products banks also resorted to cross selling of financial products such as credit cards mutual funds and insurance policies to augment their fee based income
PORTERrsquoS FIVE FORCES MODEL FOR THE BANKING INDUSTRY
1) BARRIERS TO ENTRY a Economies of scale Since the existing players in the market are well
established and already have a customer base they are able to bear the cost of using the advantages of technology to their maximum advantage
46
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Capital requirement for entry i The Banking Regulation Act prescribes the minimum capital
requirements for a bank Moreover banks have to maintain a capital adequacy ratio of 9 under the Basel I norms
ii Government has declared that the foreign banks will be permitted to establish their presence in India by way of setting up a wholly owned banking subsidiary (WOS) with a minimum capital of Rs300 crore
c Access to distribution channels Since banks have to set up their own distribution channels all the cost has to be directly born by them
d Cost advantage independent of size Existing banks have huge databases of customers which they use when they want to sell a new product launched by them
e Legislation or Government action Banks are governed by Banking Regulation Act 1949 which specifies the rules and regulations applicable to banks RBI is the governing body of banks in India
2) BARGAINING POWER OF BUYERS
Due to increased competition the services offered by banks to customers have improved considerably
3) BARGAINING POWER OF THE SUPPLIERS
Suppliers to banks can be both - the customers and RBIa Customers of banks provide money to banks in the form of deposits and in
return earn some interest on that b RBI acts as a supplier to banks by selling govt securities treasury bills
govt bonds etc c Call money market Banks sometimes have to borrow from other banks to
meet CRR and SLR requirements or other capital requirements as provided by RBI
4) THREAT OF SUBSTITUTES
a Product-for-product substitutioni Banks provide interest on deposits made by people Similar
services are offered by post offices which may act as substitutes to the deposit schemes of banks
ii Some banks offer locker services to customers for yearly rates Similar services are provided by many post offices
47
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Generic substitution People who deposit their savings in banks can invest their money in other sources like mutual funds shares and other securities and life insurance schemes
5) COMPETITIVE RIVALRY
a Extent of competitor balance b Market growth ratesc High Exit Barriers
PEST Analysis for Banking Industry
1 Political factors - The major factors affecting the banking sector are the following
Banking sector reforms ndash As per the RBI roadmap for reforms in the first stage from 2005 to 2009 foreign banks will be allowed to set up wholly owned subsidiaries as well as get greater freedom to set up new branches Fulfilling the minimum priority sector credit -The government mandation of fulfilling the minimum priority sector credit (of which 18 per cent is food credit) has forced the domestic banks to cater to this segment despite the low profitability and vulnerability of asset quality
Banks have also been allowed to set up Offshore Banking Units in SEZrsquos
2 Economic factors -
Basell II norms for the risk management in banking sector - The new Basel Accord has its foundation on three mutually reinforcing pillars The first pillar is compatible with the credit risk market risk and operational risk The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bankConcurrently it also casts responsibility on the supervisors to review and validate banksrsquo risk measurement models
Consolidation and merger and acquisitions in the banking sector- HDFC bank also acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Universal Banking has been introduced ICICI Bank HDFCs closest competitor is already into Universal Banking so HDFC is also getting into it as now it is providing retail banking and also depository facilities in the form of demat account
48
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
3 Social factors-
Big and growing middle class in India - This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans car loans education loans auto loans etc Retail loans have grown from 19 in FYrsquo99 to 51 FYrsquo06Consumer credit accounts for a meager 286 per cent of the countrys GDP and the buoyancy in the economy offers sufficient scope for it to grow
Geographical and Cultural diversity- This is leading to a greater demand for financial products and customization by the customers
4 Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999 It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector
Banks (All) No of players = 40
Sector statistics
We see the sector aggregates and make a financial comparison for the major banks
Top PlayersFY2006
Based on Total Income Based on OPBDT Total Income Change OPBDT Change
(Rs Mn) () (Rs Mn) ()ICICI BANK 631619 5450 S B I 763528 -129 PUNJAB NATIONAL B 29218 1491 ICICI BANK 37174 1936
CAN BANK 277095 2378 PUNJAB NATIONAL B 222052 3936
BANK OF INDIA 23317 2543 CAN BANK 168825 1953
H D F C BANK 185508 6024 H D F C BANK 14324 2748 change - indicates the change between current and corresponding quarter
49
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Types of charts Graphical methods Analytical methods Technical indicators
Technical analysis is concerned with predicting future price trends from historical price and volume data The underlying axiom of technical analysis is that all fundamentals (including expectations) are factored into the market and are reflected in exchange rates
A technical analysis is based on three axioms
Movement of the market considers everything Movement of prices is purposeful History repeats itself
SUPPORT AND RESISTANCE
Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
Resistance on the other hand is the point at which sellers (bears) take control of prices and prevent them from rising higher The price at which a trade takes place is the price at which a bull and bear agree to do business It represents the consensus of their expectations
9
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Support levels indicate the price where the most of investors believe that prices will move higher Resistance levels indicate the price at which the most of investors feel prices will move lower
Role Reversal
When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
31 DOW THEORYndash TRENDS
The ideas of Charles Dow the first editor of the Wall Street Journal form the basis of technical analysis The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages Dow created the Industrial Average of top blue chip stocks and a second average of top railroad stocks (now the Transport Average) He believed that the behavior of the averages reflected the hopes and fears of the entire market The behavior patterns that he observed apply to markets throughout the world
Three Movements
Markets fluctuate in more than one time frame at the same time
10
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Nothing is more certain than that the market has three well defined movements which fit into each other
The first is the daily variation due to local causes and the balance of buying and
selling at that particular time
The secondary movement covers a period ranging from ten days to sixty days
averaging probably between thirty and forty days
The third move is the great swing covering from four to six years
Bull markets are broad upward movements of the market that may last several
years interrupted by secondary reactions Bear markets are long declines
interrupted by secondary rallies These movements are referred to as the primary
trend
Secondary movements normally retrace from one third to two thirds of the
primary trend since the previous secondary movement
Daily fluctuations are important for short-term trading but are unimportant in
analysis of broad market movements
Various cycles have subsequently been identified within these broad categories
Primary Movements have Three Phases
The general conditions in the market
Bull markets
Bull markets commence with reviving confidence as business conditions improve
Prices rise as the market responds to improved earnings
11
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Rampant speculation dominates the market and price advances are based on hopes and
expectations rather than actual results
Bear markets
Bear markets start with abandonment of the hopes and expectations that sustained
inflated prices
Prices decline in response to disappointing earnings
Distress selling follows as speculators attempt to close out their positions and
securities are sold without regard to their true value
Ranging Markets
A secondary reaction may take the form of a lsquolinersquo which may endure for several weeks Price fluctuates within a narrow range of about five per cent
Breakouts from a range can occur in either direction
Advances above the upper limit of the line signal accumulation and higher prices
Declines below the lower limit indicate distribution and lower prices
Volume is used to confirm price breakouts
Trends
Bull Trends
A bull trend is identified by a series of rallies where each rally exceeds the highest point of the previous rally The decline between rallies ends above the lowest point of the previous decline
Successive higher highs and higher lows
12
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
Start = higher Low + break above previous High
The end is signaled by a lower high (peak) followed by a decline below the previous low (trough)
End = lower High + break below previous Low
A bear trend starts at the end of a bull trend when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
Large Corrections
A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
13
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A bull trend starts when price rallies above the previous high
A bull trend ends when price declines below the previous low
A bear trend starts at the end of a bull trend (and vice versa)
32 ELLIOT WAVES THEORY BASICS
TRENDLINES
Breaking through support or resistance levels results in a change of tradersrsquo expectations (which causes supplydemand lines to shift)
14
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
An Uptrend is defined by successively higher low-prices A rising trend can be thought of as a rising support level the bulls are in control and are pushing prices higher A Downtrend is defined by successively lower high-prices A falling trend can be thought of as a falling resistance level the bears are in control and are pushing prices lower
33 MOVING AVERAGES
Moving averages are one of the oldest and most popular technical analysis tools A moving average is the average price of a financial instrument over a given time
The moving average represents the consensus of investorrsquos expectations over the indicated period of time
The classic interpretation of a moving average is to use it in observing changes in prices Investors typically buy when the price of an instrument rises above its moving average and sell when the it falls below its moving average
TECHNICAL INDICATORS
There is a vast number of elaborated technical indicators
15
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
MOVING AVERAGE ndashMA
RELATIVE STRENGTH INDEX mdash RSI The Relative Strength Index Technical Indicator (RSI) is a price-following oscillator that ranges between 0 and 100 When Wilder introduced the Relative Strength Index he recommended using a 14-day RSI Since then the 9-day and 25-day Relative Strength Index indicators have also gained popularity
ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the cumulative difference between advancing and declining issues
CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that closed on an uptick and those that closed on a downtick
CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading volume in declining issues to average trading volume in advancing issues
Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 shares HI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price CANDLESTICK CHART A candlestick chart is an extended version of the hi-lo-close
chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation When the stock price ldquopierces the necklinerdquo after the right shoulder is finished itrsquos time to sell
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins A win by the National Football Conference is bullish
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
16
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER- 3
FUNDAMENTAL ANALYSIS
A CONCEPTUAL OVERVIEW
17
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Fundamental analysis refers to the study of the core underlying elements that influence the economy of a particular entity It is a method of study that attempts to predict price action and market trends by analyzing economic indicators government policy and societal factors (to name just a few elements) within a business cycle framework
I ECONOMIC ANALYSIS
POLITICO-ECONOMIC ANALYSIS No industry or company can exist in isolation It may have splendid managers and a tremendous product However its sales and its costs are affected by factors some of which are beyond its control - the world economy price inflation taxes and a host of others It is important therefore to have an appreciation of the politico-economic factors that affect an industry and a company
The political equationA stable political environment is necessary for steady balanced growth If a country is ruled by a stable government which takes decisions for the long-term development of the country industry and companies will prosper Foreign Exchange ReservesA country needs foreign exchange reserves to meet its commitments pay for its imports and service foreign debts
Foreign Exchange RiskThis is a real risk and one must be cognizant of the effect of a revaluation or devaluation of the currency either in the home country or in the country the company deals in
Restrictive PracticesRestrictive practices or cartels imposed by countries can affect companies and industries crystallizing the exposure
Foreign Debt and the Balance of TradeForeign debt especially if it is very large can be a tremendous burden on an economy India pays around $ 5 billion a year in principal repayments and interest payments InflationInflation has an enormous effect in the economy Within the country it erodes purchasing power As a consequence demand falls If the rate of inflation in the country from which a company imports is high then the cost of production in that country will automatically go up
The Threat of NationalizationThe threat of nationalization is a real threat in many countries ndash the fear that a company may become nationalized
Interest Rates
18
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A low interest rate stimulates investment and industry Conversely high interest rates result in higher cost of production and lower consumption
TaxationThe level of taxation in a country has a direct effect on the economy If tax rates are low people have more disposable income
Government PolicyGovernment policy has a direct impact on the economy A government that is perceived to be proindustry will attract investment
THE ECONOMIC CYCLE
It affects investment decisions employment demand and the profitability of companiesThe four stages of an economic cycle are DepressionRecoveryBoom Recession DepressionAt the time of depression demand is low and falling Inflation is high and so are interest rates Companies crippled by high borrowing and falling sales are forced to curtail production close down plants built at times of higher demand and let workers go
RecoveryDuring this phase the economy begins to recover Investment begins anew and the demand grows Companies begin to post profits Conspicuous spending begins once again
BoomIn the boom phase demand reaches an all time high Investment is also high Interest rates are low Gradually as time goes on supply begins to exceed the demand Prices that had been rising begin to stabilize and even fall There is an increase in demand Then as the boom period matures prices begin to rise again
RecessionThe economy slowly begins to downturn Demand starts falling Interest rates and inflation are high Companies start finding it difficult to sell their goods The economy slowly begins to downturn
19
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II INDUSTRY ANALYSIS
The importance of industry analysis is now dawning on the Indian investor as never before
CycleThe first step in industry is to determine the cycle it is in or the stage of maturity of the industry All industries evolve through the following stages1 Entrepreneurial sunrise or nascent stage2 Expansion or growth stage3 Stabilization stagnation or maturity stage and4 Decline or sunset stage to properly establish itself In the early days it may actually make losses
The Entrepreneurial or Nascent StageAt the first stage the industry is new and it can take some time for it to properly establish itself
The Expansion or Growth StageOnce the industry has established itself it enters a growth stage As the industry grows many new companies enter the industry
The Stabilization or Maturity StageAfter the halcyon days of growth an industry matures and stabilizes Rewards are low and so too is the risk Growth is moderate Though sales may increase they do so at a
20
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
slower rate than before Products are more standardized and less innovative and there are several competitors
The Decline or Sunset StageFinally the industry declines This occurs when its products are no longer popular This may be on account of several factors such as a change in social habits The film and video industries
1 BARRIER TO ENTRYNew entrants increase the capacity in an industry and the inflow of funds The question that arises is how easy is it to enter an industry There are some barriers to entry
a) Economies of scaleb) Product differentiation c) Capital requirementd) Switching costse) Access to distribution channelsf) Cost disadvantages independent of scaleg) Government policyh) Expected retaliationj) International cartels
2 THE THREAT OF SUBSTITUTIONNew inventions are always taking place and new and better products replace existing ones An industry that can be replaced by substitutes or is threatened by substitutes is normally an industry one must be careful of investing in An industry where this occurs constantly is the packaging industry -bottles replaced by cans cans replaced by plastic bottles and the like To ward off the threat of substitution companies often have to spend large sums of money in advertising and promotion
3 BARGAINING POWER OF THE BUYERSIn an industry where buyers have control ie in a buyers market buyers are constantly forcing prices down demanding better services or higher quality and this often erodes profitability The factors one should check are whether a) A particular buyer buys most of the products (large purchase volumes) If such buyers withdraw their patronage they can destroy an industry They can also force prices downb) Buyers can play one company against another to bring prices down
4 BARGAINING POWER FOR THE SUPPLIERSAn industry unduly controlled by its suppliers is also under threat This occurs whena) The suppliers have a monopoly or if there are few suppliersb) Suppliers control an essential c) Demand for the product exceeds d) The supplier supplies to various industriese) The switching costs are high
21
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
f) The suppliers product does not have a substituteg) The suppliers product is an important input for the buyersh) The buyer is not important to the supplieri) The suppliers product is unique
5 RIVALRY AMONG COMPETITORSRivalry among competitors can cause an industry great harm This occurs mainly by price cuts heavy advertising additional high cost services or offers and the like This rivalry occurs mainly whena) There are many competitors and supply exceeds demand Companies resort to price cuts and advertise heavily in order to attract customers for their goodsb) The industry growth is slow and companies are competing with each other for a greater market sharec) The economy is in a recession and companies cut the price of their products and offer better service to stimulate demandd) There is lack of differentiation between the product of one company and that of another In such cases the buyer makes his choice on the basis of price or servicee) In some industries economies of scale will necessitate large additions to existing capacities in a company The increase in production could result in over capacity amp price cuttingf) Competitors may have very different strategies in selling their goods and in competing they may be continuously trying to stay ahead
III COMPANY ANALYSIS
At the final stage of fundamental analysis the investor analyzes the company This analysis has two thrustsHow has the company performed vis-agrave-vis other similar companies and How has the company performed in comparison to earlier years It is imperative that one completes the politico economic analysis and the industry analysis before a company is analyzed because the companys performance at a period of time is to an extent a reflection of the economy the political situation and the industry What does one look at when analyzing a company The different issues regarding a company that should be examined are The Management The Company The Annual Report Ratios Cash flow
THE MANAGEMENT
The single most important factor one should consider when investing in a company and one often never considered is its management In India management can be broadly
22
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
divided in two types Family Management Professional Management
THE COMPANY
An aspect not necessarily examined during an analysis of fundamentals is the company A company may have made losses consecutively for two years or more and one may not wish to touch its shares - yet it may be a good company and worth purchasing into There are several factors one should look at
1 How a company is perceived by its competitorsOne of the key factors to ascertain is how a company is perceived by its competitors It is held in high regard Its management may be known for its maturity vision competence and aggressiveness The investor must ascertain the reason and then determine whetherthe reason will continue into the foreseeable future
2 Whether the company is the market leader in its products or in its segmentAnother aspect that should be ascertained is whether the company is the market leader in its products or in its segment When you invest in market leaders the risk is less Theshares of market leaders do not fall as quickly as those of other companies There is a magic to their name that would make individuals prefer to buy their products as opposed to others
3 Company PoliciesThe policy a company follows is also important What is its plans for growth What is its vision Every company has a life If it is allowed to live a normal life it will grow upto a point and then begin to level out and eventually die It is at the point of leveling out that it must be given new life This can give it renewed vigour and a new lease of life
4 Labour RelationsLabour relations are extremely important A company that has motivated industrious work force has high productivity and practically no disruption of work On the other hand a company that has bad industrial relations will lose several hundred mandays as a consequence of strikes and go slows
5 Where the company is located and where its factories are One must also consider where the companies Plants and Factories are located
THE ANNUAL REPORT
The primary and most important source of information about a company is its Annual Report By law this is prepared every year and distributed to the shareholders Annual Reports are usually very well presented A tremendous amount of data is given about the performance of a company over a period of time The Annual Report is broken down into the following specific parts
23
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the Accounts
A The Directorrsquos ReportThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship 1 It enunciates the opinion of the directors on the state of the economy and the political situation vis-agrave-vis the company 2 Explains the performance and the financial results of the company in the period under review This is an extremely important part The results and operations of the various separate divisions are usually detailed and investors can determine the reasons for their good or bad performance3 The Directorrsquos Report details the companys plans for modernization expansion and diversification Without these a company will remain static and eventually decline4 Discusses the profit earned in the period under review and the dividend Recommended by the directors This paragraph should normally be read with some skepticism as the directors will always argue that the performance was satisfactory If adverse economic conditions are usually at fault 5 Elaborates on the directors views of the companys prospects in the future6 Discusses plans for new acquisition and investments An investor must intelligently evaluate the issues raised in a Directorrsquos Report Industry conditions and the managements knowledge of the business must be considered
B The Auditors ReportThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors Auditors are required to report whether the financial statements presented do in fact present a true and fair view of the state of the company Investors must remember that the auditors are their representatives and that they are required by law to point out if the financial statements are not true and fair
CFinancial StatementsThe published financial statements of a company in an Annual Report consist of its Balance Sheet as at the end of the accounting period detailing the financing condition of the company at that date and the Profit and Loss Account or Income Statement summarizing the activities of the company for the accounting period
BALANCE SHEETThe Balance Sheet details the financial position of a company on a particular date of the companys assets (that which the company owns) and liabilities (that which the companyowes) grouped logically under specific heads It must however be noted that the Balance Sheet details the financial position on a particular day and that the position can be materially different on the next day or the day after
24
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOURCES OF FUNDSSHAREHOLDERS FUNDSSHARE CAPITAL(i) Private Placement(ii) Public Issueiii) Rights issuesRESERVESi) Capital Reservesii) Revenue ReservesLOAN FUNDSi) Secured loansii) Unsecured loansFIXED ASSETSINVESTMENTSSTOCK OR INVENTORIESi) Raw materialsii) Work in progressiii) Finished goodsCASH AND BANK BALANCESLOANS AND ADVANCES
PROFIT AND LOSS ACCOUNTThe Profit and Loss account summarizes the activities of a company during an accounting period which may be a month a quarter six months a year or longer and the result achieved by the company It details the income earned by the company its cost and the resulting profit or loss It is in effect the performance appraisal not only of the company but also of its management- its competence foresight and ability to lead
RATIOS
Ratios express mathematically the relationship between performance figures andor assetsliabilities in a form that can be easily understood and interpretedNo single ratio tells the complete storyRatios can be broken down into four broad categories
(A) Profit and Loss RatiosThese show the relationship between two items or groups of items in a profit and loss account or income statement The more common of these ratios are1 Sales to cost of goods sold2 Selling expenses to sales3 Net profit to sales and4 Gross profit to sales
(B) Balance Sheet RatiosThese deal with the relationship in the balance sheet such as 1 Shareholders equity to borrowed funds
25
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
2 Current assets to current liabilities3 Liabilities to net worth4 Debt to assets and5 Liabilities to assets
(C) Balance Sheet and Profit and Loss Account RatiosThese relate an item on the balance sheet to another in the profit and loss account such as1 Earnings to shareholders funds2 Net income to assets employed3 Sales to stock4 Sales to debtors and5 Cost of goods sold to creditors
(D) Financial Statements and Market RatiosThese are normally known as market ratios and are arrived at by relative financial figures to market prices1 Market value to earnings and2 Book value to market value(a) Market value(b) Earnings(c) Profitability(d) Liquidity(e) Leverage(f) Debt Service Capacity(g) Asset ManagementEfficiency(h) Margins
The major ratios that are considered(i) Market value(ii) Price- earnings ratio(iii) Market-to-book ratio(iv) Earnings(v) Earning per share(vi) Dividend per share(vii) Dividend payout ratio(viii) Leverage ratios(ix) Return on investmentstotal assets
CASH FLOW A statement of sources and uses begins with the profit for the year to which are added the increases in liability accounts (sources) and from which are reduced the increases in asset accounts (uses) The net result shows whether there has been an excess or deficit of funds and how this was financed Investors must examine a companys cash flow as it reveals exactly where the money came from how it was utilized Investors must be
26
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
concerned if a company is financing either its inventories or paying dividends from borrowings without real growth as that shows deterioration
27
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-4 ANALYSIS
28
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
I FUNDAMENTAL ANALYSIS OF STOCKS
Basically fundamental analysis is covered in 3 parts
1 Market economy analysis
2 Industry Analysis
3 Company Analysis
1) TATA MOTORS
I Market Economy Analysis
It covers the macro economy analysis and the various macro economic factors on the national level like GDP Monetary policies of India Fiscal Policies and Inflation and money supply etc
GDP
Real GDP growth accelerated from 75 per cent during 2004-05 to 84 per cent during
2005-06 on the back of buoyant manufacturing and services activity supported by a
recovery in the agricultural sector Real GDP growth has thus averaged over eight per
cent during the last three years and over seven per cent in the first four years (2002-03 to
2005-06) of the Tenth Five Year Plan
Strengths of India today are
A well diversified industrial base which profits from self-reliance in all core industries A
large amp sophisticated financial architecture - The robust capital Markets today have over
9000 listed companies and boast of a massive Market capitalization
A healthy GDP composition with agriculture contributing 22 Industry 22 and
services which have gone strength to strength accounting For 56 of the GDP an
29
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
acknowledged strength in knowledge driven industries like Information technology
biotechnology entertainment Software etc
India has Over 3 million scientific amp technical manpower Over 06 million SampT post
graduates Over 07 million graduate engineers Over 3500 doctorates in sciences every
year
Assuming trend growth in agriculture under normal monsoon conditions and barring
domestic or external shocks the Reserve Bank in its Annual Policy Statement for 2007-
08 (April 2007) placed real GDP growth for policy purposes in the range of 75-80 per
cent during 2007-08 Growth prospects are however subject to a number of downside
risks The risks emanating from the global economy are potential escalation and
volatility in international crude oil prices firming up of overall inflationary pressures and
expectations and a hardening of international interest rates along with the withdrawal of
monetary accommodation
Indiarsquos demographic advantage ndash In contrast to developed Countries India will have a
younger population for the next 50 years Hence India would be the hub for RampD
Inflation
Inflation was contained to 63 per cent by end-March 2007 within the indicative
trajectory of 50-55 per cent during 2007-08 The actual inflation was considerably lower
than the indicative trajectory and this could be mainly attributed to the deferred pass-
through of even the cognisable permanent component of international crude oil prices
Money Supply
Monetary and liquidity conditions remained largely comfortable during 2006-07reflecting
proactive liquidity management operations by the Reserve Bank under the liquidity
adjustment facility flexible management of issuances under the market stabilisation
scheme and some private placement of Government securities
30
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
In short the Indian economy is exhibiting strong fundamentals and displaying
considerable resilience At the same time there are continuing signs of demand pressures
especially high credit growth that could exert upward pressure on prices when associated
with supply shocks such as from oil These pressures have the potential for impacting
stability and inflation expectations While domestic developments continue to dominate
the economy global factors tend to gain more attention now than before The global
outlook for growth is positive but downside risks in regard to inflation also RBI is
applying new repo and reverse repo for the balance of inflation and monetary policies
The following are macroeconomic policies generally found as part of government-
directed industrial auto policies
(a) Restrictions on domestic and foreign investment
(b) Domestic content requirements
(c) High tariff walls
(d) Auto export requirements
(e) National production to sales ratios
(f) Distribution controls
(g) Quotas and licensing requirements that significantly restrict imports
(h) Government approval for product related decisions including vehicle make
body type engine size etc
(i) Special government categories for auto taxes
II INDUSTRY ANALYSIS
Since 1991 opening of the economy has changed the face of auto industry Today it is
amongst the main drivers of growth of Indian economy with an output multiplier of
224(for every Re1 invested auto sector gives back Rs224 to the economy) In recent
years we have seen increasing number of global players entering Indian market by way of
Joint ventures collaborations or wholly owned subsidiary
The automobile industry is torn between trying to reduce costs on the one hand and on
the other dealing with the high price of performance-enhancing technology and
environmental compliance Key drivers in the automotive industry are
31
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Reducing air pollution
Reduction of weight
Recyclability
Safety
Better performance and engine efficiency
Aesthetics
Longer service Life
INDUSTRY LIFE CYCLE
The automobile market is at the maturity stage of the life cycle locally and globally due
to an increased number of competitors from domestic and foreign markets The
automobile market is characterized by a low potential for market growth but high sales
and profit potential as the products have still not saturated the market as a whole
MAJOR COMPETITORS OF TATA MOTORS ARE
Maruti Udyog Ltd
General Motors India
Ford India Ltd
Eicher Motors
Bajaj Auto
Hero Motors
Hindustan Motors
32
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Hyundai Motor India Ltd
Royal Enfield Motors
Telco
TVS Motors
FINANCIALS
Description 1 Day PriceChange
MarketCap
PEROE
Div Yield
Long-Term Debt toEquity
Price toBook Value
NetProfit Margin (mrq)
Price toFree Cash Flow (mrq)
Sector Consumer Goods 01125178B
2488
1707
222
1171076
706 40842
Industry Auto Manufacturers - Major (More Info)
0613310B
3000
750171
181 155 160 -440
Companies
Daimlerchrysler AG (DCX) 021 539B1072
1119
350
217 116 469 -354
Ford Motor Co (F) 121 157B NA-951
240
1107
115 -060 -8205
General Motors Corporation (GM) -024 165B NA
-6285
340
390 142 -621 014
Honda Motor Co Ltd (HMC) 083 622B1152
1654
100
083 173 552 20748
Tata Motors Ltd (TTM) -038 71B1864
NA150
NA 535 564 NA
Toyota Motor Corp (TM) 0731756B
1394
1505
120
103 197 659 NA
Opportunities and Threats
a) Opportunities
Road Development The ongoing road development program would improve
connectivity to ports cities and villages through a network of highways and
interconnecting roads by 2010-11 Improved road network would help in faster
33
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
movement of goods between various cities and towns The Company launched TATA
Novus range of vehicles in the heavy segment and TATA ACE for last mile distribution
Car penetration in India Car penetration in India is 7 cars per 1000 persons
International In FY 2006-07 the Company increased share of its overseas vehicle sales
from 76 last year to record high of 111 (as of its total sales) and has planned
further increase in this year
b) Threats
Global Competition India is increasingly attracting global players to set up
manufacturing facility for producing cars especially small cars Global automobile
manufacturers are also entering India in commercial vehicle segment to leverage Indiarsquos
low cost production advantage to their favor
Fuel Prices The continuing fuel price increase in the domestic market could
significantly impact demand of commercial and passenger vehicles
Input costs Commodity items particularly steel non-ferrous metals rubber and
engineering plastics have witnessed huge price increases in the past These prices are
expected to increase further affecting the Companyrsquos profitability
Interest rate hardening and other inflationary trends With interest rates hardening and
liquidity crunch in the system growth in sales may be adversely impacted
Government Regulations Stringent emission and safety requirements could bring new
complexities for automotive and component manufacturers impacting the Companyrsquos
business
Risks and Concerns
Interest Rates FY 2007-08 started with increasing interest rate regime and tightening
liquidity position in the economy Increasing interest rates could further affect vehicle
demand which could have an adverse impact on the Companyrsquos revenues and profits
Exchange rates The Company exports vehicles to many countries and exchange rate
fluctuations in the order execution period could impact the Companyrsquos business
34
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Freight rates In FY 2006-07 freight rates in road transport sector moved up mainly
due to surge in construction activity ongoing road development projects and severe
restriction on over-loading Demand for commercial vehicles could be impacted by
further change in freight rates and change in fuel prices
Domestic market The Company plans to reduce the impact of this cyclicality on its
business by strengthening its less cyclical businesses like buses light trucks small
commercial vehicles
Overseas market In overseas markets the Company competes with global players
which have multiple vehicle platforms large financial capability and global branding
Manufacturing The Company manufactures vehicles at multiple locations and given
the geographical dispersion of its suppliers it faces Logistics Problems
New Competition Competitive activity is expected to increase in commercial vehicle
and passenger vehicle domestic market in coming years
New projects The Company currently is in midst of executing many new projects
ranging from launch of new car platforms to development of new Truck models
III Company Analysis
Key Highlights
Symbol TTL
Sector Consumer Goods
Industry Auto Manufacturers Major
Market Cap Rs29232 crores
Data Since 1945
Last close Rs 74290
Brief Summary of the company
35
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Tata Motors is one of the largest companies in the Tata Group with a total income of US$
235 billion More than 3 million Tata vehicles ply on Indian roads making Tata a
dominant force in the Indian automobile industry
Joint Venture with Fiat and Hitachi
Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing
passenger vehicles engines and transmissions for both domestic and international
markets The Company has also entered into a JV with Hitachi to set up a new plant in
Kharagpur
Product Mix
Tata Motors is Indias only fully integrated automobile manufacturer with a portfolio that
covers trucks buses utility vehicles and passenger cars It would be no exaggeration to
say that Tata Motors provides the wheels for Indias growth
Segmental Overview
Commercial Vehicle Segment
The Company registered 696 volume growth in the domestic CV segment during
4QFY06 from 37228 units in Q3FY05 to 63082 units in Q3FY06 The market share in
this segment was 658 in Q4FY06 as compared to 552 in Q1FY06 The MHCV
goods-carrier segment registered a 544 growth YoY with sale of 33515 units and a
market share of 645 up by around 410 bps driven by infrastructure development and
increase in international trade
Passenger Vehicle Segment
The Company reported a growth of 212 YoY to 49907 vehicles in the domestic
passenger vehicle segment and a market share of 162 in the quarter The passenger
vehicle industry registered a volume growth of 204 during Q4FY06
36
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Plants
Tata Motors owes its leading position in the Indian automobile industry to its strong
focus on indigenisation Their manufacturing plants are situated at Jamshedpur in the
East Pune in the West and Lucknow in the North
Charts showing Key Statistics of tata motors
37
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Share holding pattern as on 31-Mar
shareholding pattern
34
1425
17
10
promotors
MF Banks Fis
FIIs
Others
Public
Financial highlights
38
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
39
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
RATIO ANALYSIS
Ratios 2006 2005 2004
Debtequity 056 049 044
Current ratio 108 087 076
Operating profit margin 1211 1151 1238
Gross profit margin 1087 1043 1104
ROCE 3125 3276 3377
total assets turnover ratio 315 353 343
ROE 2761 3009 2257
Dividend-equity 49794 45373 28211
Retention Ratio 6743 6332 6519
DPS (Rs) 1301 125 799
EPS (Rs) 25 34 41
Dividend Payout Ratio 039 042 037
CAGR of EPS 0177
CAGR of Dividend Payout Ratio -0017
Average ROE 2574
average retention 6354
Growth (g = Avg RR times Avg ROE ) 1636
Market return 1454
40
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
PE ratio (on the basis of historical analysis) = 1812
Therefore the Weighted PE ratio =(1812+2424)2 = 21181
Projected EPS = EPS OF 2006 + CAGR of EPSEPS OF 2006
= Rs48271
Value of Share at the end of financial year 06-07
= Projected EPS Weighted PE Ratio
= Rs1022
2) HPCL
Globalization and the Indian Petroleum Industry
Indian petroleum industry in the post independent period (1947-2001) it may be divided
into three distinct phases
(i) early phase (1947 to 1969)- when the government consolidated its control over
the industry with Soviet assistance
(ii) development phase (1970 to 1989)- in this period the US companies played
dominant role replacing the Soviets and
41
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
(iii) the economic liberalisation phase of 1990s
PORTERrsquoS MODEL
SWOT ANALYSIS
STRENGHS
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
WEAKNESSES
Dependence on refining function high
Moderate share in high profitable retail segment
42
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Diversifications in petrochemicals could trouble the company
High burden of subsidy loss on cooking gas and kerosene
OPPORTUNITIES
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
Overseas presence in upstream and downstream will determine growth
THREATS
Rising oil prices could dampen demand
High regulatory risk
Loss of market share to private players
Entrance of private players in pipelines will take away monopoly of company in
north India
COMPANY ANALYSIS
The Annual Report is broken down into the following specific parts
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the AccountsATHE DIRECTORrsquoS REPORTThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship Fundamental AnalysisB THE AUDITORS REPORTThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors
C FINANCIAL STATEMENTSIt comprises of Balance Sheet Profit and Loss account Cash Flows Its analysis would be discussed later
DSCHEDULES
43
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The schedules detail pertinent information about the items of Balance Sheet and Profit amp Loss Account It also details information about sales manufacturing costs administration costs interest and other income and expenses
1 THE MANAGEMENT
HPCL is a public sector undertaking Thus it is a professionally managed company
There are some parameters of management on which a company is analysed
a integrity of management
b past record of management
c how highly is the management rated by its peers in the same industry
d how the management fares in adversity
e the depth of the knowledge of management
f open and innovative management
on all these parameters HPCL scores good
2 COMPANY
Many times a company has made losses in the previous years but that does not mean
that the company is bad to invest Thus many factors are studied while studying a
company
a) perception of competitors
HPCL is the second largest petroleum company after IOCL Thus it is a competitor of
IOCL and it is trying hard to compete with IOCL on every front That is why now it
has decided to diversify itself in the oil exploration sector
b) company policies
As this is a PSU thus the policies are made by the government The oil sector is one
which is highly regulated by government Thus from time to time it is required to
watch out the various policies changed
3 ANNUAL REPORT
The most primary and most important source of information about a company is its
Annual Report This is prepared every year and distributed to its shareholders
44
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Ratio Analysis
Evaluation of Intrinsic Value of the Security
stdev mkt 0011934stdev sec 003831 Average
Retention Ratio 060504
correlation 0485958 ROE 019842Beta 156765 g 0120052Risk Free Rate 650
Mkt Rate 14
45
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
k 1826
Hence we see that here our g is less than k Thus we see that as per Dividend Discount Model our Intrinsic value is div=22(1+012)=240626= 387
Price= Projected EPS + Weighted PE ratioUsing CAGR EPS = 43468Weighted PE Ratio = 75+6652=33625
Price = 43468+33625 = 381
3) HDFC BANK
The Indian banking industry sector overview
With the economic growth picking up pace and the investment cycle on the way to recovery the banking sector has witnessed a transformation in its vital role of intermediating between the demand and supply of funds
Public sector banks have been very proactive in their restructuring initiatives be it in technology implementation or pruning their loss assets Windfall treasury gains made in the falling interest rate regime were used for writing off the doubtful and loss assets
Retail lending (especially mortgage financing) formed a significant portion of the portfolio for most banks and they customized their products to cater to the diverse demands
Apart from streamlining their processes through technology initiatives such as ATMs telephone banking online banking and web based products banks also resorted to cross selling of financial products such as credit cards mutual funds and insurance policies to augment their fee based income
PORTERrsquoS FIVE FORCES MODEL FOR THE BANKING INDUSTRY
1) BARRIERS TO ENTRY a Economies of scale Since the existing players in the market are well
established and already have a customer base they are able to bear the cost of using the advantages of technology to their maximum advantage
46
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Capital requirement for entry i The Banking Regulation Act prescribes the minimum capital
requirements for a bank Moreover banks have to maintain a capital adequacy ratio of 9 under the Basel I norms
ii Government has declared that the foreign banks will be permitted to establish their presence in India by way of setting up a wholly owned banking subsidiary (WOS) with a minimum capital of Rs300 crore
c Access to distribution channels Since banks have to set up their own distribution channels all the cost has to be directly born by them
d Cost advantage independent of size Existing banks have huge databases of customers which they use when they want to sell a new product launched by them
e Legislation or Government action Banks are governed by Banking Regulation Act 1949 which specifies the rules and regulations applicable to banks RBI is the governing body of banks in India
2) BARGAINING POWER OF BUYERS
Due to increased competition the services offered by banks to customers have improved considerably
3) BARGAINING POWER OF THE SUPPLIERS
Suppliers to banks can be both - the customers and RBIa Customers of banks provide money to banks in the form of deposits and in
return earn some interest on that b RBI acts as a supplier to banks by selling govt securities treasury bills
govt bonds etc c Call money market Banks sometimes have to borrow from other banks to
meet CRR and SLR requirements or other capital requirements as provided by RBI
4) THREAT OF SUBSTITUTES
a Product-for-product substitutioni Banks provide interest on deposits made by people Similar
services are offered by post offices which may act as substitutes to the deposit schemes of banks
ii Some banks offer locker services to customers for yearly rates Similar services are provided by many post offices
47
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Generic substitution People who deposit their savings in banks can invest their money in other sources like mutual funds shares and other securities and life insurance schemes
5) COMPETITIVE RIVALRY
a Extent of competitor balance b Market growth ratesc High Exit Barriers
PEST Analysis for Banking Industry
1 Political factors - The major factors affecting the banking sector are the following
Banking sector reforms ndash As per the RBI roadmap for reforms in the first stage from 2005 to 2009 foreign banks will be allowed to set up wholly owned subsidiaries as well as get greater freedom to set up new branches Fulfilling the minimum priority sector credit -The government mandation of fulfilling the minimum priority sector credit (of which 18 per cent is food credit) has forced the domestic banks to cater to this segment despite the low profitability and vulnerability of asset quality
Banks have also been allowed to set up Offshore Banking Units in SEZrsquos
2 Economic factors -
Basell II norms for the risk management in banking sector - The new Basel Accord has its foundation on three mutually reinforcing pillars The first pillar is compatible with the credit risk market risk and operational risk The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bankConcurrently it also casts responsibility on the supervisors to review and validate banksrsquo risk measurement models
Consolidation and merger and acquisitions in the banking sector- HDFC bank also acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Universal Banking has been introduced ICICI Bank HDFCs closest competitor is already into Universal Banking so HDFC is also getting into it as now it is providing retail banking and also depository facilities in the form of demat account
48
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
3 Social factors-
Big and growing middle class in India - This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans car loans education loans auto loans etc Retail loans have grown from 19 in FYrsquo99 to 51 FYrsquo06Consumer credit accounts for a meager 286 per cent of the countrys GDP and the buoyancy in the economy offers sufficient scope for it to grow
Geographical and Cultural diversity- This is leading to a greater demand for financial products and customization by the customers
4 Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999 It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector
Banks (All) No of players = 40
Sector statistics
We see the sector aggregates and make a financial comparison for the major banks
Top PlayersFY2006
Based on Total Income Based on OPBDT Total Income Change OPBDT Change
(Rs Mn) () (Rs Mn) ()ICICI BANK 631619 5450 S B I 763528 -129 PUNJAB NATIONAL B 29218 1491 ICICI BANK 37174 1936
CAN BANK 277095 2378 PUNJAB NATIONAL B 222052 3936
BANK OF INDIA 23317 2543 CAN BANK 168825 1953
H D F C BANK 185508 6024 H D F C BANK 14324 2748 change - indicates the change between current and corresponding quarter
49
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Support levels indicate the price where the most of investors believe that prices will move higher Resistance levels indicate the price at which the most of investors feel prices will move lower
Role Reversal
When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
31 DOW THEORYndash TRENDS
The ideas of Charles Dow the first editor of the Wall Street Journal form the basis of technical analysis The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages Dow created the Industrial Average of top blue chip stocks and a second average of top railroad stocks (now the Transport Average) He believed that the behavior of the averages reflected the hopes and fears of the entire market The behavior patterns that he observed apply to markets throughout the world
Three Movements
Markets fluctuate in more than one time frame at the same time
10
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Nothing is more certain than that the market has three well defined movements which fit into each other
The first is the daily variation due to local causes and the balance of buying and
selling at that particular time
The secondary movement covers a period ranging from ten days to sixty days
averaging probably between thirty and forty days
The third move is the great swing covering from four to six years
Bull markets are broad upward movements of the market that may last several
years interrupted by secondary reactions Bear markets are long declines
interrupted by secondary rallies These movements are referred to as the primary
trend
Secondary movements normally retrace from one third to two thirds of the
primary trend since the previous secondary movement
Daily fluctuations are important for short-term trading but are unimportant in
analysis of broad market movements
Various cycles have subsequently been identified within these broad categories
Primary Movements have Three Phases
The general conditions in the market
Bull markets
Bull markets commence with reviving confidence as business conditions improve
Prices rise as the market responds to improved earnings
11
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Rampant speculation dominates the market and price advances are based on hopes and
expectations rather than actual results
Bear markets
Bear markets start with abandonment of the hopes and expectations that sustained
inflated prices
Prices decline in response to disappointing earnings
Distress selling follows as speculators attempt to close out their positions and
securities are sold without regard to their true value
Ranging Markets
A secondary reaction may take the form of a lsquolinersquo which may endure for several weeks Price fluctuates within a narrow range of about five per cent
Breakouts from a range can occur in either direction
Advances above the upper limit of the line signal accumulation and higher prices
Declines below the lower limit indicate distribution and lower prices
Volume is used to confirm price breakouts
Trends
Bull Trends
A bull trend is identified by a series of rallies where each rally exceeds the highest point of the previous rally The decline between rallies ends above the lowest point of the previous decline
Successive higher highs and higher lows
12
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
Start = higher Low + break above previous High
The end is signaled by a lower high (peak) followed by a decline below the previous low (trough)
End = lower High + break below previous Low
A bear trend starts at the end of a bull trend when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
Large Corrections
A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
13
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A bull trend starts when price rallies above the previous high
A bull trend ends when price declines below the previous low
A bear trend starts at the end of a bull trend (and vice versa)
32 ELLIOT WAVES THEORY BASICS
TRENDLINES
Breaking through support or resistance levels results in a change of tradersrsquo expectations (which causes supplydemand lines to shift)
14
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
An Uptrend is defined by successively higher low-prices A rising trend can be thought of as a rising support level the bulls are in control and are pushing prices higher A Downtrend is defined by successively lower high-prices A falling trend can be thought of as a falling resistance level the bears are in control and are pushing prices lower
33 MOVING AVERAGES
Moving averages are one of the oldest and most popular technical analysis tools A moving average is the average price of a financial instrument over a given time
The moving average represents the consensus of investorrsquos expectations over the indicated period of time
The classic interpretation of a moving average is to use it in observing changes in prices Investors typically buy when the price of an instrument rises above its moving average and sell when the it falls below its moving average
TECHNICAL INDICATORS
There is a vast number of elaborated technical indicators
15
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
MOVING AVERAGE ndashMA
RELATIVE STRENGTH INDEX mdash RSI The Relative Strength Index Technical Indicator (RSI) is a price-following oscillator that ranges between 0 and 100 When Wilder introduced the Relative Strength Index he recommended using a 14-day RSI Since then the 9-day and 25-day Relative Strength Index indicators have also gained popularity
ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the cumulative difference between advancing and declining issues
CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that closed on an uptick and those that closed on a downtick
CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading volume in declining issues to average trading volume in advancing issues
Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 shares HI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price CANDLESTICK CHART A candlestick chart is an extended version of the hi-lo-close
chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation When the stock price ldquopierces the necklinerdquo after the right shoulder is finished itrsquos time to sell
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins A win by the National Football Conference is bullish
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
16
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER- 3
FUNDAMENTAL ANALYSIS
A CONCEPTUAL OVERVIEW
17
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Fundamental analysis refers to the study of the core underlying elements that influence the economy of a particular entity It is a method of study that attempts to predict price action and market trends by analyzing economic indicators government policy and societal factors (to name just a few elements) within a business cycle framework
I ECONOMIC ANALYSIS
POLITICO-ECONOMIC ANALYSIS No industry or company can exist in isolation It may have splendid managers and a tremendous product However its sales and its costs are affected by factors some of which are beyond its control - the world economy price inflation taxes and a host of others It is important therefore to have an appreciation of the politico-economic factors that affect an industry and a company
The political equationA stable political environment is necessary for steady balanced growth If a country is ruled by a stable government which takes decisions for the long-term development of the country industry and companies will prosper Foreign Exchange ReservesA country needs foreign exchange reserves to meet its commitments pay for its imports and service foreign debts
Foreign Exchange RiskThis is a real risk and one must be cognizant of the effect of a revaluation or devaluation of the currency either in the home country or in the country the company deals in
Restrictive PracticesRestrictive practices or cartels imposed by countries can affect companies and industries crystallizing the exposure
Foreign Debt and the Balance of TradeForeign debt especially if it is very large can be a tremendous burden on an economy India pays around $ 5 billion a year in principal repayments and interest payments InflationInflation has an enormous effect in the economy Within the country it erodes purchasing power As a consequence demand falls If the rate of inflation in the country from which a company imports is high then the cost of production in that country will automatically go up
The Threat of NationalizationThe threat of nationalization is a real threat in many countries ndash the fear that a company may become nationalized
Interest Rates
18
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A low interest rate stimulates investment and industry Conversely high interest rates result in higher cost of production and lower consumption
TaxationThe level of taxation in a country has a direct effect on the economy If tax rates are low people have more disposable income
Government PolicyGovernment policy has a direct impact on the economy A government that is perceived to be proindustry will attract investment
THE ECONOMIC CYCLE
It affects investment decisions employment demand and the profitability of companiesThe four stages of an economic cycle are DepressionRecoveryBoom Recession DepressionAt the time of depression demand is low and falling Inflation is high and so are interest rates Companies crippled by high borrowing and falling sales are forced to curtail production close down plants built at times of higher demand and let workers go
RecoveryDuring this phase the economy begins to recover Investment begins anew and the demand grows Companies begin to post profits Conspicuous spending begins once again
BoomIn the boom phase demand reaches an all time high Investment is also high Interest rates are low Gradually as time goes on supply begins to exceed the demand Prices that had been rising begin to stabilize and even fall There is an increase in demand Then as the boom period matures prices begin to rise again
RecessionThe economy slowly begins to downturn Demand starts falling Interest rates and inflation are high Companies start finding it difficult to sell their goods The economy slowly begins to downturn
19
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II INDUSTRY ANALYSIS
The importance of industry analysis is now dawning on the Indian investor as never before
CycleThe first step in industry is to determine the cycle it is in or the stage of maturity of the industry All industries evolve through the following stages1 Entrepreneurial sunrise or nascent stage2 Expansion or growth stage3 Stabilization stagnation or maturity stage and4 Decline or sunset stage to properly establish itself In the early days it may actually make losses
The Entrepreneurial or Nascent StageAt the first stage the industry is new and it can take some time for it to properly establish itself
The Expansion or Growth StageOnce the industry has established itself it enters a growth stage As the industry grows many new companies enter the industry
The Stabilization or Maturity StageAfter the halcyon days of growth an industry matures and stabilizes Rewards are low and so too is the risk Growth is moderate Though sales may increase they do so at a
20
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
slower rate than before Products are more standardized and less innovative and there are several competitors
The Decline or Sunset StageFinally the industry declines This occurs when its products are no longer popular This may be on account of several factors such as a change in social habits The film and video industries
1 BARRIER TO ENTRYNew entrants increase the capacity in an industry and the inflow of funds The question that arises is how easy is it to enter an industry There are some barriers to entry
a) Economies of scaleb) Product differentiation c) Capital requirementd) Switching costse) Access to distribution channelsf) Cost disadvantages independent of scaleg) Government policyh) Expected retaliationj) International cartels
2 THE THREAT OF SUBSTITUTIONNew inventions are always taking place and new and better products replace existing ones An industry that can be replaced by substitutes or is threatened by substitutes is normally an industry one must be careful of investing in An industry where this occurs constantly is the packaging industry -bottles replaced by cans cans replaced by plastic bottles and the like To ward off the threat of substitution companies often have to spend large sums of money in advertising and promotion
3 BARGAINING POWER OF THE BUYERSIn an industry where buyers have control ie in a buyers market buyers are constantly forcing prices down demanding better services or higher quality and this often erodes profitability The factors one should check are whether a) A particular buyer buys most of the products (large purchase volumes) If such buyers withdraw their patronage they can destroy an industry They can also force prices downb) Buyers can play one company against another to bring prices down
4 BARGAINING POWER FOR THE SUPPLIERSAn industry unduly controlled by its suppliers is also under threat This occurs whena) The suppliers have a monopoly or if there are few suppliersb) Suppliers control an essential c) Demand for the product exceeds d) The supplier supplies to various industriese) The switching costs are high
21
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
f) The suppliers product does not have a substituteg) The suppliers product is an important input for the buyersh) The buyer is not important to the supplieri) The suppliers product is unique
5 RIVALRY AMONG COMPETITORSRivalry among competitors can cause an industry great harm This occurs mainly by price cuts heavy advertising additional high cost services or offers and the like This rivalry occurs mainly whena) There are many competitors and supply exceeds demand Companies resort to price cuts and advertise heavily in order to attract customers for their goodsb) The industry growth is slow and companies are competing with each other for a greater market sharec) The economy is in a recession and companies cut the price of their products and offer better service to stimulate demandd) There is lack of differentiation between the product of one company and that of another In such cases the buyer makes his choice on the basis of price or servicee) In some industries economies of scale will necessitate large additions to existing capacities in a company The increase in production could result in over capacity amp price cuttingf) Competitors may have very different strategies in selling their goods and in competing they may be continuously trying to stay ahead
III COMPANY ANALYSIS
At the final stage of fundamental analysis the investor analyzes the company This analysis has two thrustsHow has the company performed vis-agrave-vis other similar companies and How has the company performed in comparison to earlier years It is imperative that one completes the politico economic analysis and the industry analysis before a company is analyzed because the companys performance at a period of time is to an extent a reflection of the economy the political situation and the industry What does one look at when analyzing a company The different issues regarding a company that should be examined are The Management The Company The Annual Report Ratios Cash flow
THE MANAGEMENT
The single most important factor one should consider when investing in a company and one often never considered is its management In India management can be broadly
22
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
divided in two types Family Management Professional Management
THE COMPANY
An aspect not necessarily examined during an analysis of fundamentals is the company A company may have made losses consecutively for two years or more and one may not wish to touch its shares - yet it may be a good company and worth purchasing into There are several factors one should look at
1 How a company is perceived by its competitorsOne of the key factors to ascertain is how a company is perceived by its competitors It is held in high regard Its management may be known for its maturity vision competence and aggressiveness The investor must ascertain the reason and then determine whetherthe reason will continue into the foreseeable future
2 Whether the company is the market leader in its products or in its segmentAnother aspect that should be ascertained is whether the company is the market leader in its products or in its segment When you invest in market leaders the risk is less Theshares of market leaders do not fall as quickly as those of other companies There is a magic to their name that would make individuals prefer to buy their products as opposed to others
3 Company PoliciesThe policy a company follows is also important What is its plans for growth What is its vision Every company has a life If it is allowed to live a normal life it will grow upto a point and then begin to level out and eventually die It is at the point of leveling out that it must be given new life This can give it renewed vigour and a new lease of life
4 Labour RelationsLabour relations are extremely important A company that has motivated industrious work force has high productivity and practically no disruption of work On the other hand a company that has bad industrial relations will lose several hundred mandays as a consequence of strikes and go slows
5 Where the company is located and where its factories are One must also consider where the companies Plants and Factories are located
THE ANNUAL REPORT
The primary and most important source of information about a company is its Annual Report By law this is prepared every year and distributed to the shareholders Annual Reports are usually very well presented A tremendous amount of data is given about the performance of a company over a period of time The Annual Report is broken down into the following specific parts
23
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the Accounts
A The Directorrsquos ReportThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship 1 It enunciates the opinion of the directors on the state of the economy and the political situation vis-agrave-vis the company 2 Explains the performance and the financial results of the company in the period under review This is an extremely important part The results and operations of the various separate divisions are usually detailed and investors can determine the reasons for their good or bad performance3 The Directorrsquos Report details the companys plans for modernization expansion and diversification Without these a company will remain static and eventually decline4 Discusses the profit earned in the period under review and the dividend Recommended by the directors This paragraph should normally be read with some skepticism as the directors will always argue that the performance was satisfactory If adverse economic conditions are usually at fault 5 Elaborates on the directors views of the companys prospects in the future6 Discusses plans for new acquisition and investments An investor must intelligently evaluate the issues raised in a Directorrsquos Report Industry conditions and the managements knowledge of the business must be considered
B The Auditors ReportThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors Auditors are required to report whether the financial statements presented do in fact present a true and fair view of the state of the company Investors must remember that the auditors are their representatives and that they are required by law to point out if the financial statements are not true and fair
CFinancial StatementsThe published financial statements of a company in an Annual Report consist of its Balance Sheet as at the end of the accounting period detailing the financing condition of the company at that date and the Profit and Loss Account or Income Statement summarizing the activities of the company for the accounting period
BALANCE SHEETThe Balance Sheet details the financial position of a company on a particular date of the companys assets (that which the company owns) and liabilities (that which the companyowes) grouped logically under specific heads It must however be noted that the Balance Sheet details the financial position on a particular day and that the position can be materially different on the next day or the day after
24
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOURCES OF FUNDSSHAREHOLDERS FUNDSSHARE CAPITAL(i) Private Placement(ii) Public Issueiii) Rights issuesRESERVESi) Capital Reservesii) Revenue ReservesLOAN FUNDSi) Secured loansii) Unsecured loansFIXED ASSETSINVESTMENTSSTOCK OR INVENTORIESi) Raw materialsii) Work in progressiii) Finished goodsCASH AND BANK BALANCESLOANS AND ADVANCES
PROFIT AND LOSS ACCOUNTThe Profit and Loss account summarizes the activities of a company during an accounting period which may be a month a quarter six months a year or longer and the result achieved by the company It details the income earned by the company its cost and the resulting profit or loss It is in effect the performance appraisal not only of the company but also of its management- its competence foresight and ability to lead
RATIOS
Ratios express mathematically the relationship between performance figures andor assetsliabilities in a form that can be easily understood and interpretedNo single ratio tells the complete storyRatios can be broken down into four broad categories
(A) Profit and Loss RatiosThese show the relationship between two items or groups of items in a profit and loss account or income statement The more common of these ratios are1 Sales to cost of goods sold2 Selling expenses to sales3 Net profit to sales and4 Gross profit to sales
(B) Balance Sheet RatiosThese deal with the relationship in the balance sheet such as 1 Shareholders equity to borrowed funds
25
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
2 Current assets to current liabilities3 Liabilities to net worth4 Debt to assets and5 Liabilities to assets
(C) Balance Sheet and Profit and Loss Account RatiosThese relate an item on the balance sheet to another in the profit and loss account such as1 Earnings to shareholders funds2 Net income to assets employed3 Sales to stock4 Sales to debtors and5 Cost of goods sold to creditors
(D) Financial Statements and Market RatiosThese are normally known as market ratios and are arrived at by relative financial figures to market prices1 Market value to earnings and2 Book value to market value(a) Market value(b) Earnings(c) Profitability(d) Liquidity(e) Leverage(f) Debt Service Capacity(g) Asset ManagementEfficiency(h) Margins
The major ratios that are considered(i) Market value(ii) Price- earnings ratio(iii) Market-to-book ratio(iv) Earnings(v) Earning per share(vi) Dividend per share(vii) Dividend payout ratio(viii) Leverage ratios(ix) Return on investmentstotal assets
CASH FLOW A statement of sources and uses begins with the profit for the year to which are added the increases in liability accounts (sources) and from which are reduced the increases in asset accounts (uses) The net result shows whether there has been an excess or deficit of funds and how this was financed Investors must examine a companys cash flow as it reveals exactly where the money came from how it was utilized Investors must be
26
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
concerned if a company is financing either its inventories or paying dividends from borrowings without real growth as that shows deterioration
27
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-4 ANALYSIS
28
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
I FUNDAMENTAL ANALYSIS OF STOCKS
Basically fundamental analysis is covered in 3 parts
1 Market economy analysis
2 Industry Analysis
3 Company Analysis
1) TATA MOTORS
I Market Economy Analysis
It covers the macro economy analysis and the various macro economic factors on the national level like GDP Monetary policies of India Fiscal Policies and Inflation and money supply etc
GDP
Real GDP growth accelerated from 75 per cent during 2004-05 to 84 per cent during
2005-06 on the back of buoyant manufacturing and services activity supported by a
recovery in the agricultural sector Real GDP growth has thus averaged over eight per
cent during the last three years and over seven per cent in the first four years (2002-03 to
2005-06) of the Tenth Five Year Plan
Strengths of India today are
A well diversified industrial base which profits from self-reliance in all core industries A
large amp sophisticated financial architecture - The robust capital Markets today have over
9000 listed companies and boast of a massive Market capitalization
A healthy GDP composition with agriculture contributing 22 Industry 22 and
services which have gone strength to strength accounting For 56 of the GDP an
29
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
acknowledged strength in knowledge driven industries like Information technology
biotechnology entertainment Software etc
India has Over 3 million scientific amp technical manpower Over 06 million SampT post
graduates Over 07 million graduate engineers Over 3500 doctorates in sciences every
year
Assuming trend growth in agriculture under normal monsoon conditions and barring
domestic or external shocks the Reserve Bank in its Annual Policy Statement for 2007-
08 (April 2007) placed real GDP growth for policy purposes in the range of 75-80 per
cent during 2007-08 Growth prospects are however subject to a number of downside
risks The risks emanating from the global economy are potential escalation and
volatility in international crude oil prices firming up of overall inflationary pressures and
expectations and a hardening of international interest rates along with the withdrawal of
monetary accommodation
Indiarsquos demographic advantage ndash In contrast to developed Countries India will have a
younger population for the next 50 years Hence India would be the hub for RampD
Inflation
Inflation was contained to 63 per cent by end-March 2007 within the indicative
trajectory of 50-55 per cent during 2007-08 The actual inflation was considerably lower
than the indicative trajectory and this could be mainly attributed to the deferred pass-
through of even the cognisable permanent component of international crude oil prices
Money Supply
Monetary and liquidity conditions remained largely comfortable during 2006-07reflecting
proactive liquidity management operations by the Reserve Bank under the liquidity
adjustment facility flexible management of issuances under the market stabilisation
scheme and some private placement of Government securities
30
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
In short the Indian economy is exhibiting strong fundamentals and displaying
considerable resilience At the same time there are continuing signs of demand pressures
especially high credit growth that could exert upward pressure on prices when associated
with supply shocks such as from oil These pressures have the potential for impacting
stability and inflation expectations While domestic developments continue to dominate
the economy global factors tend to gain more attention now than before The global
outlook for growth is positive but downside risks in regard to inflation also RBI is
applying new repo and reverse repo for the balance of inflation and monetary policies
The following are macroeconomic policies generally found as part of government-
directed industrial auto policies
(a) Restrictions on domestic and foreign investment
(b) Domestic content requirements
(c) High tariff walls
(d) Auto export requirements
(e) National production to sales ratios
(f) Distribution controls
(g) Quotas and licensing requirements that significantly restrict imports
(h) Government approval for product related decisions including vehicle make
body type engine size etc
(i) Special government categories for auto taxes
II INDUSTRY ANALYSIS
Since 1991 opening of the economy has changed the face of auto industry Today it is
amongst the main drivers of growth of Indian economy with an output multiplier of
224(for every Re1 invested auto sector gives back Rs224 to the economy) In recent
years we have seen increasing number of global players entering Indian market by way of
Joint ventures collaborations or wholly owned subsidiary
The automobile industry is torn between trying to reduce costs on the one hand and on
the other dealing with the high price of performance-enhancing technology and
environmental compliance Key drivers in the automotive industry are
31
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Reducing air pollution
Reduction of weight
Recyclability
Safety
Better performance and engine efficiency
Aesthetics
Longer service Life
INDUSTRY LIFE CYCLE
The automobile market is at the maturity stage of the life cycle locally and globally due
to an increased number of competitors from domestic and foreign markets The
automobile market is characterized by a low potential for market growth but high sales
and profit potential as the products have still not saturated the market as a whole
MAJOR COMPETITORS OF TATA MOTORS ARE
Maruti Udyog Ltd
General Motors India
Ford India Ltd
Eicher Motors
Bajaj Auto
Hero Motors
Hindustan Motors
32
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Hyundai Motor India Ltd
Royal Enfield Motors
Telco
TVS Motors
FINANCIALS
Description 1 Day PriceChange
MarketCap
PEROE
Div Yield
Long-Term Debt toEquity
Price toBook Value
NetProfit Margin (mrq)
Price toFree Cash Flow (mrq)
Sector Consumer Goods 01125178B
2488
1707
222
1171076
706 40842
Industry Auto Manufacturers - Major (More Info)
0613310B
3000
750171
181 155 160 -440
Companies
Daimlerchrysler AG (DCX) 021 539B1072
1119
350
217 116 469 -354
Ford Motor Co (F) 121 157B NA-951
240
1107
115 -060 -8205
General Motors Corporation (GM) -024 165B NA
-6285
340
390 142 -621 014
Honda Motor Co Ltd (HMC) 083 622B1152
1654
100
083 173 552 20748
Tata Motors Ltd (TTM) -038 71B1864
NA150
NA 535 564 NA
Toyota Motor Corp (TM) 0731756B
1394
1505
120
103 197 659 NA
Opportunities and Threats
a) Opportunities
Road Development The ongoing road development program would improve
connectivity to ports cities and villages through a network of highways and
interconnecting roads by 2010-11 Improved road network would help in faster
33
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
movement of goods between various cities and towns The Company launched TATA
Novus range of vehicles in the heavy segment and TATA ACE for last mile distribution
Car penetration in India Car penetration in India is 7 cars per 1000 persons
International In FY 2006-07 the Company increased share of its overseas vehicle sales
from 76 last year to record high of 111 (as of its total sales) and has planned
further increase in this year
b) Threats
Global Competition India is increasingly attracting global players to set up
manufacturing facility for producing cars especially small cars Global automobile
manufacturers are also entering India in commercial vehicle segment to leverage Indiarsquos
low cost production advantage to their favor
Fuel Prices The continuing fuel price increase in the domestic market could
significantly impact demand of commercial and passenger vehicles
Input costs Commodity items particularly steel non-ferrous metals rubber and
engineering plastics have witnessed huge price increases in the past These prices are
expected to increase further affecting the Companyrsquos profitability
Interest rate hardening and other inflationary trends With interest rates hardening and
liquidity crunch in the system growth in sales may be adversely impacted
Government Regulations Stringent emission and safety requirements could bring new
complexities for automotive and component manufacturers impacting the Companyrsquos
business
Risks and Concerns
Interest Rates FY 2007-08 started with increasing interest rate regime and tightening
liquidity position in the economy Increasing interest rates could further affect vehicle
demand which could have an adverse impact on the Companyrsquos revenues and profits
Exchange rates The Company exports vehicles to many countries and exchange rate
fluctuations in the order execution period could impact the Companyrsquos business
34
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Freight rates In FY 2006-07 freight rates in road transport sector moved up mainly
due to surge in construction activity ongoing road development projects and severe
restriction on over-loading Demand for commercial vehicles could be impacted by
further change in freight rates and change in fuel prices
Domestic market The Company plans to reduce the impact of this cyclicality on its
business by strengthening its less cyclical businesses like buses light trucks small
commercial vehicles
Overseas market In overseas markets the Company competes with global players
which have multiple vehicle platforms large financial capability and global branding
Manufacturing The Company manufactures vehicles at multiple locations and given
the geographical dispersion of its suppliers it faces Logistics Problems
New Competition Competitive activity is expected to increase in commercial vehicle
and passenger vehicle domestic market in coming years
New projects The Company currently is in midst of executing many new projects
ranging from launch of new car platforms to development of new Truck models
III Company Analysis
Key Highlights
Symbol TTL
Sector Consumer Goods
Industry Auto Manufacturers Major
Market Cap Rs29232 crores
Data Since 1945
Last close Rs 74290
Brief Summary of the company
35
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Tata Motors is one of the largest companies in the Tata Group with a total income of US$
235 billion More than 3 million Tata vehicles ply on Indian roads making Tata a
dominant force in the Indian automobile industry
Joint Venture with Fiat and Hitachi
Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing
passenger vehicles engines and transmissions for both domestic and international
markets The Company has also entered into a JV with Hitachi to set up a new plant in
Kharagpur
Product Mix
Tata Motors is Indias only fully integrated automobile manufacturer with a portfolio that
covers trucks buses utility vehicles and passenger cars It would be no exaggeration to
say that Tata Motors provides the wheels for Indias growth
Segmental Overview
Commercial Vehicle Segment
The Company registered 696 volume growth in the domestic CV segment during
4QFY06 from 37228 units in Q3FY05 to 63082 units in Q3FY06 The market share in
this segment was 658 in Q4FY06 as compared to 552 in Q1FY06 The MHCV
goods-carrier segment registered a 544 growth YoY with sale of 33515 units and a
market share of 645 up by around 410 bps driven by infrastructure development and
increase in international trade
Passenger Vehicle Segment
The Company reported a growth of 212 YoY to 49907 vehicles in the domestic
passenger vehicle segment and a market share of 162 in the quarter The passenger
vehicle industry registered a volume growth of 204 during Q4FY06
36
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Plants
Tata Motors owes its leading position in the Indian automobile industry to its strong
focus on indigenisation Their manufacturing plants are situated at Jamshedpur in the
East Pune in the West and Lucknow in the North
Charts showing Key Statistics of tata motors
37
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Share holding pattern as on 31-Mar
shareholding pattern
34
1425
17
10
promotors
MF Banks Fis
FIIs
Others
Public
Financial highlights
38
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
39
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
RATIO ANALYSIS
Ratios 2006 2005 2004
Debtequity 056 049 044
Current ratio 108 087 076
Operating profit margin 1211 1151 1238
Gross profit margin 1087 1043 1104
ROCE 3125 3276 3377
total assets turnover ratio 315 353 343
ROE 2761 3009 2257
Dividend-equity 49794 45373 28211
Retention Ratio 6743 6332 6519
DPS (Rs) 1301 125 799
EPS (Rs) 25 34 41
Dividend Payout Ratio 039 042 037
CAGR of EPS 0177
CAGR of Dividend Payout Ratio -0017
Average ROE 2574
average retention 6354
Growth (g = Avg RR times Avg ROE ) 1636
Market return 1454
40
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
PE ratio (on the basis of historical analysis) = 1812
Therefore the Weighted PE ratio =(1812+2424)2 = 21181
Projected EPS = EPS OF 2006 + CAGR of EPSEPS OF 2006
= Rs48271
Value of Share at the end of financial year 06-07
= Projected EPS Weighted PE Ratio
= Rs1022
2) HPCL
Globalization and the Indian Petroleum Industry
Indian petroleum industry in the post independent period (1947-2001) it may be divided
into three distinct phases
(i) early phase (1947 to 1969)- when the government consolidated its control over
the industry with Soviet assistance
(ii) development phase (1970 to 1989)- in this period the US companies played
dominant role replacing the Soviets and
41
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
(iii) the economic liberalisation phase of 1990s
PORTERrsquoS MODEL
SWOT ANALYSIS
STRENGHS
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
WEAKNESSES
Dependence on refining function high
Moderate share in high profitable retail segment
42
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Diversifications in petrochemicals could trouble the company
High burden of subsidy loss on cooking gas and kerosene
OPPORTUNITIES
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
Overseas presence in upstream and downstream will determine growth
THREATS
Rising oil prices could dampen demand
High regulatory risk
Loss of market share to private players
Entrance of private players in pipelines will take away monopoly of company in
north India
COMPANY ANALYSIS
The Annual Report is broken down into the following specific parts
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the AccountsATHE DIRECTORrsquoS REPORTThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship Fundamental AnalysisB THE AUDITORS REPORTThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors
C FINANCIAL STATEMENTSIt comprises of Balance Sheet Profit and Loss account Cash Flows Its analysis would be discussed later
DSCHEDULES
43
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The schedules detail pertinent information about the items of Balance Sheet and Profit amp Loss Account It also details information about sales manufacturing costs administration costs interest and other income and expenses
1 THE MANAGEMENT
HPCL is a public sector undertaking Thus it is a professionally managed company
There are some parameters of management on which a company is analysed
a integrity of management
b past record of management
c how highly is the management rated by its peers in the same industry
d how the management fares in adversity
e the depth of the knowledge of management
f open and innovative management
on all these parameters HPCL scores good
2 COMPANY
Many times a company has made losses in the previous years but that does not mean
that the company is bad to invest Thus many factors are studied while studying a
company
a) perception of competitors
HPCL is the second largest petroleum company after IOCL Thus it is a competitor of
IOCL and it is trying hard to compete with IOCL on every front That is why now it
has decided to diversify itself in the oil exploration sector
b) company policies
As this is a PSU thus the policies are made by the government The oil sector is one
which is highly regulated by government Thus from time to time it is required to
watch out the various policies changed
3 ANNUAL REPORT
The most primary and most important source of information about a company is its
Annual Report This is prepared every year and distributed to its shareholders
44
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Ratio Analysis
Evaluation of Intrinsic Value of the Security
stdev mkt 0011934stdev sec 003831 Average
Retention Ratio 060504
correlation 0485958 ROE 019842Beta 156765 g 0120052Risk Free Rate 650
Mkt Rate 14
45
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
k 1826
Hence we see that here our g is less than k Thus we see that as per Dividend Discount Model our Intrinsic value is div=22(1+012)=240626= 387
Price= Projected EPS + Weighted PE ratioUsing CAGR EPS = 43468Weighted PE Ratio = 75+6652=33625
Price = 43468+33625 = 381
3) HDFC BANK
The Indian banking industry sector overview
With the economic growth picking up pace and the investment cycle on the way to recovery the banking sector has witnessed a transformation in its vital role of intermediating between the demand and supply of funds
Public sector banks have been very proactive in their restructuring initiatives be it in technology implementation or pruning their loss assets Windfall treasury gains made in the falling interest rate regime were used for writing off the doubtful and loss assets
Retail lending (especially mortgage financing) formed a significant portion of the portfolio for most banks and they customized their products to cater to the diverse demands
Apart from streamlining their processes through technology initiatives such as ATMs telephone banking online banking and web based products banks also resorted to cross selling of financial products such as credit cards mutual funds and insurance policies to augment their fee based income
PORTERrsquoS FIVE FORCES MODEL FOR THE BANKING INDUSTRY
1) BARRIERS TO ENTRY a Economies of scale Since the existing players in the market are well
established and already have a customer base they are able to bear the cost of using the advantages of technology to their maximum advantage
46
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Capital requirement for entry i The Banking Regulation Act prescribes the minimum capital
requirements for a bank Moreover banks have to maintain a capital adequacy ratio of 9 under the Basel I norms
ii Government has declared that the foreign banks will be permitted to establish their presence in India by way of setting up a wholly owned banking subsidiary (WOS) with a minimum capital of Rs300 crore
c Access to distribution channels Since banks have to set up their own distribution channels all the cost has to be directly born by them
d Cost advantage independent of size Existing banks have huge databases of customers which they use when they want to sell a new product launched by them
e Legislation or Government action Banks are governed by Banking Regulation Act 1949 which specifies the rules and regulations applicable to banks RBI is the governing body of banks in India
2) BARGAINING POWER OF BUYERS
Due to increased competition the services offered by banks to customers have improved considerably
3) BARGAINING POWER OF THE SUPPLIERS
Suppliers to banks can be both - the customers and RBIa Customers of banks provide money to banks in the form of deposits and in
return earn some interest on that b RBI acts as a supplier to banks by selling govt securities treasury bills
govt bonds etc c Call money market Banks sometimes have to borrow from other banks to
meet CRR and SLR requirements or other capital requirements as provided by RBI
4) THREAT OF SUBSTITUTES
a Product-for-product substitutioni Banks provide interest on deposits made by people Similar
services are offered by post offices which may act as substitutes to the deposit schemes of banks
ii Some banks offer locker services to customers for yearly rates Similar services are provided by many post offices
47
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Generic substitution People who deposit their savings in banks can invest their money in other sources like mutual funds shares and other securities and life insurance schemes
5) COMPETITIVE RIVALRY
a Extent of competitor balance b Market growth ratesc High Exit Barriers
PEST Analysis for Banking Industry
1 Political factors - The major factors affecting the banking sector are the following
Banking sector reforms ndash As per the RBI roadmap for reforms in the first stage from 2005 to 2009 foreign banks will be allowed to set up wholly owned subsidiaries as well as get greater freedom to set up new branches Fulfilling the minimum priority sector credit -The government mandation of fulfilling the minimum priority sector credit (of which 18 per cent is food credit) has forced the domestic banks to cater to this segment despite the low profitability and vulnerability of asset quality
Banks have also been allowed to set up Offshore Banking Units in SEZrsquos
2 Economic factors -
Basell II norms for the risk management in banking sector - The new Basel Accord has its foundation on three mutually reinforcing pillars The first pillar is compatible with the credit risk market risk and operational risk The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bankConcurrently it also casts responsibility on the supervisors to review and validate banksrsquo risk measurement models
Consolidation and merger and acquisitions in the banking sector- HDFC bank also acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Universal Banking has been introduced ICICI Bank HDFCs closest competitor is already into Universal Banking so HDFC is also getting into it as now it is providing retail banking and also depository facilities in the form of demat account
48
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
3 Social factors-
Big and growing middle class in India - This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans car loans education loans auto loans etc Retail loans have grown from 19 in FYrsquo99 to 51 FYrsquo06Consumer credit accounts for a meager 286 per cent of the countrys GDP and the buoyancy in the economy offers sufficient scope for it to grow
Geographical and Cultural diversity- This is leading to a greater demand for financial products and customization by the customers
4 Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999 It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector
Banks (All) No of players = 40
Sector statistics
We see the sector aggregates and make a financial comparison for the major banks
Top PlayersFY2006
Based on Total Income Based on OPBDT Total Income Change OPBDT Change
(Rs Mn) () (Rs Mn) ()ICICI BANK 631619 5450 S B I 763528 -129 PUNJAB NATIONAL B 29218 1491 ICICI BANK 37174 1936
CAN BANK 277095 2378 PUNJAB NATIONAL B 222052 3936
BANK OF INDIA 23317 2543 CAN BANK 168825 1953
H D F C BANK 185508 6024 H D F C BANK 14324 2748 change - indicates the change between current and corresponding quarter
49
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Nothing is more certain than that the market has three well defined movements which fit into each other
The first is the daily variation due to local causes and the balance of buying and
selling at that particular time
The secondary movement covers a period ranging from ten days to sixty days
averaging probably between thirty and forty days
The third move is the great swing covering from four to six years
Bull markets are broad upward movements of the market that may last several
years interrupted by secondary reactions Bear markets are long declines
interrupted by secondary rallies These movements are referred to as the primary
trend
Secondary movements normally retrace from one third to two thirds of the
primary trend since the previous secondary movement
Daily fluctuations are important for short-term trading but are unimportant in
analysis of broad market movements
Various cycles have subsequently been identified within these broad categories
Primary Movements have Three Phases
The general conditions in the market
Bull markets
Bull markets commence with reviving confidence as business conditions improve
Prices rise as the market responds to improved earnings
11
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Rampant speculation dominates the market and price advances are based on hopes and
expectations rather than actual results
Bear markets
Bear markets start with abandonment of the hopes and expectations that sustained
inflated prices
Prices decline in response to disappointing earnings
Distress selling follows as speculators attempt to close out their positions and
securities are sold without regard to their true value
Ranging Markets
A secondary reaction may take the form of a lsquolinersquo which may endure for several weeks Price fluctuates within a narrow range of about five per cent
Breakouts from a range can occur in either direction
Advances above the upper limit of the line signal accumulation and higher prices
Declines below the lower limit indicate distribution and lower prices
Volume is used to confirm price breakouts
Trends
Bull Trends
A bull trend is identified by a series of rallies where each rally exceeds the highest point of the previous rally The decline between rallies ends above the lowest point of the previous decline
Successive higher highs and higher lows
12
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
Start = higher Low + break above previous High
The end is signaled by a lower high (peak) followed by a decline below the previous low (trough)
End = lower High + break below previous Low
A bear trend starts at the end of a bull trend when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
Large Corrections
A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
13
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A bull trend starts when price rallies above the previous high
A bull trend ends when price declines below the previous low
A bear trend starts at the end of a bull trend (and vice versa)
32 ELLIOT WAVES THEORY BASICS
TRENDLINES
Breaking through support or resistance levels results in a change of tradersrsquo expectations (which causes supplydemand lines to shift)
14
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
An Uptrend is defined by successively higher low-prices A rising trend can be thought of as a rising support level the bulls are in control and are pushing prices higher A Downtrend is defined by successively lower high-prices A falling trend can be thought of as a falling resistance level the bears are in control and are pushing prices lower
33 MOVING AVERAGES
Moving averages are one of the oldest and most popular technical analysis tools A moving average is the average price of a financial instrument over a given time
The moving average represents the consensus of investorrsquos expectations over the indicated period of time
The classic interpretation of a moving average is to use it in observing changes in prices Investors typically buy when the price of an instrument rises above its moving average and sell when the it falls below its moving average
TECHNICAL INDICATORS
There is a vast number of elaborated technical indicators
15
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
MOVING AVERAGE ndashMA
RELATIVE STRENGTH INDEX mdash RSI The Relative Strength Index Technical Indicator (RSI) is a price-following oscillator that ranges between 0 and 100 When Wilder introduced the Relative Strength Index he recommended using a 14-day RSI Since then the 9-day and 25-day Relative Strength Index indicators have also gained popularity
ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the cumulative difference between advancing and declining issues
CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that closed on an uptick and those that closed on a downtick
CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading volume in declining issues to average trading volume in advancing issues
Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 shares HI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price CANDLESTICK CHART A candlestick chart is an extended version of the hi-lo-close
chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation When the stock price ldquopierces the necklinerdquo after the right shoulder is finished itrsquos time to sell
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins A win by the National Football Conference is bullish
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
16
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER- 3
FUNDAMENTAL ANALYSIS
A CONCEPTUAL OVERVIEW
17
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Fundamental analysis refers to the study of the core underlying elements that influence the economy of a particular entity It is a method of study that attempts to predict price action and market trends by analyzing economic indicators government policy and societal factors (to name just a few elements) within a business cycle framework
I ECONOMIC ANALYSIS
POLITICO-ECONOMIC ANALYSIS No industry or company can exist in isolation It may have splendid managers and a tremendous product However its sales and its costs are affected by factors some of which are beyond its control - the world economy price inflation taxes and a host of others It is important therefore to have an appreciation of the politico-economic factors that affect an industry and a company
The political equationA stable political environment is necessary for steady balanced growth If a country is ruled by a stable government which takes decisions for the long-term development of the country industry and companies will prosper Foreign Exchange ReservesA country needs foreign exchange reserves to meet its commitments pay for its imports and service foreign debts
Foreign Exchange RiskThis is a real risk and one must be cognizant of the effect of a revaluation or devaluation of the currency either in the home country or in the country the company deals in
Restrictive PracticesRestrictive practices or cartels imposed by countries can affect companies and industries crystallizing the exposure
Foreign Debt and the Balance of TradeForeign debt especially if it is very large can be a tremendous burden on an economy India pays around $ 5 billion a year in principal repayments and interest payments InflationInflation has an enormous effect in the economy Within the country it erodes purchasing power As a consequence demand falls If the rate of inflation in the country from which a company imports is high then the cost of production in that country will automatically go up
The Threat of NationalizationThe threat of nationalization is a real threat in many countries ndash the fear that a company may become nationalized
Interest Rates
18
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A low interest rate stimulates investment and industry Conversely high interest rates result in higher cost of production and lower consumption
TaxationThe level of taxation in a country has a direct effect on the economy If tax rates are low people have more disposable income
Government PolicyGovernment policy has a direct impact on the economy A government that is perceived to be proindustry will attract investment
THE ECONOMIC CYCLE
It affects investment decisions employment demand and the profitability of companiesThe four stages of an economic cycle are DepressionRecoveryBoom Recession DepressionAt the time of depression demand is low and falling Inflation is high and so are interest rates Companies crippled by high borrowing and falling sales are forced to curtail production close down plants built at times of higher demand and let workers go
RecoveryDuring this phase the economy begins to recover Investment begins anew and the demand grows Companies begin to post profits Conspicuous spending begins once again
BoomIn the boom phase demand reaches an all time high Investment is also high Interest rates are low Gradually as time goes on supply begins to exceed the demand Prices that had been rising begin to stabilize and even fall There is an increase in demand Then as the boom period matures prices begin to rise again
RecessionThe economy slowly begins to downturn Demand starts falling Interest rates and inflation are high Companies start finding it difficult to sell their goods The economy slowly begins to downturn
19
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II INDUSTRY ANALYSIS
The importance of industry analysis is now dawning on the Indian investor as never before
CycleThe first step in industry is to determine the cycle it is in or the stage of maturity of the industry All industries evolve through the following stages1 Entrepreneurial sunrise or nascent stage2 Expansion or growth stage3 Stabilization stagnation or maturity stage and4 Decline or sunset stage to properly establish itself In the early days it may actually make losses
The Entrepreneurial or Nascent StageAt the first stage the industry is new and it can take some time for it to properly establish itself
The Expansion or Growth StageOnce the industry has established itself it enters a growth stage As the industry grows many new companies enter the industry
The Stabilization or Maturity StageAfter the halcyon days of growth an industry matures and stabilizes Rewards are low and so too is the risk Growth is moderate Though sales may increase they do so at a
20
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
slower rate than before Products are more standardized and less innovative and there are several competitors
The Decline or Sunset StageFinally the industry declines This occurs when its products are no longer popular This may be on account of several factors such as a change in social habits The film and video industries
1 BARRIER TO ENTRYNew entrants increase the capacity in an industry and the inflow of funds The question that arises is how easy is it to enter an industry There are some barriers to entry
a) Economies of scaleb) Product differentiation c) Capital requirementd) Switching costse) Access to distribution channelsf) Cost disadvantages independent of scaleg) Government policyh) Expected retaliationj) International cartels
2 THE THREAT OF SUBSTITUTIONNew inventions are always taking place and new and better products replace existing ones An industry that can be replaced by substitutes or is threatened by substitutes is normally an industry one must be careful of investing in An industry where this occurs constantly is the packaging industry -bottles replaced by cans cans replaced by plastic bottles and the like To ward off the threat of substitution companies often have to spend large sums of money in advertising and promotion
3 BARGAINING POWER OF THE BUYERSIn an industry where buyers have control ie in a buyers market buyers are constantly forcing prices down demanding better services or higher quality and this often erodes profitability The factors one should check are whether a) A particular buyer buys most of the products (large purchase volumes) If such buyers withdraw their patronage they can destroy an industry They can also force prices downb) Buyers can play one company against another to bring prices down
4 BARGAINING POWER FOR THE SUPPLIERSAn industry unduly controlled by its suppliers is also under threat This occurs whena) The suppliers have a monopoly or if there are few suppliersb) Suppliers control an essential c) Demand for the product exceeds d) The supplier supplies to various industriese) The switching costs are high
21
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
f) The suppliers product does not have a substituteg) The suppliers product is an important input for the buyersh) The buyer is not important to the supplieri) The suppliers product is unique
5 RIVALRY AMONG COMPETITORSRivalry among competitors can cause an industry great harm This occurs mainly by price cuts heavy advertising additional high cost services or offers and the like This rivalry occurs mainly whena) There are many competitors and supply exceeds demand Companies resort to price cuts and advertise heavily in order to attract customers for their goodsb) The industry growth is slow and companies are competing with each other for a greater market sharec) The economy is in a recession and companies cut the price of their products and offer better service to stimulate demandd) There is lack of differentiation between the product of one company and that of another In such cases the buyer makes his choice on the basis of price or servicee) In some industries economies of scale will necessitate large additions to existing capacities in a company The increase in production could result in over capacity amp price cuttingf) Competitors may have very different strategies in selling their goods and in competing they may be continuously trying to stay ahead
III COMPANY ANALYSIS
At the final stage of fundamental analysis the investor analyzes the company This analysis has two thrustsHow has the company performed vis-agrave-vis other similar companies and How has the company performed in comparison to earlier years It is imperative that one completes the politico economic analysis and the industry analysis before a company is analyzed because the companys performance at a period of time is to an extent a reflection of the economy the political situation and the industry What does one look at when analyzing a company The different issues regarding a company that should be examined are The Management The Company The Annual Report Ratios Cash flow
THE MANAGEMENT
The single most important factor one should consider when investing in a company and one often never considered is its management In India management can be broadly
22
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
divided in two types Family Management Professional Management
THE COMPANY
An aspect not necessarily examined during an analysis of fundamentals is the company A company may have made losses consecutively for two years or more and one may not wish to touch its shares - yet it may be a good company and worth purchasing into There are several factors one should look at
1 How a company is perceived by its competitorsOne of the key factors to ascertain is how a company is perceived by its competitors It is held in high regard Its management may be known for its maturity vision competence and aggressiveness The investor must ascertain the reason and then determine whetherthe reason will continue into the foreseeable future
2 Whether the company is the market leader in its products or in its segmentAnother aspect that should be ascertained is whether the company is the market leader in its products or in its segment When you invest in market leaders the risk is less Theshares of market leaders do not fall as quickly as those of other companies There is a magic to their name that would make individuals prefer to buy their products as opposed to others
3 Company PoliciesThe policy a company follows is also important What is its plans for growth What is its vision Every company has a life If it is allowed to live a normal life it will grow upto a point and then begin to level out and eventually die It is at the point of leveling out that it must be given new life This can give it renewed vigour and a new lease of life
4 Labour RelationsLabour relations are extremely important A company that has motivated industrious work force has high productivity and practically no disruption of work On the other hand a company that has bad industrial relations will lose several hundred mandays as a consequence of strikes and go slows
5 Where the company is located and where its factories are One must also consider where the companies Plants and Factories are located
THE ANNUAL REPORT
The primary and most important source of information about a company is its Annual Report By law this is prepared every year and distributed to the shareholders Annual Reports are usually very well presented A tremendous amount of data is given about the performance of a company over a period of time The Annual Report is broken down into the following specific parts
23
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the Accounts
A The Directorrsquos ReportThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship 1 It enunciates the opinion of the directors on the state of the economy and the political situation vis-agrave-vis the company 2 Explains the performance and the financial results of the company in the period under review This is an extremely important part The results and operations of the various separate divisions are usually detailed and investors can determine the reasons for their good or bad performance3 The Directorrsquos Report details the companys plans for modernization expansion and diversification Without these a company will remain static and eventually decline4 Discusses the profit earned in the period under review and the dividend Recommended by the directors This paragraph should normally be read with some skepticism as the directors will always argue that the performance was satisfactory If adverse economic conditions are usually at fault 5 Elaborates on the directors views of the companys prospects in the future6 Discusses plans for new acquisition and investments An investor must intelligently evaluate the issues raised in a Directorrsquos Report Industry conditions and the managements knowledge of the business must be considered
B The Auditors ReportThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors Auditors are required to report whether the financial statements presented do in fact present a true and fair view of the state of the company Investors must remember that the auditors are their representatives and that they are required by law to point out if the financial statements are not true and fair
CFinancial StatementsThe published financial statements of a company in an Annual Report consist of its Balance Sheet as at the end of the accounting period detailing the financing condition of the company at that date and the Profit and Loss Account or Income Statement summarizing the activities of the company for the accounting period
BALANCE SHEETThe Balance Sheet details the financial position of a company on a particular date of the companys assets (that which the company owns) and liabilities (that which the companyowes) grouped logically under specific heads It must however be noted that the Balance Sheet details the financial position on a particular day and that the position can be materially different on the next day or the day after
24
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOURCES OF FUNDSSHAREHOLDERS FUNDSSHARE CAPITAL(i) Private Placement(ii) Public Issueiii) Rights issuesRESERVESi) Capital Reservesii) Revenue ReservesLOAN FUNDSi) Secured loansii) Unsecured loansFIXED ASSETSINVESTMENTSSTOCK OR INVENTORIESi) Raw materialsii) Work in progressiii) Finished goodsCASH AND BANK BALANCESLOANS AND ADVANCES
PROFIT AND LOSS ACCOUNTThe Profit and Loss account summarizes the activities of a company during an accounting period which may be a month a quarter six months a year or longer and the result achieved by the company It details the income earned by the company its cost and the resulting profit or loss It is in effect the performance appraisal not only of the company but also of its management- its competence foresight and ability to lead
RATIOS
Ratios express mathematically the relationship between performance figures andor assetsliabilities in a form that can be easily understood and interpretedNo single ratio tells the complete storyRatios can be broken down into four broad categories
(A) Profit and Loss RatiosThese show the relationship between two items or groups of items in a profit and loss account or income statement The more common of these ratios are1 Sales to cost of goods sold2 Selling expenses to sales3 Net profit to sales and4 Gross profit to sales
(B) Balance Sheet RatiosThese deal with the relationship in the balance sheet such as 1 Shareholders equity to borrowed funds
25
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
2 Current assets to current liabilities3 Liabilities to net worth4 Debt to assets and5 Liabilities to assets
(C) Balance Sheet and Profit and Loss Account RatiosThese relate an item on the balance sheet to another in the profit and loss account such as1 Earnings to shareholders funds2 Net income to assets employed3 Sales to stock4 Sales to debtors and5 Cost of goods sold to creditors
(D) Financial Statements and Market RatiosThese are normally known as market ratios and are arrived at by relative financial figures to market prices1 Market value to earnings and2 Book value to market value(a) Market value(b) Earnings(c) Profitability(d) Liquidity(e) Leverage(f) Debt Service Capacity(g) Asset ManagementEfficiency(h) Margins
The major ratios that are considered(i) Market value(ii) Price- earnings ratio(iii) Market-to-book ratio(iv) Earnings(v) Earning per share(vi) Dividend per share(vii) Dividend payout ratio(viii) Leverage ratios(ix) Return on investmentstotal assets
CASH FLOW A statement of sources and uses begins with the profit for the year to which are added the increases in liability accounts (sources) and from which are reduced the increases in asset accounts (uses) The net result shows whether there has been an excess or deficit of funds and how this was financed Investors must examine a companys cash flow as it reveals exactly where the money came from how it was utilized Investors must be
26
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
concerned if a company is financing either its inventories or paying dividends from borrowings without real growth as that shows deterioration
27
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-4 ANALYSIS
28
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
I FUNDAMENTAL ANALYSIS OF STOCKS
Basically fundamental analysis is covered in 3 parts
1 Market economy analysis
2 Industry Analysis
3 Company Analysis
1) TATA MOTORS
I Market Economy Analysis
It covers the macro economy analysis and the various macro economic factors on the national level like GDP Monetary policies of India Fiscal Policies and Inflation and money supply etc
GDP
Real GDP growth accelerated from 75 per cent during 2004-05 to 84 per cent during
2005-06 on the back of buoyant manufacturing and services activity supported by a
recovery in the agricultural sector Real GDP growth has thus averaged over eight per
cent during the last three years and over seven per cent in the first four years (2002-03 to
2005-06) of the Tenth Five Year Plan
Strengths of India today are
A well diversified industrial base which profits from self-reliance in all core industries A
large amp sophisticated financial architecture - The robust capital Markets today have over
9000 listed companies and boast of a massive Market capitalization
A healthy GDP composition with agriculture contributing 22 Industry 22 and
services which have gone strength to strength accounting For 56 of the GDP an
29
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
acknowledged strength in knowledge driven industries like Information technology
biotechnology entertainment Software etc
India has Over 3 million scientific amp technical manpower Over 06 million SampT post
graduates Over 07 million graduate engineers Over 3500 doctorates in sciences every
year
Assuming trend growth in agriculture under normal monsoon conditions and barring
domestic or external shocks the Reserve Bank in its Annual Policy Statement for 2007-
08 (April 2007) placed real GDP growth for policy purposes in the range of 75-80 per
cent during 2007-08 Growth prospects are however subject to a number of downside
risks The risks emanating from the global economy are potential escalation and
volatility in international crude oil prices firming up of overall inflationary pressures and
expectations and a hardening of international interest rates along with the withdrawal of
monetary accommodation
Indiarsquos demographic advantage ndash In contrast to developed Countries India will have a
younger population for the next 50 years Hence India would be the hub for RampD
Inflation
Inflation was contained to 63 per cent by end-March 2007 within the indicative
trajectory of 50-55 per cent during 2007-08 The actual inflation was considerably lower
than the indicative trajectory and this could be mainly attributed to the deferred pass-
through of even the cognisable permanent component of international crude oil prices
Money Supply
Monetary and liquidity conditions remained largely comfortable during 2006-07reflecting
proactive liquidity management operations by the Reserve Bank under the liquidity
adjustment facility flexible management of issuances under the market stabilisation
scheme and some private placement of Government securities
30
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
In short the Indian economy is exhibiting strong fundamentals and displaying
considerable resilience At the same time there are continuing signs of demand pressures
especially high credit growth that could exert upward pressure on prices when associated
with supply shocks such as from oil These pressures have the potential for impacting
stability and inflation expectations While domestic developments continue to dominate
the economy global factors tend to gain more attention now than before The global
outlook for growth is positive but downside risks in regard to inflation also RBI is
applying new repo and reverse repo for the balance of inflation and monetary policies
The following are macroeconomic policies generally found as part of government-
directed industrial auto policies
(a) Restrictions on domestic and foreign investment
(b) Domestic content requirements
(c) High tariff walls
(d) Auto export requirements
(e) National production to sales ratios
(f) Distribution controls
(g) Quotas and licensing requirements that significantly restrict imports
(h) Government approval for product related decisions including vehicle make
body type engine size etc
(i) Special government categories for auto taxes
II INDUSTRY ANALYSIS
Since 1991 opening of the economy has changed the face of auto industry Today it is
amongst the main drivers of growth of Indian economy with an output multiplier of
224(for every Re1 invested auto sector gives back Rs224 to the economy) In recent
years we have seen increasing number of global players entering Indian market by way of
Joint ventures collaborations or wholly owned subsidiary
The automobile industry is torn between trying to reduce costs on the one hand and on
the other dealing with the high price of performance-enhancing technology and
environmental compliance Key drivers in the automotive industry are
31
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Reducing air pollution
Reduction of weight
Recyclability
Safety
Better performance and engine efficiency
Aesthetics
Longer service Life
INDUSTRY LIFE CYCLE
The automobile market is at the maturity stage of the life cycle locally and globally due
to an increased number of competitors from domestic and foreign markets The
automobile market is characterized by a low potential for market growth but high sales
and profit potential as the products have still not saturated the market as a whole
MAJOR COMPETITORS OF TATA MOTORS ARE
Maruti Udyog Ltd
General Motors India
Ford India Ltd
Eicher Motors
Bajaj Auto
Hero Motors
Hindustan Motors
32
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Hyundai Motor India Ltd
Royal Enfield Motors
Telco
TVS Motors
FINANCIALS
Description 1 Day PriceChange
MarketCap
PEROE
Div Yield
Long-Term Debt toEquity
Price toBook Value
NetProfit Margin (mrq)
Price toFree Cash Flow (mrq)
Sector Consumer Goods 01125178B
2488
1707
222
1171076
706 40842
Industry Auto Manufacturers - Major (More Info)
0613310B
3000
750171
181 155 160 -440
Companies
Daimlerchrysler AG (DCX) 021 539B1072
1119
350
217 116 469 -354
Ford Motor Co (F) 121 157B NA-951
240
1107
115 -060 -8205
General Motors Corporation (GM) -024 165B NA
-6285
340
390 142 -621 014
Honda Motor Co Ltd (HMC) 083 622B1152
1654
100
083 173 552 20748
Tata Motors Ltd (TTM) -038 71B1864
NA150
NA 535 564 NA
Toyota Motor Corp (TM) 0731756B
1394
1505
120
103 197 659 NA
Opportunities and Threats
a) Opportunities
Road Development The ongoing road development program would improve
connectivity to ports cities and villages through a network of highways and
interconnecting roads by 2010-11 Improved road network would help in faster
33
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
movement of goods between various cities and towns The Company launched TATA
Novus range of vehicles in the heavy segment and TATA ACE for last mile distribution
Car penetration in India Car penetration in India is 7 cars per 1000 persons
International In FY 2006-07 the Company increased share of its overseas vehicle sales
from 76 last year to record high of 111 (as of its total sales) and has planned
further increase in this year
b) Threats
Global Competition India is increasingly attracting global players to set up
manufacturing facility for producing cars especially small cars Global automobile
manufacturers are also entering India in commercial vehicle segment to leverage Indiarsquos
low cost production advantage to their favor
Fuel Prices The continuing fuel price increase in the domestic market could
significantly impact demand of commercial and passenger vehicles
Input costs Commodity items particularly steel non-ferrous metals rubber and
engineering plastics have witnessed huge price increases in the past These prices are
expected to increase further affecting the Companyrsquos profitability
Interest rate hardening and other inflationary trends With interest rates hardening and
liquidity crunch in the system growth in sales may be adversely impacted
Government Regulations Stringent emission and safety requirements could bring new
complexities for automotive and component manufacturers impacting the Companyrsquos
business
Risks and Concerns
Interest Rates FY 2007-08 started with increasing interest rate regime and tightening
liquidity position in the economy Increasing interest rates could further affect vehicle
demand which could have an adverse impact on the Companyrsquos revenues and profits
Exchange rates The Company exports vehicles to many countries and exchange rate
fluctuations in the order execution period could impact the Companyrsquos business
34
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Freight rates In FY 2006-07 freight rates in road transport sector moved up mainly
due to surge in construction activity ongoing road development projects and severe
restriction on over-loading Demand for commercial vehicles could be impacted by
further change in freight rates and change in fuel prices
Domestic market The Company plans to reduce the impact of this cyclicality on its
business by strengthening its less cyclical businesses like buses light trucks small
commercial vehicles
Overseas market In overseas markets the Company competes with global players
which have multiple vehicle platforms large financial capability and global branding
Manufacturing The Company manufactures vehicles at multiple locations and given
the geographical dispersion of its suppliers it faces Logistics Problems
New Competition Competitive activity is expected to increase in commercial vehicle
and passenger vehicle domestic market in coming years
New projects The Company currently is in midst of executing many new projects
ranging from launch of new car platforms to development of new Truck models
III Company Analysis
Key Highlights
Symbol TTL
Sector Consumer Goods
Industry Auto Manufacturers Major
Market Cap Rs29232 crores
Data Since 1945
Last close Rs 74290
Brief Summary of the company
35
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Tata Motors is one of the largest companies in the Tata Group with a total income of US$
235 billion More than 3 million Tata vehicles ply on Indian roads making Tata a
dominant force in the Indian automobile industry
Joint Venture with Fiat and Hitachi
Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing
passenger vehicles engines and transmissions for both domestic and international
markets The Company has also entered into a JV with Hitachi to set up a new plant in
Kharagpur
Product Mix
Tata Motors is Indias only fully integrated automobile manufacturer with a portfolio that
covers trucks buses utility vehicles and passenger cars It would be no exaggeration to
say that Tata Motors provides the wheels for Indias growth
Segmental Overview
Commercial Vehicle Segment
The Company registered 696 volume growth in the domestic CV segment during
4QFY06 from 37228 units in Q3FY05 to 63082 units in Q3FY06 The market share in
this segment was 658 in Q4FY06 as compared to 552 in Q1FY06 The MHCV
goods-carrier segment registered a 544 growth YoY with sale of 33515 units and a
market share of 645 up by around 410 bps driven by infrastructure development and
increase in international trade
Passenger Vehicle Segment
The Company reported a growth of 212 YoY to 49907 vehicles in the domestic
passenger vehicle segment and a market share of 162 in the quarter The passenger
vehicle industry registered a volume growth of 204 during Q4FY06
36
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Plants
Tata Motors owes its leading position in the Indian automobile industry to its strong
focus on indigenisation Their manufacturing plants are situated at Jamshedpur in the
East Pune in the West and Lucknow in the North
Charts showing Key Statistics of tata motors
37
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Share holding pattern as on 31-Mar
shareholding pattern
34
1425
17
10
promotors
MF Banks Fis
FIIs
Others
Public
Financial highlights
38
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
39
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
RATIO ANALYSIS
Ratios 2006 2005 2004
Debtequity 056 049 044
Current ratio 108 087 076
Operating profit margin 1211 1151 1238
Gross profit margin 1087 1043 1104
ROCE 3125 3276 3377
total assets turnover ratio 315 353 343
ROE 2761 3009 2257
Dividend-equity 49794 45373 28211
Retention Ratio 6743 6332 6519
DPS (Rs) 1301 125 799
EPS (Rs) 25 34 41
Dividend Payout Ratio 039 042 037
CAGR of EPS 0177
CAGR of Dividend Payout Ratio -0017
Average ROE 2574
average retention 6354
Growth (g = Avg RR times Avg ROE ) 1636
Market return 1454
40
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
PE ratio (on the basis of historical analysis) = 1812
Therefore the Weighted PE ratio =(1812+2424)2 = 21181
Projected EPS = EPS OF 2006 + CAGR of EPSEPS OF 2006
= Rs48271
Value of Share at the end of financial year 06-07
= Projected EPS Weighted PE Ratio
= Rs1022
2) HPCL
Globalization and the Indian Petroleum Industry
Indian petroleum industry in the post independent period (1947-2001) it may be divided
into three distinct phases
(i) early phase (1947 to 1969)- when the government consolidated its control over
the industry with Soviet assistance
(ii) development phase (1970 to 1989)- in this period the US companies played
dominant role replacing the Soviets and
41
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
(iii) the economic liberalisation phase of 1990s
PORTERrsquoS MODEL
SWOT ANALYSIS
STRENGHS
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
WEAKNESSES
Dependence on refining function high
Moderate share in high profitable retail segment
42
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Diversifications in petrochemicals could trouble the company
High burden of subsidy loss on cooking gas and kerosene
OPPORTUNITIES
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
Overseas presence in upstream and downstream will determine growth
THREATS
Rising oil prices could dampen demand
High regulatory risk
Loss of market share to private players
Entrance of private players in pipelines will take away monopoly of company in
north India
COMPANY ANALYSIS
The Annual Report is broken down into the following specific parts
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the AccountsATHE DIRECTORrsquoS REPORTThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship Fundamental AnalysisB THE AUDITORS REPORTThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors
C FINANCIAL STATEMENTSIt comprises of Balance Sheet Profit and Loss account Cash Flows Its analysis would be discussed later
DSCHEDULES
43
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The schedules detail pertinent information about the items of Balance Sheet and Profit amp Loss Account It also details information about sales manufacturing costs administration costs interest and other income and expenses
1 THE MANAGEMENT
HPCL is a public sector undertaking Thus it is a professionally managed company
There are some parameters of management on which a company is analysed
a integrity of management
b past record of management
c how highly is the management rated by its peers in the same industry
d how the management fares in adversity
e the depth of the knowledge of management
f open and innovative management
on all these parameters HPCL scores good
2 COMPANY
Many times a company has made losses in the previous years but that does not mean
that the company is bad to invest Thus many factors are studied while studying a
company
a) perception of competitors
HPCL is the second largest petroleum company after IOCL Thus it is a competitor of
IOCL and it is trying hard to compete with IOCL on every front That is why now it
has decided to diversify itself in the oil exploration sector
b) company policies
As this is a PSU thus the policies are made by the government The oil sector is one
which is highly regulated by government Thus from time to time it is required to
watch out the various policies changed
3 ANNUAL REPORT
The most primary and most important source of information about a company is its
Annual Report This is prepared every year and distributed to its shareholders
44
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Ratio Analysis
Evaluation of Intrinsic Value of the Security
stdev mkt 0011934stdev sec 003831 Average
Retention Ratio 060504
correlation 0485958 ROE 019842Beta 156765 g 0120052Risk Free Rate 650
Mkt Rate 14
45
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
k 1826
Hence we see that here our g is less than k Thus we see that as per Dividend Discount Model our Intrinsic value is div=22(1+012)=240626= 387
Price= Projected EPS + Weighted PE ratioUsing CAGR EPS = 43468Weighted PE Ratio = 75+6652=33625
Price = 43468+33625 = 381
3) HDFC BANK
The Indian banking industry sector overview
With the economic growth picking up pace and the investment cycle on the way to recovery the banking sector has witnessed a transformation in its vital role of intermediating between the demand and supply of funds
Public sector banks have been very proactive in their restructuring initiatives be it in technology implementation or pruning their loss assets Windfall treasury gains made in the falling interest rate regime were used for writing off the doubtful and loss assets
Retail lending (especially mortgage financing) formed a significant portion of the portfolio for most banks and they customized their products to cater to the diverse demands
Apart from streamlining their processes through technology initiatives such as ATMs telephone banking online banking and web based products banks also resorted to cross selling of financial products such as credit cards mutual funds and insurance policies to augment their fee based income
PORTERrsquoS FIVE FORCES MODEL FOR THE BANKING INDUSTRY
1) BARRIERS TO ENTRY a Economies of scale Since the existing players in the market are well
established and already have a customer base they are able to bear the cost of using the advantages of technology to their maximum advantage
46
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Capital requirement for entry i The Banking Regulation Act prescribes the minimum capital
requirements for a bank Moreover banks have to maintain a capital adequacy ratio of 9 under the Basel I norms
ii Government has declared that the foreign banks will be permitted to establish their presence in India by way of setting up a wholly owned banking subsidiary (WOS) with a minimum capital of Rs300 crore
c Access to distribution channels Since banks have to set up their own distribution channels all the cost has to be directly born by them
d Cost advantage independent of size Existing banks have huge databases of customers which they use when they want to sell a new product launched by them
e Legislation or Government action Banks are governed by Banking Regulation Act 1949 which specifies the rules and regulations applicable to banks RBI is the governing body of banks in India
2) BARGAINING POWER OF BUYERS
Due to increased competition the services offered by banks to customers have improved considerably
3) BARGAINING POWER OF THE SUPPLIERS
Suppliers to banks can be both - the customers and RBIa Customers of banks provide money to banks in the form of deposits and in
return earn some interest on that b RBI acts as a supplier to banks by selling govt securities treasury bills
govt bonds etc c Call money market Banks sometimes have to borrow from other banks to
meet CRR and SLR requirements or other capital requirements as provided by RBI
4) THREAT OF SUBSTITUTES
a Product-for-product substitutioni Banks provide interest on deposits made by people Similar
services are offered by post offices which may act as substitutes to the deposit schemes of banks
ii Some banks offer locker services to customers for yearly rates Similar services are provided by many post offices
47
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Generic substitution People who deposit their savings in banks can invest their money in other sources like mutual funds shares and other securities and life insurance schemes
5) COMPETITIVE RIVALRY
a Extent of competitor balance b Market growth ratesc High Exit Barriers
PEST Analysis for Banking Industry
1 Political factors - The major factors affecting the banking sector are the following
Banking sector reforms ndash As per the RBI roadmap for reforms in the first stage from 2005 to 2009 foreign banks will be allowed to set up wholly owned subsidiaries as well as get greater freedom to set up new branches Fulfilling the minimum priority sector credit -The government mandation of fulfilling the minimum priority sector credit (of which 18 per cent is food credit) has forced the domestic banks to cater to this segment despite the low profitability and vulnerability of asset quality
Banks have also been allowed to set up Offshore Banking Units in SEZrsquos
2 Economic factors -
Basell II norms for the risk management in banking sector - The new Basel Accord has its foundation on three mutually reinforcing pillars The first pillar is compatible with the credit risk market risk and operational risk The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bankConcurrently it also casts responsibility on the supervisors to review and validate banksrsquo risk measurement models
Consolidation and merger and acquisitions in the banking sector- HDFC bank also acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Universal Banking has been introduced ICICI Bank HDFCs closest competitor is already into Universal Banking so HDFC is also getting into it as now it is providing retail banking and also depository facilities in the form of demat account
48
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
3 Social factors-
Big and growing middle class in India - This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans car loans education loans auto loans etc Retail loans have grown from 19 in FYrsquo99 to 51 FYrsquo06Consumer credit accounts for a meager 286 per cent of the countrys GDP and the buoyancy in the economy offers sufficient scope for it to grow
Geographical and Cultural diversity- This is leading to a greater demand for financial products and customization by the customers
4 Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999 It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector
Banks (All) No of players = 40
Sector statistics
We see the sector aggregates and make a financial comparison for the major banks
Top PlayersFY2006
Based on Total Income Based on OPBDT Total Income Change OPBDT Change
(Rs Mn) () (Rs Mn) ()ICICI BANK 631619 5450 S B I 763528 -129 PUNJAB NATIONAL B 29218 1491 ICICI BANK 37174 1936
CAN BANK 277095 2378 PUNJAB NATIONAL B 222052 3936
BANK OF INDIA 23317 2543 CAN BANK 168825 1953
H D F C BANK 185508 6024 H D F C BANK 14324 2748 change - indicates the change between current and corresponding quarter
49
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Rampant speculation dominates the market and price advances are based on hopes and
expectations rather than actual results
Bear markets
Bear markets start with abandonment of the hopes and expectations that sustained
inflated prices
Prices decline in response to disappointing earnings
Distress selling follows as speculators attempt to close out their positions and
securities are sold without regard to their true value
Ranging Markets
A secondary reaction may take the form of a lsquolinersquo which may endure for several weeks Price fluctuates within a narrow range of about five per cent
Breakouts from a range can occur in either direction
Advances above the upper limit of the line signal accumulation and higher prices
Declines below the lower limit indicate distribution and lower prices
Volume is used to confirm price breakouts
Trends
Bull Trends
A bull trend is identified by a series of rallies where each rally exceeds the highest point of the previous rally The decline between rallies ends above the lowest point of the previous decline
Successive higher highs and higher lows
12
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
Start = higher Low + break above previous High
The end is signaled by a lower high (peak) followed by a decline below the previous low (trough)
End = lower High + break below previous Low
A bear trend starts at the end of a bull trend when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
Large Corrections
A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
13
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A bull trend starts when price rallies above the previous high
A bull trend ends when price declines below the previous low
A bear trend starts at the end of a bull trend (and vice versa)
32 ELLIOT WAVES THEORY BASICS
TRENDLINES
Breaking through support or resistance levels results in a change of tradersrsquo expectations (which causes supplydemand lines to shift)
14
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
An Uptrend is defined by successively higher low-prices A rising trend can be thought of as a rising support level the bulls are in control and are pushing prices higher A Downtrend is defined by successively lower high-prices A falling trend can be thought of as a falling resistance level the bears are in control and are pushing prices lower
33 MOVING AVERAGES
Moving averages are one of the oldest and most popular technical analysis tools A moving average is the average price of a financial instrument over a given time
The moving average represents the consensus of investorrsquos expectations over the indicated period of time
The classic interpretation of a moving average is to use it in observing changes in prices Investors typically buy when the price of an instrument rises above its moving average and sell when the it falls below its moving average
TECHNICAL INDICATORS
There is a vast number of elaborated technical indicators
15
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
MOVING AVERAGE ndashMA
RELATIVE STRENGTH INDEX mdash RSI The Relative Strength Index Technical Indicator (RSI) is a price-following oscillator that ranges between 0 and 100 When Wilder introduced the Relative Strength Index he recommended using a 14-day RSI Since then the 9-day and 25-day Relative Strength Index indicators have also gained popularity
ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the cumulative difference between advancing and declining issues
CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that closed on an uptick and those that closed on a downtick
CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading volume in declining issues to average trading volume in advancing issues
Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 shares HI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price CANDLESTICK CHART A candlestick chart is an extended version of the hi-lo-close
chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation When the stock price ldquopierces the necklinerdquo after the right shoulder is finished itrsquos time to sell
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins A win by the National Football Conference is bullish
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
16
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER- 3
FUNDAMENTAL ANALYSIS
A CONCEPTUAL OVERVIEW
17
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Fundamental analysis refers to the study of the core underlying elements that influence the economy of a particular entity It is a method of study that attempts to predict price action and market trends by analyzing economic indicators government policy and societal factors (to name just a few elements) within a business cycle framework
I ECONOMIC ANALYSIS
POLITICO-ECONOMIC ANALYSIS No industry or company can exist in isolation It may have splendid managers and a tremendous product However its sales and its costs are affected by factors some of which are beyond its control - the world economy price inflation taxes and a host of others It is important therefore to have an appreciation of the politico-economic factors that affect an industry and a company
The political equationA stable political environment is necessary for steady balanced growth If a country is ruled by a stable government which takes decisions for the long-term development of the country industry and companies will prosper Foreign Exchange ReservesA country needs foreign exchange reserves to meet its commitments pay for its imports and service foreign debts
Foreign Exchange RiskThis is a real risk and one must be cognizant of the effect of a revaluation or devaluation of the currency either in the home country or in the country the company deals in
Restrictive PracticesRestrictive practices or cartels imposed by countries can affect companies and industries crystallizing the exposure
Foreign Debt and the Balance of TradeForeign debt especially if it is very large can be a tremendous burden on an economy India pays around $ 5 billion a year in principal repayments and interest payments InflationInflation has an enormous effect in the economy Within the country it erodes purchasing power As a consequence demand falls If the rate of inflation in the country from which a company imports is high then the cost of production in that country will automatically go up
The Threat of NationalizationThe threat of nationalization is a real threat in many countries ndash the fear that a company may become nationalized
Interest Rates
18
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A low interest rate stimulates investment and industry Conversely high interest rates result in higher cost of production and lower consumption
TaxationThe level of taxation in a country has a direct effect on the economy If tax rates are low people have more disposable income
Government PolicyGovernment policy has a direct impact on the economy A government that is perceived to be proindustry will attract investment
THE ECONOMIC CYCLE
It affects investment decisions employment demand and the profitability of companiesThe four stages of an economic cycle are DepressionRecoveryBoom Recession DepressionAt the time of depression demand is low and falling Inflation is high and so are interest rates Companies crippled by high borrowing and falling sales are forced to curtail production close down plants built at times of higher demand and let workers go
RecoveryDuring this phase the economy begins to recover Investment begins anew and the demand grows Companies begin to post profits Conspicuous spending begins once again
BoomIn the boom phase demand reaches an all time high Investment is also high Interest rates are low Gradually as time goes on supply begins to exceed the demand Prices that had been rising begin to stabilize and even fall There is an increase in demand Then as the boom period matures prices begin to rise again
RecessionThe economy slowly begins to downturn Demand starts falling Interest rates and inflation are high Companies start finding it difficult to sell their goods The economy slowly begins to downturn
19
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II INDUSTRY ANALYSIS
The importance of industry analysis is now dawning on the Indian investor as never before
CycleThe first step in industry is to determine the cycle it is in or the stage of maturity of the industry All industries evolve through the following stages1 Entrepreneurial sunrise or nascent stage2 Expansion or growth stage3 Stabilization stagnation or maturity stage and4 Decline or sunset stage to properly establish itself In the early days it may actually make losses
The Entrepreneurial or Nascent StageAt the first stage the industry is new and it can take some time for it to properly establish itself
The Expansion or Growth StageOnce the industry has established itself it enters a growth stage As the industry grows many new companies enter the industry
The Stabilization or Maturity StageAfter the halcyon days of growth an industry matures and stabilizes Rewards are low and so too is the risk Growth is moderate Though sales may increase they do so at a
20
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
slower rate than before Products are more standardized and less innovative and there are several competitors
The Decline or Sunset StageFinally the industry declines This occurs when its products are no longer popular This may be on account of several factors such as a change in social habits The film and video industries
1 BARRIER TO ENTRYNew entrants increase the capacity in an industry and the inflow of funds The question that arises is how easy is it to enter an industry There are some barriers to entry
a) Economies of scaleb) Product differentiation c) Capital requirementd) Switching costse) Access to distribution channelsf) Cost disadvantages independent of scaleg) Government policyh) Expected retaliationj) International cartels
2 THE THREAT OF SUBSTITUTIONNew inventions are always taking place and new and better products replace existing ones An industry that can be replaced by substitutes or is threatened by substitutes is normally an industry one must be careful of investing in An industry where this occurs constantly is the packaging industry -bottles replaced by cans cans replaced by plastic bottles and the like To ward off the threat of substitution companies often have to spend large sums of money in advertising and promotion
3 BARGAINING POWER OF THE BUYERSIn an industry where buyers have control ie in a buyers market buyers are constantly forcing prices down demanding better services or higher quality and this often erodes profitability The factors one should check are whether a) A particular buyer buys most of the products (large purchase volumes) If such buyers withdraw their patronage they can destroy an industry They can also force prices downb) Buyers can play one company against another to bring prices down
4 BARGAINING POWER FOR THE SUPPLIERSAn industry unduly controlled by its suppliers is also under threat This occurs whena) The suppliers have a monopoly or if there are few suppliersb) Suppliers control an essential c) Demand for the product exceeds d) The supplier supplies to various industriese) The switching costs are high
21
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
f) The suppliers product does not have a substituteg) The suppliers product is an important input for the buyersh) The buyer is not important to the supplieri) The suppliers product is unique
5 RIVALRY AMONG COMPETITORSRivalry among competitors can cause an industry great harm This occurs mainly by price cuts heavy advertising additional high cost services or offers and the like This rivalry occurs mainly whena) There are many competitors and supply exceeds demand Companies resort to price cuts and advertise heavily in order to attract customers for their goodsb) The industry growth is slow and companies are competing with each other for a greater market sharec) The economy is in a recession and companies cut the price of their products and offer better service to stimulate demandd) There is lack of differentiation between the product of one company and that of another In such cases the buyer makes his choice on the basis of price or servicee) In some industries economies of scale will necessitate large additions to existing capacities in a company The increase in production could result in over capacity amp price cuttingf) Competitors may have very different strategies in selling their goods and in competing they may be continuously trying to stay ahead
III COMPANY ANALYSIS
At the final stage of fundamental analysis the investor analyzes the company This analysis has two thrustsHow has the company performed vis-agrave-vis other similar companies and How has the company performed in comparison to earlier years It is imperative that one completes the politico economic analysis and the industry analysis before a company is analyzed because the companys performance at a period of time is to an extent a reflection of the economy the political situation and the industry What does one look at when analyzing a company The different issues regarding a company that should be examined are The Management The Company The Annual Report Ratios Cash flow
THE MANAGEMENT
The single most important factor one should consider when investing in a company and one often never considered is its management In India management can be broadly
22
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
divided in two types Family Management Professional Management
THE COMPANY
An aspect not necessarily examined during an analysis of fundamentals is the company A company may have made losses consecutively for two years or more and one may not wish to touch its shares - yet it may be a good company and worth purchasing into There are several factors one should look at
1 How a company is perceived by its competitorsOne of the key factors to ascertain is how a company is perceived by its competitors It is held in high regard Its management may be known for its maturity vision competence and aggressiveness The investor must ascertain the reason and then determine whetherthe reason will continue into the foreseeable future
2 Whether the company is the market leader in its products or in its segmentAnother aspect that should be ascertained is whether the company is the market leader in its products or in its segment When you invest in market leaders the risk is less Theshares of market leaders do not fall as quickly as those of other companies There is a magic to their name that would make individuals prefer to buy their products as opposed to others
3 Company PoliciesThe policy a company follows is also important What is its plans for growth What is its vision Every company has a life If it is allowed to live a normal life it will grow upto a point and then begin to level out and eventually die It is at the point of leveling out that it must be given new life This can give it renewed vigour and a new lease of life
4 Labour RelationsLabour relations are extremely important A company that has motivated industrious work force has high productivity and practically no disruption of work On the other hand a company that has bad industrial relations will lose several hundred mandays as a consequence of strikes and go slows
5 Where the company is located and where its factories are One must also consider where the companies Plants and Factories are located
THE ANNUAL REPORT
The primary and most important source of information about a company is its Annual Report By law this is prepared every year and distributed to the shareholders Annual Reports are usually very well presented A tremendous amount of data is given about the performance of a company over a period of time The Annual Report is broken down into the following specific parts
23
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the Accounts
A The Directorrsquos ReportThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship 1 It enunciates the opinion of the directors on the state of the economy and the political situation vis-agrave-vis the company 2 Explains the performance and the financial results of the company in the period under review This is an extremely important part The results and operations of the various separate divisions are usually detailed and investors can determine the reasons for their good or bad performance3 The Directorrsquos Report details the companys plans for modernization expansion and diversification Without these a company will remain static and eventually decline4 Discusses the profit earned in the period under review and the dividend Recommended by the directors This paragraph should normally be read with some skepticism as the directors will always argue that the performance was satisfactory If adverse economic conditions are usually at fault 5 Elaborates on the directors views of the companys prospects in the future6 Discusses plans for new acquisition and investments An investor must intelligently evaluate the issues raised in a Directorrsquos Report Industry conditions and the managements knowledge of the business must be considered
B The Auditors ReportThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors Auditors are required to report whether the financial statements presented do in fact present a true and fair view of the state of the company Investors must remember that the auditors are their representatives and that they are required by law to point out if the financial statements are not true and fair
CFinancial StatementsThe published financial statements of a company in an Annual Report consist of its Balance Sheet as at the end of the accounting period detailing the financing condition of the company at that date and the Profit and Loss Account or Income Statement summarizing the activities of the company for the accounting period
BALANCE SHEETThe Balance Sheet details the financial position of a company on a particular date of the companys assets (that which the company owns) and liabilities (that which the companyowes) grouped logically under specific heads It must however be noted that the Balance Sheet details the financial position on a particular day and that the position can be materially different on the next day or the day after
24
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOURCES OF FUNDSSHAREHOLDERS FUNDSSHARE CAPITAL(i) Private Placement(ii) Public Issueiii) Rights issuesRESERVESi) Capital Reservesii) Revenue ReservesLOAN FUNDSi) Secured loansii) Unsecured loansFIXED ASSETSINVESTMENTSSTOCK OR INVENTORIESi) Raw materialsii) Work in progressiii) Finished goodsCASH AND BANK BALANCESLOANS AND ADVANCES
PROFIT AND LOSS ACCOUNTThe Profit and Loss account summarizes the activities of a company during an accounting period which may be a month a quarter six months a year or longer and the result achieved by the company It details the income earned by the company its cost and the resulting profit or loss It is in effect the performance appraisal not only of the company but also of its management- its competence foresight and ability to lead
RATIOS
Ratios express mathematically the relationship between performance figures andor assetsliabilities in a form that can be easily understood and interpretedNo single ratio tells the complete storyRatios can be broken down into four broad categories
(A) Profit and Loss RatiosThese show the relationship between two items or groups of items in a profit and loss account or income statement The more common of these ratios are1 Sales to cost of goods sold2 Selling expenses to sales3 Net profit to sales and4 Gross profit to sales
(B) Balance Sheet RatiosThese deal with the relationship in the balance sheet such as 1 Shareholders equity to borrowed funds
25
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
2 Current assets to current liabilities3 Liabilities to net worth4 Debt to assets and5 Liabilities to assets
(C) Balance Sheet and Profit and Loss Account RatiosThese relate an item on the balance sheet to another in the profit and loss account such as1 Earnings to shareholders funds2 Net income to assets employed3 Sales to stock4 Sales to debtors and5 Cost of goods sold to creditors
(D) Financial Statements and Market RatiosThese are normally known as market ratios and are arrived at by relative financial figures to market prices1 Market value to earnings and2 Book value to market value(a) Market value(b) Earnings(c) Profitability(d) Liquidity(e) Leverage(f) Debt Service Capacity(g) Asset ManagementEfficiency(h) Margins
The major ratios that are considered(i) Market value(ii) Price- earnings ratio(iii) Market-to-book ratio(iv) Earnings(v) Earning per share(vi) Dividend per share(vii) Dividend payout ratio(viii) Leverage ratios(ix) Return on investmentstotal assets
CASH FLOW A statement of sources and uses begins with the profit for the year to which are added the increases in liability accounts (sources) and from which are reduced the increases in asset accounts (uses) The net result shows whether there has been an excess or deficit of funds and how this was financed Investors must examine a companys cash flow as it reveals exactly where the money came from how it was utilized Investors must be
26
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
concerned if a company is financing either its inventories or paying dividends from borrowings without real growth as that shows deterioration
27
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-4 ANALYSIS
28
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
I FUNDAMENTAL ANALYSIS OF STOCKS
Basically fundamental analysis is covered in 3 parts
1 Market economy analysis
2 Industry Analysis
3 Company Analysis
1) TATA MOTORS
I Market Economy Analysis
It covers the macro economy analysis and the various macro economic factors on the national level like GDP Monetary policies of India Fiscal Policies and Inflation and money supply etc
GDP
Real GDP growth accelerated from 75 per cent during 2004-05 to 84 per cent during
2005-06 on the back of buoyant manufacturing and services activity supported by a
recovery in the agricultural sector Real GDP growth has thus averaged over eight per
cent during the last three years and over seven per cent in the first four years (2002-03 to
2005-06) of the Tenth Five Year Plan
Strengths of India today are
A well diversified industrial base which profits from self-reliance in all core industries A
large amp sophisticated financial architecture - The robust capital Markets today have over
9000 listed companies and boast of a massive Market capitalization
A healthy GDP composition with agriculture contributing 22 Industry 22 and
services which have gone strength to strength accounting For 56 of the GDP an
29
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
acknowledged strength in knowledge driven industries like Information technology
biotechnology entertainment Software etc
India has Over 3 million scientific amp technical manpower Over 06 million SampT post
graduates Over 07 million graduate engineers Over 3500 doctorates in sciences every
year
Assuming trend growth in agriculture under normal monsoon conditions and barring
domestic or external shocks the Reserve Bank in its Annual Policy Statement for 2007-
08 (April 2007) placed real GDP growth for policy purposes in the range of 75-80 per
cent during 2007-08 Growth prospects are however subject to a number of downside
risks The risks emanating from the global economy are potential escalation and
volatility in international crude oil prices firming up of overall inflationary pressures and
expectations and a hardening of international interest rates along with the withdrawal of
monetary accommodation
Indiarsquos demographic advantage ndash In contrast to developed Countries India will have a
younger population for the next 50 years Hence India would be the hub for RampD
Inflation
Inflation was contained to 63 per cent by end-March 2007 within the indicative
trajectory of 50-55 per cent during 2007-08 The actual inflation was considerably lower
than the indicative trajectory and this could be mainly attributed to the deferred pass-
through of even the cognisable permanent component of international crude oil prices
Money Supply
Monetary and liquidity conditions remained largely comfortable during 2006-07reflecting
proactive liquidity management operations by the Reserve Bank under the liquidity
adjustment facility flexible management of issuances under the market stabilisation
scheme and some private placement of Government securities
30
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
In short the Indian economy is exhibiting strong fundamentals and displaying
considerable resilience At the same time there are continuing signs of demand pressures
especially high credit growth that could exert upward pressure on prices when associated
with supply shocks such as from oil These pressures have the potential for impacting
stability and inflation expectations While domestic developments continue to dominate
the economy global factors tend to gain more attention now than before The global
outlook for growth is positive but downside risks in regard to inflation also RBI is
applying new repo and reverse repo for the balance of inflation and monetary policies
The following are macroeconomic policies generally found as part of government-
directed industrial auto policies
(a) Restrictions on domestic and foreign investment
(b) Domestic content requirements
(c) High tariff walls
(d) Auto export requirements
(e) National production to sales ratios
(f) Distribution controls
(g) Quotas and licensing requirements that significantly restrict imports
(h) Government approval for product related decisions including vehicle make
body type engine size etc
(i) Special government categories for auto taxes
II INDUSTRY ANALYSIS
Since 1991 opening of the economy has changed the face of auto industry Today it is
amongst the main drivers of growth of Indian economy with an output multiplier of
224(for every Re1 invested auto sector gives back Rs224 to the economy) In recent
years we have seen increasing number of global players entering Indian market by way of
Joint ventures collaborations or wholly owned subsidiary
The automobile industry is torn between trying to reduce costs on the one hand and on
the other dealing with the high price of performance-enhancing technology and
environmental compliance Key drivers in the automotive industry are
31
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Reducing air pollution
Reduction of weight
Recyclability
Safety
Better performance and engine efficiency
Aesthetics
Longer service Life
INDUSTRY LIFE CYCLE
The automobile market is at the maturity stage of the life cycle locally and globally due
to an increased number of competitors from domestic and foreign markets The
automobile market is characterized by a low potential for market growth but high sales
and profit potential as the products have still not saturated the market as a whole
MAJOR COMPETITORS OF TATA MOTORS ARE
Maruti Udyog Ltd
General Motors India
Ford India Ltd
Eicher Motors
Bajaj Auto
Hero Motors
Hindustan Motors
32
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Hyundai Motor India Ltd
Royal Enfield Motors
Telco
TVS Motors
FINANCIALS
Description 1 Day PriceChange
MarketCap
PEROE
Div Yield
Long-Term Debt toEquity
Price toBook Value
NetProfit Margin (mrq)
Price toFree Cash Flow (mrq)
Sector Consumer Goods 01125178B
2488
1707
222
1171076
706 40842
Industry Auto Manufacturers - Major (More Info)
0613310B
3000
750171
181 155 160 -440
Companies
Daimlerchrysler AG (DCX) 021 539B1072
1119
350
217 116 469 -354
Ford Motor Co (F) 121 157B NA-951
240
1107
115 -060 -8205
General Motors Corporation (GM) -024 165B NA
-6285
340
390 142 -621 014
Honda Motor Co Ltd (HMC) 083 622B1152
1654
100
083 173 552 20748
Tata Motors Ltd (TTM) -038 71B1864
NA150
NA 535 564 NA
Toyota Motor Corp (TM) 0731756B
1394
1505
120
103 197 659 NA
Opportunities and Threats
a) Opportunities
Road Development The ongoing road development program would improve
connectivity to ports cities and villages through a network of highways and
interconnecting roads by 2010-11 Improved road network would help in faster
33
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
movement of goods between various cities and towns The Company launched TATA
Novus range of vehicles in the heavy segment and TATA ACE for last mile distribution
Car penetration in India Car penetration in India is 7 cars per 1000 persons
International In FY 2006-07 the Company increased share of its overseas vehicle sales
from 76 last year to record high of 111 (as of its total sales) and has planned
further increase in this year
b) Threats
Global Competition India is increasingly attracting global players to set up
manufacturing facility for producing cars especially small cars Global automobile
manufacturers are also entering India in commercial vehicle segment to leverage Indiarsquos
low cost production advantage to their favor
Fuel Prices The continuing fuel price increase in the domestic market could
significantly impact demand of commercial and passenger vehicles
Input costs Commodity items particularly steel non-ferrous metals rubber and
engineering plastics have witnessed huge price increases in the past These prices are
expected to increase further affecting the Companyrsquos profitability
Interest rate hardening and other inflationary trends With interest rates hardening and
liquidity crunch in the system growth in sales may be adversely impacted
Government Regulations Stringent emission and safety requirements could bring new
complexities for automotive and component manufacturers impacting the Companyrsquos
business
Risks and Concerns
Interest Rates FY 2007-08 started with increasing interest rate regime and tightening
liquidity position in the economy Increasing interest rates could further affect vehicle
demand which could have an adverse impact on the Companyrsquos revenues and profits
Exchange rates The Company exports vehicles to many countries and exchange rate
fluctuations in the order execution period could impact the Companyrsquos business
34
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Freight rates In FY 2006-07 freight rates in road transport sector moved up mainly
due to surge in construction activity ongoing road development projects and severe
restriction on over-loading Demand for commercial vehicles could be impacted by
further change in freight rates and change in fuel prices
Domestic market The Company plans to reduce the impact of this cyclicality on its
business by strengthening its less cyclical businesses like buses light trucks small
commercial vehicles
Overseas market In overseas markets the Company competes with global players
which have multiple vehicle platforms large financial capability and global branding
Manufacturing The Company manufactures vehicles at multiple locations and given
the geographical dispersion of its suppliers it faces Logistics Problems
New Competition Competitive activity is expected to increase in commercial vehicle
and passenger vehicle domestic market in coming years
New projects The Company currently is in midst of executing many new projects
ranging from launch of new car platforms to development of new Truck models
III Company Analysis
Key Highlights
Symbol TTL
Sector Consumer Goods
Industry Auto Manufacturers Major
Market Cap Rs29232 crores
Data Since 1945
Last close Rs 74290
Brief Summary of the company
35
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Tata Motors is one of the largest companies in the Tata Group with a total income of US$
235 billion More than 3 million Tata vehicles ply on Indian roads making Tata a
dominant force in the Indian automobile industry
Joint Venture with Fiat and Hitachi
Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing
passenger vehicles engines and transmissions for both domestic and international
markets The Company has also entered into a JV with Hitachi to set up a new plant in
Kharagpur
Product Mix
Tata Motors is Indias only fully integrated automobile manufacturer with a portfolio that
covers trucks buses utility vehicles and passenger cars It would be no exaggeration to
say that Tata Motors provides the wheels for Indias growth
Segmental Overview
Commercial Vehicle Segment
The Company registered 696 volume growth in the domestic CV segment during
4QFY06 from 37228 units in Q3FY05 to 63082 units in Q3FY06 The market share in
this segment was 658 in Q4FY06 as compared to 552 in Q1FY06 The MHCV
goods-carrier segment registered a 544 growth YoY with sale of 33515 units and a
market share of 645 up by around 410 bps driven by infrastructure development and
increase in international trade
Passenger Vehicle Segment
The Company reported a growth of 212 YoY to 49907 vehicles in the domestic
passenger vehicle segment and a market share of 162 in the quarter The passenger
vehicle industry registered a volume growth of 204 during Q4FY06
36
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Plants
Tata Motors owes its leading position in the Indian automobile industry to its strong
focus on indigenisation Their manufacturing plants are situated at Jamshedpur in the
East Pune in the West and Lucknow in the North
Charts showing Key Statistics of tata motors
37
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Share holding pattern as on 31-Mar
shareholding pattern
34
1425
17
10
promotors
MF Banks Fis
FIIs
Others
Public
Financial highlights
38
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
39
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
RATIO ANALYSIS
Ratios 2006 2005 2004
Debtequity 056 049 044
Current ratio 108 087 076
Operating profit margin 1211 1151 1238
Gross profit margin 1087 1043 1104
ROCE 3125 3276 3377
total assets turnover ratio 315 353 343
ROE 2761 3009 2257
Dividend-equity 49794 45373 28211
Retention Ratio 6743 6332 6519
DPS (Rs) 1301 125 799
EPS (Rs) 25 34 41
Dividend Payout Ratio 039 042 037
CAGR of EPS 0177
CAGR of Dividend Payout Ratio -0017
Average ROE 2574
average retention 6354
Growth (g = Avg RR times Avg ROE ) 1636
Market return 1454
40
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
PE ratio (on the basis of historical analysis) = 1812
Therefore the Weighted PE ratio =(1812+2424)2 = 21181
Projected EPS = EPS OF 2006 + CAGR of EPSEPS OF 2006
= Rs48271
Value of Share at the end of financial year 06-07
= Projected EPS Weighted PE Ratio
= Rs1022
2) HPCL
Globalization and the Indian Petroleum Industry
Indian petroleum industry in the post independent period (1947-2001) it may be divided
into three distinct phases
(i) early phase (1947 to 1969)- when the government consolidated its control over
the industry with Soviet assistance
(ii) development phase (1970 to 1989)- in this period the US companies played
dominant role replacing the Soviets and
41
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
(iii) the economic liberalisation phase of 1990s
PORTERrsquoS MODEL
SWOT ANALYSIS
STRENGHS
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
WEAKNESSES
Dependence on refining function high
Moderate share in high profitable retail segment
42
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Diversifications in petrochemicals could trouble the company
High burden of subsidy loss on cooking gas and kerosene
OPPORTUNITIES
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
Overseas presence in upstream and downstream will determine growth
THREATS
Rising oil prices could dampen demand
High regulatory risk
Loss of market share to private players
Entrance of private players in pipelines will take away monopoly of company in
north India
COMPANY ANALYSIS
The Annual Report is broken down into the following specific parts
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the AccountsATHE DIRECTORrsquoS REPORTThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship Fundamental AnalysisB THE AUDITORS REPORTThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors
C FINANCIAL STATEMENTSIt comprises of Balance Sheet Profit and Loss account Cash Flows Its analysis would be discussed later
DSCHEDULES
43
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The schedules detail pertinent information about the items of Balance Sheet and Profit amp Loss Account It also details information about sales manufacturing costs administration costs interest and other income and expenses
1 THE MANAGEMENT
HPCL is a public sector undertaking Thus it is a professionally managed company
There are some parameters of management on which a company is analysed
a integrity of management
b past record of management
c how highly is the management rated by its peers in the same industry
d how the management fares in adversity
e the depth of the knowledge of management
f open and innovative management
on all these parameters HPCL scores good
2 COMPANY
Many times a company has made losses in the previous years but that does not mean
that the company is bad to invest Thus many factors are studied while studying a
company
a) perception of competitors
HPCL is the second largest petroleum company after IOCL Thus it is a competitor of
IOCL and it is trying hard to compete with IOCL on every front That is why now it
has decided to diversify itself in the oil exploration sector
b) company policies
As this is a PSU thus the policies are made by the government The oil sector is one
which is highly regulated by government Thus from time to time it is required to
watch out the various policies changed
3 ANNUAL REPORT
The most primary and most important source of information about a company is its
Annual Report This is prepared every year and distributed to its shareholders
44
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Ratio Analysis
Evaluation of Intrinsic Value of the Security
stdev mkt 0011934stdev sec 003831 Average
Retention Ratio 060504
correlation 0485958 ROE 019842Beta 156765 g 0120052Risk Free Rate 650
Mkt Rate 14
45
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
k 1826
Hence we see that here our g is less than k Thus we see that as per Dividend Discount Model our Intrinsic value is div=22(1+012)=240626= 387
Price= Projected EPS + Weighted PE ratioUsing CAGR EPS = 43468Weighted PE Ratio = 75+6652=33625
Price = 43468+33625 = 381
3) HDFC BANK
The Indian banking industry sector overview
With the economic growth picking up pace and the investment cycle on the way to recovery the banking sector has witnessed a transformation in its vital role of intermediating between the demand and supply of funds
Public sector banks have been very proactive in their restructuring initiatives be it in technology implementation or pruning their loss assets Windfall treasury gains made in the falling interest rate regime were used for writing off the doubtful and loss assets
Retail lending (especially mortgage financing) formed a significant portion of the portfolio for most banks and they customized their products to cater to the diverse demands
Apart from streamlining their processes through technology initiatives such as ATMs telephone banking online banking and web based products banks also resorted to cross selling of financial products such as credit cards mutual funds and insurance policies to augment their fee based income
PORTERrsquoS FIVE FORCES MODEL FOR THE BANKING INDUSTRY
1) BARRIERS TO ENTRY a Economies of scale Since the existing players in the market are well
established and already have a customer base they are able to bear the cost of using the advantages of technology to their maximum advantage
46
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Capital requirement for entry i The Banking Regulation Act prescribes the minimum capital
requirements for a bank Moreover banks have to maintain a capital adequacy ratio of 9 under the Basel I norms
ii Government has declared that the foreign banks will be permitted to establish their presence in India by way of setting up a wholly owned banking subsidiary (WOS) with a minimum capital of Rs300 crore
c Access to distribution channels Since banks have to set up their own distribution channels all the cost has to be directly born by them
d Cost advantage independent of size Existing banks have huge databases of customers which they use when they want to sell a new product launched by them
e Legislation or Government action Banks are governed by Banking Regulation Act 1949 which specifies the rules and regulations applicable to banks RBI is the governing body of banks in India
2) BARGAINING POWER OF BUYERS
Due to increased competition the services offered by banks to customers have improved considerably
3) BARGAINING POWER OF THE SUPPLIERS
Suppliers to banks can be both - the customers and RBIa Customers of banks provide money to banks in the form of deposits and in
return earn some interest on that b RBI acts as a supplier to banks by selling govt securities treasury bills
govt bonds etc c Call money market Banks sometimes have to borrow from other banks to
meet CRR and SLR requirements or other capital requirements as provided by RBI
4) THREAT OF SUBSTITUTES
a Product-for-product substitutioni Banks provide interest on deposits made by people Similar
services are offered by post offices which may act as substitutes to the deposit schemes of banks
ii Some banks offer locker services to customers for yearly rates Similar services are provided by many post offices
47
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Generic substitution People who deposit their savings in banks can invest their money in other sources like mutual funds shares and other securities and life insurance schemes
5) COMPETITIVE RIVALRY
a Extent of competitor balance b Market growth ratesc High Exit Barriers
PEST Analysis for Banking Industry
1 Political factors - The major factors affecting the banking sector are the following
Banking sector reforms ndash As per the RBI roadmap for reforms in the first stage from 2005 to 2009 foreign banks will be allowed to set up wholly owned subsidiaries as well as get greater freedom to set up new branches Fulfilling the minimum priority sector credit -The government mandation of fulfilling the minimum priority sector credit (of which 18 per cent is food credit) has forced the domestic banks to cater to this segment despite the low profitability and vulnerability of asset quality
Banks have also been allowed to set up Offshore Banking Units in SEZrsquos
2 Economic factors -
Basell II norms for the risk management in banking sector - The new Basel Accord has its foundation on three mutually reinforcing pillars The first pillar is compatible with the credit risk market risk and operational risk The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bankConcurrently it also casts responsibility on the supervisors to review and validate banksrsquo risk measurement models
Consolidation and merger and acquisitions in the banking sector- HDFC bank also acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Universal Banking has been introduced ICICI Bank HDFCs closest competitor is already into Universal Banking so HDFC is also getting into it as now it is providing retail banking and also depository facilities in the form of demat account
48
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
3 Social factors-
Big and growing middle class in India - This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans car loans education loans auto loans etc Retail loans have grown from 19 in FYrsquo99 to 51 FYrsquo06Consumer credit accounts for a meager 286 per cent of the countrys GDP and the buoyancy in the economy offers sufficient scope for it to grow
Geographical and Cultural diversity- This is leading to a greater demand for financial products and customization by the customers
4 Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999 It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector
Banks (All) No of players = 40
Sector statistics
We see the sector aggregates and make a financial comparison for the major banks
Top PlayersFY2006
Based on Total Income Based on OPBDT Total Income Change OPBDT Change
(Rs Mn) () (Rs Mn) ()ICICI BANK 631619 5450 S B I 763528 -129 PUNJAB NATIONAL B 29218 1491 ICICI BANK 37174 1936
CAN BANK 277095 2378 PUNJAB NATIONAL B 222052 3936
BANK OF INDIA 23317 2543 CAN BANK 168825 1953
H D F C BANK 185508 6024 H D F C BANK 14324 2748 change - indicates the change between current and corresponding quarter
49
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
Start = higher Low + break above previous High
The end is signaled by a lower high (peak) followed by a decline below the previous low (trough)
End = lower High + break below previous Low
A bear trend starts at the end of a bull trend when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
Large Corrections
A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
13
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A bull trend starts when price rallies above the previous high
A bull trend ends when price declines below the previous low
A bear trend starts at the end of a bull trend (and vice versa)
32 ELLIOT WAVES THEORY BASICS
TRENDLINES
Breaking through support or resistance levels results in a change of tradersrsquo expectations (which causes supplydemand lines to shift)
14
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
An Uptrend is defined by successively higher low-prices A rising trend can be thought of as a rising support level the bulls are in control and are pushing prices higher A Downtrend is defined by successively lower high-prices A falling trend can be thought of as a falling resistance level the bears are in control and are pushing prices lower
33 MOVING AVERAGES
Moving averages are one of the oldest and most popular technical analysis tools A moving average is the average price of a financial instrument over a given time
The moving average represents the consensus of investorrsquos expectations over the indicated period of time
The classic interpretation of a moving average is to use it in observing changes in prices Investors typically buy when the price of an instrument rises above its moving average and sell when the it falls below its moving average
TECHNICAL INDICATORS
There is a vast number of elaborated technical indicators
15
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
MOVING AVERAGE ndashMA
RELATIVE STRENGTH INDEX mdash RSI The Relative Strength Index Technical Indicator (RSI) is a price-following oscillator that ranges between 0 and 100 When Wilder introduced the Relative Strength Index he recommended using a 14-day RSI Since then the 9-day and 25-day Relative Strength Index indicators have also gained popularity
ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the cumulative difference between advancing and declining issues
CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that closed on an uptick and those that closed on a downtick
CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading volume in declining issues to average trading volume in advancing issues
Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 shares HI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price CANDLESTICK CHART A candlestick chart is an extended version of the hi-lo-close
chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation When the stock price ldquopierces the necklinerdquo after the right shoulder is finished itrsquos time to sell
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins A win by the National Football Conference is bullish
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
16
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER- 3
FUNDAMENTAL ANALYSIS
A CONCEPTUAL OVERVIEW
17
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Fundamental analysis refers to the study of the core underlying elements that influence the economy of a particular entity It is a method of study that attempts to predict price action and market trends by analyzing economic indicators government policy and societal factors (to name just a few elements) within a business cycle framework
I ECONOMIC ANALYSIS
POLITICO-ECONOMIC ANALYSIS No industry or company can exist in isolation It may have splendid managers and a tremendous product However its sales and its costs are affected by factors some of which are beyond its control - the world economy price inflation taxes and a host of others It is important therefore to have an appreciation of the politico-economic factors that affect an industry and a company
The political equationA stable political environment is necessary for steady balanced growth If a country is ruled by a stable government which takes decisions for the long-term development of the country industry and companies will prosper Foreign Exchange ReservesA country needs foreign exchange reserves to meet its commitments pay for its imports and service foreign debts
Foreign Exchange RiskThis is a real risk and one must be cognizant of the effect of a revaluation or devaluation of the currency either in the home country or in the country the company deals in
Restrictive PracticesRestrictive practices or cartels imposed by countries can affect companies and industries crystallizing the exposure
Foreign Debt and the Balance of TradeForeign debt especially if it is very large can be a tremendous burden on an economy India pays around $ 5 billion a year in principal repayments and interest payments InflationInflation has an enormous effect in the economy Within the country it erodes purchasing power As a consequence demand falls If the rate of inflation in the country from which a company imports is high then the cost of production in that country will automatically go up
The Threat of NationalizationThe threat of nationalization is a real threat in many countries ndash the fear that a company may become nationalized
Interest Rates
18
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A low interest rate stimulates investment and industry Conversely high interest rates result in higher cost of production and lower consumption
TaxationThe level of taxation in a country has a direct effect on the economy If tax rates are low people have more disposable income
Government PolicyGovernment policy has a direct impact on the economy A government that is perceived to be proindustry will attract investment
THE ECONOMIC CYCLE
It affects investment decisions employment demand and the profitability of companiesThe four stages of an economic cycle are DepressionRecoveryBoom Recession DepressionAt the time of depression demand is low and falling Inflation is high and so are interest rates Companies crippled by high borrowing and falling sales are forced to curtail production close down plants built at times of higher demand and let workers go
RecoveryDuring this phase the economy begins to recover Investment begins anew and the demand grows Companies begin to post profits Conspicuous spending begins once again
BoomIn the boom phase demand reaches an all time high Investment is also high Interest rates are low Gradually as time goes on supply begins to exceed the demand Prices that had been rising begin to stabilize and even fall There is an increase in demand Then as the boom period matures prices begin to rise again
RecessionThe economy slowly begins to downturn Demand starts falling Interest rates and inflation are high Companies start finding it difficult to sell their goods The economy slowly begins to downturn
19
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II INDUSTRY ANALYSIS
The importance of industry analysis is now dawning on the Indian investor as never before
CycleThe first step in industry is to determine the cycle it is in or the stage of maturity of the industry All industries evolve through the following stages1 Entrepreneurial sunrise or nascent stage2 Expansion or growth stage3 Stabilization stagnation or maturity stage and4 Decline or sunset stage to properly establish itself In the early days it may actually make losses
The Entrepreneurial or Nascent StageAt the first stage the industry is new and it can take some time for it to properly establish itself
The Expansion or Growth StageOnce the industry has established itself it enters a growth stage As the industry grows many new companies enter the industry
The Stabilization or Maturity StageAfter the halcyon days of growth an industry matures and stabilizes Rewards are low and so too is the risk Growth is moderate Though sales may increase they do so at a
20
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
slower rate than before Products are more standardized and less innovative and there are several competitors
The Decline or Sunset StageFinally the industry declines This occurs when its products are no longer popular This may be on account of several factors such as a change in social habits The film and video industries
1 BARRIER TO ENTRYNew entrants increase the capacity in an industry and the inflow of funds The question that arises is how easy is it to enter an industry There are some barriers to entry
a) Economies of scaleb) Product differentiation c) Capital requirementd) Switching costse) Access to distribution channelsf) Cost disadvantages independent of scaleg) Government policyh) Expected retaliationj) International cartels
2 THE THREAT OF SUBSTITUTIONNew inventions are always taking place and new and better products replace existing ones An industry that can be replaced by substitutes or is threatened by substitutes is normally an industry one must be careful of investing in An industry where this occurs constantly is the packaging industry -bottles replaced by cans cans replaced by plastic bottles and the like To ward off the threat of substitution companies often have to spend large sums of money in advertising and promotion
3 BARGAINING POWER OF THE BUYERSIn an industry where buyers have control ie in a buyers market buyers are constantly forcing prices down demanding better services or higher quality and this often erodes profitability The factors one should check are whether a) A particular buyer buys most of the products (large purchase volumes) If such buyers withdraw their patronage they can destroy an industry They can also force prices downb) Buyers can play one company against another to bring prices down
4 BARGAINING POWER FOR THE SUPPLIERSAn industry unduly controlled by its suppliers is also under threat This occurs whena) The suppliers have a monopoly or if there are few suppliersb) Suppliers control an essential c) Demand for the product exceeds d) The supplier supplies to various industriese) The switching costs are high
21
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
f) The suppliers product does not have a substituteg) The suppliers product is an important input for the buyersh) The buyer is not important to the supplieri) The suppliers product is unique
5 RIVALRY AMONG COMPETITORSRivalry among competitors can cause an industry great harm This occurs mainly by price cuts heavy advertising additional high cost services or offers and the like This rivalry occurs mainly whena) There are many competitors and supply exceeds demand Companies resort to price cuts and advertise heavily in order to attract customers for their goodsb) The industry growth is slow and companies are competing with each other for a greater market sharec) The economy is in a recession and companies cut the price of their products and offer better service to stimulate demandd) There is lack of differentiation between the product of one company and that of another In such cases the buyer makes his choice on the basis of price or servicee) In some industries economies of scale will necessitate large additions to existing capacities in a company The increase in production could result in over capacity amp price cuttingf) Competitors may have very different strategies in selling their goods and in competing they may be continuously trying to stay ahead
III COMPANY ANALYSIS
At the final stage of fundamental analysis the investor analyzes the company This analysis has two thrustsHow has the company performed vis-agrave-vis other similar companies and How has the company performed in comparison to earlier years It is imperative that one completes the politico economic analysis and the industry analysis before a company is analyzed because the companys performance at a period of time is to an extent a reflection of the economy the political situation and the industry What does one look at when analyzing a company The different issues regarding a company that should be examined are The Management The Company The Annual Report Ratios Cash flow
THE MANAGEMENT
The single most important factor one should consider when investing in a company and one often never considered is its management In India management can be broadly
22
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
divided in two types Family Management Professional Management
THE COMPANY
An aspect not necessarily examined during an analysis of fundamentals is the company A company may have made losses consecutively for two years or more and one may not wish to touch its shares - yet it may be a good company and worth purchasing into There are several factors one should look at
1 How a company is perceived by its competitorsOne of the key factors to ascertain is how a company is perceived by its competitors It is held in high regard Its management may be known for its maturity vision competence and aggressiveness The investor must ascertain the reason and then determine whetherthe reason will continue into the foreseeable future
2 Whether the company is the market leader in its products or in its segmentAnother aspect that should be ascertained is whether the company is the market leader in its products or in its segment When you invest in market leaders the risk is less Theshares of market leaders do not fall as quickly as those of other companies There is a magic to their name that would make individuals prefer to buy their products as opposed to others
3 Company PoliciesThe policy a company follows is also important What is its plans for growth What is its vision Every company has a life If it is allowed to live a normal life it will grow upto a point and then begin to level out and eventually die It is at the point of leveling out that it must be given new life This can give it renewed vigour and a new lease of life
4 Labour RelationsLabour relations are extremely important A company that has motivated industrious work force has high productivity and practically no disruption of work On the other hand a company that has bad industrial relations will lose several hundred mandays as a consequence of strikes and go slows
5 Where the company is located and where its factories are One must also consider where the companies Plants and Factories are located
THE ANNUAL REPORT
The primary and most important source of information about a company is its Annual Report By law this is prepared every year and distributed to the shareholders Annual Reports are usually very well presented A tremendous amount of data is given about the performance of a company over a period of time The Annual Report is broken down into the following specific parts
23
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the Accounts
A The Directorrsquos ReportThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship 1 It enunciates the opinion of the directors on the state of the economy and the political situation vis-agrave-vis the company 2 Explains the performance and the financial results of the company in the period under review This is an extremely important part The results and operations of the various separate divisions are usually detailed and investors can determine the reasons for their good or bad performance3 The Directorrsquos Report details the companys plans for modernization expansion and diversification Without these a company will remain static and eventually decline4 Discusses the profit earned in the period under review and the dividend Recommended by the directors This paragraph should normally be read with some skepticism as the directors will always argue that the performance was satisfactory If adverse economic conditions are usually at fault 5 Elaborates on the directors views of the companys prospects in the future6 Discusses plans for new acquisition and investments An investor must intelligently evaluate the issues raised in a Directorrsquos Report Industry conditions and the managements knowledge of the business must be considered
B The Auditors ReportThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors Auditors are required to report whether the financial statements presented do in fact present a true and fair view of the state of the company Investors must remember that the auditors are their representatives and that they are required by law to point out if the financial statements are not true and fair
CFinancial StatementsThe published financial statements of a company in an Annual Report consist of its Balance Sheet as at the end of the accounting period detailing the financing condition of the company at that date and the Profit and Loss Account or Income Statement summarizing the activities of the company for the accounting period
BALANCE SHEETThe Balance Sheet details the financial position of a company on a particular date of the companys assets (that which the company owns) and liabilities (that which the companyowes) grouped logically under specific heads It must however be noted that the Balance Sheet details the financial position on a particular day and that the position can be materially different on the next day or the day after
24
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOURCES OF FUNDSSHAREHOLDERS FUNDSSHARE CAPITAL(i) Private Placement(ii) Public Issueiii) Rights issuesRESERVESi) Capital Reservesii) Revenue ReservesLOAN FUNDSi) Secured loansii) Unsecured loansFIXED ASSETSINVESTMENTSSTOCK OR INVENTORIESi) Raw materialsii) Work in progressiii) Finished goodsCASH AND BANK BALANCESLOANS AND ADVANCES
PROFIT AND LOSS ACCOUNTThe Profit and Loss account summarizes the activities of a company during an accounting period which may be a month a quarter six months a year or longer and the result achieved by the company It details the income earned by the company its cost and the resulting profit or loss It is in effect the performance appraisal not only of the company but also of its management- its competence foresight and ability to lead
RATIOS
Ratios express mathematically the relationship between performance figures andor assetsliabilities in a form that can be easily understood and interpretedNo single ratio tells the complete storyRatios can be broken down into four broad categories
(A) Profit and Loss RatiosThese show the relationship between two items or groups of items in a profit and loss account or income statement The more common of these ratios are1 Sales to cost of goods sold2 Selling expenses to sales3 Net profit to sales and4 Gross profit to sales
(B) Balance Sheet RatiosThese deal with the relationship in the balance sheet such as 1 Shareholders equity to borrowed funds
25
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
2 Current assets to current liabilities3 Liabilities to net worth4 Debt to assets and5 Liabilities to assets
(C) Balance Sheet and Profit and Loss Account RatiosThese relate an item on the balance sheet to another in the profit and loss account such as1 Earnings to shareholders funds2 Net income to assets employed3 Sales to stock4 Sales to debtors and5 Cost of goods sold to creditors
(D) Financial Statements and Market RatiosThese are normally known as market ratios and are arrived at by relative financial figures to market prices1 Market value to earnings and2 Book value to market value(a) Market value(b) Earnings(c) Profitability(d) Liquidity(e) Leverage(f) Debt Service Capacity(g) Asset ManagementEfficiency(h) Margins
The major ratios that are considered(i) Market value(ii) Price- earnings ratio(iii) Market-to-book ratio(iv) Earnings(v) Earning per share(vi) Dividend per share(vii) Dividend payout ratio(viii) Leverage ratios(ix) Return on investmentstotal assets
CASH FLOW A statement of sources and uses begins with the profit for the year to which are added the increases in liability accounts (sources) and from which are reduced the increases in asset accounts (uses) The net result shows whether there has been an excess or deficit of funds and how this was financed Investors must examine a companys cash flow as it reveals exactly where the money came from how it was utilized Investors must be
26
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
concerned if a company is financing either its inventories or paying dividends from borrowings without real growth as that shows deterioration
27
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-4 ANALYSIS
28
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
I FUNDAMENTAL ANALYSIS OF STOCKS
Basically fundamental analysis is covered in 3 parts
1 Market economy analysis
2 Industry Analysis
3 Company Analysis
1) TATA MOTORS
I Market Economy Analysis
It covers the macro economy analysis and the various macro economic factors on the national level like GDP Monetary policies of India Fiscal Policies and Inflation and money supply etc
GDP
Real GDP growth accelerated from 75 per cent during 2004-05 to 84 per cent during
2005-06 on the back of buoyant manufacturing and services activity supported by a
recovery in the agricultural sector Real GDP growth has thus averaged over eight per
cent during the last three years and over seven per cent in the first four years (2002-03 to
2005-06) of the Tenth Five Year Plan
Strengths of India today are
A well diversified industrial base which profits from self-reliance in all core industries A
large amp sophisticated financial architecture - The robust capital Markets today have over
9000 listed companies and boast of a massive Market capitalization
A healthy GDP composition with agriculture contributing 22 Industry 22 and
services which have gone strength to strength accounting For 56 of the GDP an
29
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
acknowledged strength in knowledge driven industries like Information technology
biotechnology entertainment Software etc
India has Over 3 million scientific amp technical manpower Over 06 million SampT post
graduates Over 07 million graduate engineers Over 3500 doctorates in sciences every
year
Assuming trend growth in agriculture under normal monsoon conditions and barring
domestic or external shocks the Reserve Bank in its Annual Policy Statement for 2007-
08 (April 2007) placed real GDP growth for policy purposes in the range of 75-80 per
cent during 2007-08 Growth prospects are however subject to a number of downside
risks The risks emanating from the global economy are potential escalation and
volatility in international crude oil prices firming up of overall inflationary pressures and
expectations and a hardening of international interest rates along with the withdrawal of
monetary accommodation
Indiarsquos demographic advantage ndash In contrast to developed Countries India will have a
younger population for the next 50 years Hence India would be the hub for RampD
Inflation
Inflation was contained to 63 per cent by end-March 2007 within the indicative
trajectory of 50-55 per cent during 2007-08 The actual inflation was considerably lower
than the indicative trajectory and this could be mainly attributed to the deferred pass-
through of even the cognisable permanent component of international crude oil prices
Money Supply
Monetary and liquidity conditions remained largely comfortable during 2006-07reflecting
proactive liquidity management operations by the Reserve Bank under the liquidity
adjustment facility flexible management of issuances under the market stabilisation
scheme and some private placement of Government securities
30
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
In short the Indian economy is exhibiting strong fundamentals and displaying
considerable resilience At the same time there are continuing signs of demand pressures
especially high credit growth that could exert upward pressure on prices when associated
with supply shocks such as from oil These pressures have the potential for impacting
stability and inflation expectations While domestic developments continue to dominate
the economy global factors tend to gain more attention now than before The global
outlook for growth is positive but downside risks in regard to inflation also RBI is
applying new repo and reverse repo for the balance of inflation and monetary policies
The following are macroeconomic policies generally found as part of government-
directed industrial auto policies
(a) Restrictions on domestic and foreign investment
(b) Domestic content requirements
(c) High tariff walls
(d) Auto export requirements
(e) National production to sales ratios
(f) Distribution controls
(g) Quotas and licensing requirements that significantly restrict imports
(h) Government approval for product related decisions including vehicle make
body type engine size etc
(i) Special government categories for auto taxes
II INDUSTRY ANALYSIS
Since 1991 opening of the economy has changed the face of auto industry Today it is
amongst the main drivers of growth of Indian economy with an output multiplier of
224(for every Re1 invested auto sector gives back Rs224 to the economy) In recent
years we have seen increasing number of global players entering Indian market by way of
Joint ventures collaborations or wholly owned subsidiary
The automobile industry is torn between trying to reduce costs on the one hand and on
the other dealing with the high price of performance-enhancing technology and
environmental compliance Key drivers in the automotive industry are
31
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Reducing air pollution
Reduction of weight
Recyclability
Safety
Better performance and engine efficiency
Aesthetics
Longer service Life
INDUSTRY LIFE CYCLE
The automobile market is at the maturity stage of the life cycle locally and globally due
to an increased number of competitors from domestic and foreign markets The
automobile market is characterized by a low potential for market growth but high sales
and profit potential as the products have still not saturated the market as a whole
MAJOR COMPETITORS OF TATA MOTORS ARE
Maruti Udyog Ltd
General Motors India
Ford India Ltd
Eicher Motors
Bajaj Auto
Hero Motors
Hindustan Motors
32
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Hyundai Motor India Ltd
Royal Enfield Motors
Telco
TVS Motors
FINANCIALS
Description 1 Day PriceChange
MarketCap
PEROE
Div Yield
Long-Term Debt toEquity
Price toBook Value
NetProfit Margin (mrq)
Price toFree Cash Flow (mrq)
Sector Consumer Goods 01125178B
2488
1707
222
1171076
706 40842
Industry Auto Manufacturers - Major (More Info)
0613310B
3000
750171
181 155 160 -440
Companies
Daimlerchrysler AG (DCX) 021 539B1072
1119
350
217 116 469 -354
Ford Motor Co (F) 121 157B NA-951
240
1107
115 -060 -8205
General Motors Corporation (GM) -024 165B NA
-6285
340
390 142 -621 014
Honda Motor Co Ltd (HMC) 083 622B1152
1654
100
083 173 552 20748
Tata Motors Ltd (TTM) -038 71B1864
NA150
NA 535 564 NA
Toyota Motor Corp (TM) 0731756B
1394
1505
120
103 197 659 NA
Opportunities and Threats
a) Opportunities
Road Development The ongoing road development program would improve
connectivity to ports cities and villages through a network of highways and
interconnecting roads by 2010-11 Improved road network would help in faster
33
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
movement of goods between various cities and towns The Company launched TATA
Novus range of vehicles in the heavy segment and TATA ACE for last mile distribution
Car penetration in India Car penetration in India is 7 cars per 1000 persons
International In FY 2006-07 the Company increased share of its overseas vehicle sales
from 76 last year to record high of 111 (as of its total sales) and has planned
further increase in this year
b) Threats
Global Competition India is increasingly attracting global players to set up
manufacturing facility for producing cars especially small cars Global automobile
manufacturers are also entering India in commercial vehicle segment to leverage Indiarsquos
low cost production advantage to their favor
Fuel Prices The continuing fuel price increase in the domestic market could
significantly impact demand of commercial and passenger vehicles
Input costs Commodity items particularly steel non-ferrous metals rubber and
engineering plastics have witnessed huge price increases in the past These prices are
expected to increase further affecting the Companyrsquos profitability
Interest rate hardening and other inflationary trends With interest rates hardening and
liquidity crunch in the system growth in sales may be adversely impacted
Government Regulations Stringent emission and safety requirements could bring new
complexities for automotive and component manufacturers impacting the Companyrsquos
business
Risks and Concerns
Interest Rates FY 2007-08 started with increasing interest rate regime and tightening
liquidity position in the economy Increasing interest rates could further affect vehicle
demand which could have an adverse impact on the Companyrsquos revenues and profits
Exchange rates The Company exports vehicles to many countries and exchange rate
fluctuations in the order execution period could impact the Companyrsquos business
34
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Freight rates In FY 2006-07 freight rates in road transport sector moved up mainly
due to surge in construction activity ongoing road development projects and severe
restriction on over-loading Demand for commercial vehicles could be impacted by
further change in freight rates and change in fuel prices
Domestic market The Company plans to reduce the impact of this cyclicality on its
business by strengthening its less cyclical businesses like buses light trucks small
commercial vehicles
Overseas market In overseas markets the Company competes with global players
which have multiple vehicle platforms large financial capability and global branding
Manufacturing The Company manufactures vehicles at multiple locations and given
the geographical dispersion of its suppliers it faces Logistics Problems
New Competition Competitive activity is expected to increase in commercial vehicle
and passenger vehicle domestic market in coming years
New projects The Company currently is in midst of executing many new projects
ranging from launch of new car platforms to development of new Truck models
III Company Analysis
Key Highlights
Symbol TTL
Sector Consumer Goods
Industry Auto Manufacturers Major
Market Cap Rs29232 crores
Data Since 1945
Last close Rs 74290
Brief Summary of the company
35
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Tata Motors is one of the largest companies in the Tata Group with a total income of US$
235 billion More than 3 million Tata vehicles ply on Indian roads making Tata a
dominant force in the Indian automobile industry
Joint Venture with Fiat and Hitachi
Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing
passenger vehicles engines and transmissions for both domestic and international
markets The Company has also entered into a JV with Hitachi to set up a new plant in
Kharagpur
Product Mix
Tata Motors is Indias only fully integrated automobile manufacturer with a portfolio that
covers trucks buses utility vehicles and passenger cars It would be no exaggeration to
say that Tata Motors provides the wheels for Indias growth
Segmental Overview
Commercial Vehicle Segment
The Company registered 696 volume growth in the domestic CV segment during
4QFY06 from 37228 units in Q3FY05 to 63082 units in Q3FY06 The market share in
this segment was 658 in Q4FY06 as compared to 552 in Q1FY06 The MHCV
goods-carrier segment registered a 544 growth YoY with sale of 33515 units and a
market share of 645 up by around 410 bps driven by infrastructure development and
increase in international trade
Passenger Vehicle Segment
The Company reported a growth of 212 YoY to 49907 vehicles in the domestic
passenger vehicle segment and a market share of 162 in the quarter The passenger
vehicle industry registered a volume growth of 204 during Q4FY06
36
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Plants
Tata Motors owes its leading position in the Indian automobile industry to its strong
focus on indigenisation Their manufacturing plants are situated at Jamshedpur in the
East Pune in the West and Lucknow in the North
Charts showing Key Statistics of tata motors
37
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Share holding pattern as on 31-Mar
shareholding pattern
34
1425
17
10
promotors
MF Banks Fis
FIIs
Others
Public
Financial highlights
38
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
39
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
RATIO ANALYSIS
Ratios 2006 2005 2004
Debtequity 056 049 044
Current ratio 108 087 076
Operating profit margin 1211 1151 1238
Gross profit margin 1087 1043 1104
ROCE 3125 3276 3377
total assets turnover ratio 315 353 343
ROE 2761 3009 2257
Dividend-equity 49794 45373 28211
Retention Ratio 6743 6332 6519
DPS (Rs) 1301 125 799
EPS (Rs) 25 34 41
Dividend Payout Ratio 039 042 037
CAGR of EPS 0177
CAGR of Dividend Payout Ratio -0017
Average ROE 2574
average retention 6354
Growth (g = Avg RR times Avg ROE ) 1636
Market return 1454
40
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
PE ratio (on the basis of historical analysis) = 1812
Therefore the Weighted PE ratio =(1812+2424)2 = 21181
Projected EPS = EPS OF 2006 + CAGR of EPSEPS OF 2006
= Rs48271
Value of Share at the end of financial year 06-07
= Projected EPS Weighted PE Ratio
= Rs1022
2) HPCL
Globalization and the Indian Petroleum Industry
Indian petroleum industry in the post independent period (1947-2001) it may be divided
into three distinct phases
(i) early phase (1947 to 1969)- when the government consolidated its control over
the industry with Soviet assistance
(ii) development phase (1970 to 1989)- in this period the US companies played
dominant role replacing the Soviets and
41
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
(iii) the economic liberalisation phase of 1990s
PORTERrsquoS MODEL
SWOT ANALYSIS
STRENGHS
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
WEAKNESSES
Dependence on refining function high
Moderate share in high profitable retail segment
42
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Diversifications in petrochemicals could trouble the company
High burden of subsidy loss on cooking gas and kerosene
OPPORTUNITIES
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
Overseas presence in upstream and downstream will determine growth
THREATS
Rising oil prices could dampen demand
High regulatory risk
Loss of market share to private players
Entrance of private players in pipelines will take away monopoly of company in
north India
COMPANY ANALYSIS
The Annual Report is broken down into the following specific parts
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the AccountsATHE DIRECTORrsquoS REPORTThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship Fundamental AnalysisB THE AUDITORS REPORTThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors
C FINANCIAL STATEMENTSIt comprises of Balance Sheet Profit and Loss account Cash Flows Its analysis would be discussed later
DSCHEDULES
43
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The schedules detail pertinent information about the items of Balance Sheet and Profit amp Loss Account It also details information about sales manufacturing costs administration costs interest and other income and expenses
1 THE MANAGEMENT
HPCL is a public sector undertaking Thus it is a professionally managed company
There are some parameters of management on which a company is analysed
a integrity of management
b past record of management
c how highly is the management rated by its peers in the same industry
d how the management fares in adversity
e the depth of the knowledge of management
f open and innovative management
on all these parameters HPCL scores good
2 COMPANY
Many times a company has made losses in the previous years but that does not mean
that the company is bad to invest Thus many factors are studied while studying a
company
a) perception of competitors
HPCL is the second largest petroleum company after IOCL Thus it is a competitor of
IOCL and it is trying hard to compete with IOCL on every front That is why now it
has decided to diversify itself in the oil exploration sector
b) company policies
As this is a PSU thus the policies are made by the government The oil sector is one
which is highly regulated by government Thus from time to time it is required to
watch out the various policies changed
3 ANNUAL REPORT
The most primary and most important source of information about a company is its
Annual Report This is prepared every year and distributed to its shareholders
44
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Ratio Analysis
Evaluation of Intrinsic Value of the Security
stdev mkt 0011934stdev sec 003831 Average
Retention Ratio 060504
correlation 0485958 ROE 019842Beta 156765 g 0120052Risk Free Rate 650
Mkt Rate 14
45
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
k 1826
Hence we see that here our g is less than k Thus we see that as per Dividend Discount Model our Intrinsic value is div=22(1+012)=240626= 387
Price= Projected EPS + Weighted PE ratioUsing CAGR EPS = 43468Weighted PE Ratio = 75+6652=33625
Price = 43468+33625 = 381
3) HDFC BANK
The Indian banking industry sector overview
With the economic growth picking up pace and the investment cycle on the way to recovery the banking sector has witnessed a transformation in its vital role of intermediating between the demand and supply of funds
Public sector banks have been very proactive in their restructuring initiatives be it in technology implementation or pruning their loss assets Windfall treasury gains made in the falling interest rate regime were used for writing off the doubtful and loss assets
Retail lending (especially mortgage financing) formed a significant portion of the portfolio for most banks and they customized their products to cater to the diverse demands
Apart from streamlining their processes through technology initiatives such as ATMs telephone banking online banking and web based products banks also resorted to cross selling of financial products such as credit cards mutual funds and insurance policies to augment their fee based income
PORTERrsquoS FIVE FORCES MODEL FOR THE BANKING INDUSTRY
1) BARRIERS TO ENTRY a Economies of scale Since the existing players in the market are well
established and already have a customer base they are able to bear the cost of using the advantages of technology to their maximum advantage
46
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Capital requirement for entry i The Banking Regulation Act prescribes the minimum capital
requirements for a bank Moreover banks have to maintain a capital adequacy ratio of 9 under the Basel I norms
ii Government has declared that the foreign banks will be permitted to establish their presence in India by way of setting up a wholly owned banking subsidiary (WOS) with a minimum capital of Rs300 crore
c Access to distribution channels Since banks have to set up their own distribution channels all the cost has to be directly born by them
d Cost advantage independent of size Existing banks have huge databases of customers which they use when they want to sell a new product launched by them
e Legislation or Government action Banks are governed by Banking Regulation Act 1949 which specifies the rules and regulations applicable to banks RBI is the governing body of banks in India
2) BARGAINING POWER OF BUYERS
Due to increased competition the services offered by banks to customers have improved considerably
3) BARGAINING POWER OF THE SUPPLIERS
Suppliers to banks can be both - the customers and RBIa Customers of banks provide money to banks in the form of deposits and in
return earn some interest on that b RBI acts as a supplier to banks by selling govt securities treasury bills
govt bonds etc c Call money market Banks sometimes have to borrow from other banks to
meet CRR and SLR requirements or other capital requirements as provided by RBI
4) THREAT OF SUBSTITUTES
a Product-for-product substitutioni Banks provide interest on deposits made by people Similar
services are offered by post offices which may act as substitutes to the deposit schemes of banks
ii Some banks offer locker services to customers for yearly rates Similar services are provided by many post offices
47
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Generic substitution People who deposit their savings in banks can invest their money in other sources like mutual funds shares and other securities and life insurance schemes
5) COMPETITIVE RIVALRY
a Extent of competitor balance b Market growth ratesc High Exit Barriers
PEST Analysis for Banking Industry
1 Political factors - The major factors affecting the banking sector are the following
Banking sector reforms ndash As per the RBI roadmap for reforms in the first stage from 2005 to 2009 foreign banks will be allowed to set up wholly owned subsidiaries as well as get greater freedom to set up new branches Fulfilling the minimum priority sector credit -The government mandation of fulfilling the minimum priority sector credit (of which 18 per cent is food credit) has forced the domestic banks to cater to this segment despite the low profitability and vulnerability of asset quality
Banks have also been allowed to set up Offshore Banking Units in SEZrsquos
2 Economic factors -
Basell II norms for the risk management in banking sector - The new Basel Accord has its foundation on three mutually reinforcing pillars The first pillar is compatible with the credit risk market risk and operational risk The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bankConcurrently it also casts responsibility on the supervisors to review and validate banksrsquo risk measurement models
Consolidation and merger and acquisitions in the banking sector- HDFC bank also acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Universal Banking has been introduced ICICI Bank HDFCs closest competitor is already into Universal Banking so HDFC is also getting into it as now it is providing retail banking and also depository facilities in the form of demat account
48
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
3 Social factors-
Big and growing middle class in India - This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans car loans education loans auto loans etc Retail loans have grown from 19 in FYrsquo99 to 51 FYrsquo06Consumer credit accounts for a meager 286 per cent of the countrys GDP and the buoyancy in the economy offers sufficient scope for it to grow
Geographical and Cultural diversity- This is leading to a greater demand for financial products and customization by the customers
4 Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999 It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector
Banks (All) No of players = 40
Sector statistics
We see the sector aggregates and make a financial comparison for the major banks
Top PlayersFY2006
Based on Total Income Based on OPBDT Total Income Change OPBDT Change
(Rs Mn) () (Rs Mn) ()ICICI BANK 631619 5450 S B I 763528 -129 PUNJAB NATIONAL B 29218 1491 ICICI BANK 37174 1936
CAN BANK 277095 2378 PUNJAB NATIONAL B 222052 3936
BANK OF INDIA 23317 2543 CAN BANK 168825 1953
H D F C BANK 185508 6024 H D F C BANK 14324 2748 change - indicates the change between current and corresponding quarter
49
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A bull trend starts when price rallies above the previous high
A bull trend ends when price declines below the previous low
A bear trend starts at the end of a bull trend (and vice versa)
32 ELLIOT WAVES THEORY BASICS
TRENDLINES
Breaking through support or resistance levels results in a change of tradersrsquo expectations (which causes supplydemand lines to shift)
14
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
An Uptrend is defined by successively higher low-prices A rising trend can be thought of as a rising support level the bulls are in control and are pushing prices higher A Downtrend is defined by successively lower high-prices A falling trend can be thought of as a falling resistance level the bears are in control and are pushing prices lower
33 MOVING AVERAGES
Moving averages are one of the oldest and most popular technical analysis tools A moving average is the average price of a financial instrument over a given time
The moving average represents the consensus of investorrsquos expectations over the indicated period of time
The classic interpretation of a moving average is to use it in observing changes in prices Investors typically buy when the price of an instrument rises above its moving average and sell when the it falls below its moving average
TECHNICAL INDICATORS
There is a vast number of elaborated technical indicators
15
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
MOVING AVERAGE ndashMA
RELATIVE STRENGTH INDEX mdash RSI The Relative Strength Index Technical Indicator (RSI) is a price-following oscillator that ranges between 0 and 100 When Wilder introduced the Relative Strength Index he recommended using a 14-day RSI Since then the 9-day and 25-day Relative Strength Index indicators have also gained popularity
ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the cumulative difference between advancing and declining issues
CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that closed on an uptick and those that closed on a downtick
CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading volume in declining issues to average trading volume in advancing issues
Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 shares HI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price CANDLESTICK CHART A candlestick chart is an extended version of the hi-lo-close
chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation When the stock price ldquopierces the necklinerdquo after the right shoulder is finished itrsquos time to sell
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins A win by the National Football Conference is bullish
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
16
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER- 3
FUNDAMENTAL ANALYSIS
A CONCEPTUAL OVERVIEW
17
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Fundamental analysis refers to the study of the core underlying elements that influence the economy of a particular entity It is a method of study that attempts to predict price action and market trends by analyzing economic indicators government policy and societal factors (to name just a few elements) within a business cycle framework
I ECONOMIC ANALYSIS
POLITICO-ECONOMIC ANALYSIS No industry or company can exist in isolation It may have splendid managers and a tremendous product However its sales and its costs are affected by factors some of which are beyond its control - the world economy price inflation taxes and a host of others It is important therefore to have an appreciation of the politico-economic factors that affect an industry and a company
The political equationA stable political environment is necessary for steady balanced growth If a country is ruled by a stable government which takes decisions for the long-term development of the country industry and companies will prosper Foreign Exchange ReservesA country needs foreign exchange reserves to meet its commitments pay for its imports and service foreign debts
Foreign Exchange RiskThis is a real risk and one must be cognizant of the effect of a revaluation or devaluation of the currency either in the home country or in the country the company deals in
Restrictive PracticesRestrictive practices or cartels imposed by countries can affect companies and industries crystallizing the exposure
Foreign Debt and the Balance of TradeForeign debt especially if it is very large can be a tremendous burden on an economy India pays around $ 5 billion a year in principal repayments and interest payments InflationInflation has an enormous effect in the economy Within the country it erodes purchasing power As a consequence demand falls If the rate of inflation in the country from which a company imports is high then the cost of production in that country will automatically go up
The Threat of NationalizationThe threat of nationalization is a real threat in many countries ndash the fear that a company may become nationalized
Interest Rates
18
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A low interest rate stimulates investment and industry Conversely high interest rates result in higher cost of production and lower consumption
TaxationThe level of taxation in a country has a direct effect on the economy If tax rates are low people have more disposable income
Government PolicyGovernment policy has a direct impact on the economy A government that is perceived to be proindustry will attract investment
THE ECONOMIC CYCLE
It affects investment decisions employment demand and the profitability of companiesThe four stages of an economic cycle are DepressionRecoveryBoom Recession DepressionAt the time of depression demand is low and falling Inflation is high and so are interest rates Companies crippled by high borrowing and falling sales are forced to curtail production close down plants built at times of higher demand and let workers go
RecoveryDuring this phase the economy begins to recover Investment begins anew and the demand grows Companies begin to post profits Conspicuous spending begins once again
BoomIn the boom phase demand reaches an all time high Investment is also high Interest rates are low Gradually as time goes on supply begins to exceed the demand Prices that had been rising begin to stabilize and even fall There is an increase in demand Then as the boom period matures prices begin to rise again
RecessionThe economy slowly begins to downturn Demand starts falling Interest rates and inflation are high Companies start finding it difficult to sell their goods The economy slowly begins to downturn
19
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II INDUSTRY ANALYSIS
The importance of industry analysis is now dawning on the Indian investor as never before
CycleThe first step in industry is to determine the cycle it is in or the stage of maturity of the industry All industries evolve through the following stages1 Entrepreneurial sunrise or nascent stage2 Expansion or growth stage3 Stabilization stagnation or maturity stage and4 Decline or sunset stage to properly establish itself In the early days it may actually make losses
The Entrepreneurial or Nascent StageAt the first stage the industry is new and it can take some time for it to properly establish itself
The Expansion or Growth StageOnce the industry has established itself it enters a growth stage As the industry grows many new companies enter the industry
The Stabilization or Maturity StageAfter the halcyon days of growth an industry matures and stabilizes Rewards are low and so too is the risk Growth is moderate Though sales may increase they do so at a
20
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
slower rate than before Products are more standardized and less innovative and there are several competitors
The Decline or Sunset StageFinally the industry declines This occurs when its products are no longer popular This may be on account of several factors such as a change in social habits The film and video industries
1 BARRIER TO ENTRYNew entrants increase the capacity in an industry and the inflow of funds The question that arises is how easy is it to enter an industry There are some barriers to entry
a) Economies of scaleb) Product differentiation c) Capital requirementd) Switching costse) Access to distribution channelsf) Cost disadvantages independent of scaleg) Government policyh) Expected retaliationj) International cartels
2 THE THREAT OF SUBSTITUTIONNew inventions are always taking place and new and better products replace existing ones An industry that can be replaced by substitutes or is threatened by substitutes is normally an industry one must be careful of investing in An industry where this occurs constantly is the packaging industry -bottles replaced by cans cans replaced by plastic bottles and the like To ward off the threat of substitution companies often have to spend large sums of money in advertising and promotion
3 BARGAINING POWER OF THE BUYERSIn an industry where buyers have control ie in a buyers market buyers are constantly forcing prices down demanding better services or higher quality and this often erodes profitability The factors one should check are whether a) A particular buyer buys most of the products (large purchase volumes) If such buyers withdraw their patronage they can destroy an industry They can also force prices downb) Buyers can play one company against another to bring prices down
4 BARGAINING POWER FOR THE SUPPLIERSAn industry unduly controlled by its suppliers is also under threat This occurs whena) The suppliers have a monopoly or if there are few suppliersb) Suppliers control an essential c) Demand for the product exceeds d) The supplier supplies to various industriese) The switching costs are high
21
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
f) The suppliers product does not have a substituteg) The suppliers product is an important input for the buyersh) The buyer is not important to the supplieri) The suppliers product is unique
5 RIVALRY AMONG COMPETITORSRivalry among competitors can cause an industry great harm This occurs mainly by price cuts heavy advertising additional high cost services or offers and the like This rivalry occurs mainly whena) There are many competitors and supply exceeds demand Companies resort to price cuts and advertise heavily in order to attract customers for their goodsb) The industry growth is slow and companies are competing with each other for a greater market sharec) The economy is in a recession and companies cut the price of their products and offer better service to stimulate demandd) There is lack of differentiation between the product of one company and that of another In such cases the buyer makes his choice on the basis of price or servicee) In some industries economies of scale will necessitate large additions to existing capacities in a company The increase in production could result in over capacity amp price cuttingf) Competitors may have very different strategies in selling their goods and in competing they may be continuously trying to stay ahead
III COMPANY ANALYSIS
At the final stage of fundamental analysis the investor analyzes the company This analysis has two thrustsHow has the company performed vis-agrave-vis other similar companies and How has the company performed in comparison to earlier years It is imperative that one completes the politico economic analysis and the industry analysis before a company is analyzed because the companys performance at a period of time is to an extent a reflection of the economy the political situation and the industry What does one look at when analyzing a company The different issues regarding a company that should be examined are The Management The Company The Annual Report Ratios Cash flow
THE MANAGEMENT
The single most important factor one should consider when investing in a company and one often never considered is its management In India management can be broadly
22
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
divided in two types Family Management Professional Management
THE COMPANY
An aspect not necessarily examined during an analysis of fundamentals is the company A company may have made losses consecutively for two years or more and one may not wish to touch its shares - yet it may be a good company and worth purchasing into There are several factors one should look at
1 How a company is perceived by its competitorsOne of the key factors to ascertain is how a company is perceived by its competitors It is held in high regard Its management may be known for its maturity vision competence and aggressiveness The investor must ascertain the reason and then determine whetherthe reason will continue into the foreseeable future
2 Whether the company is the market leader in its products or in its segmentAnother aspect that should be ascertained is whether the company is the market leader in its products or in its segment When you invest in market leaders the risk is less Theshares of market leaders do not fall as quickly as those of other companies There is a magic to their name that would make individuals prefer to buy their products as opposed to others
3 Company PoliciesThe policy a company follows is also important What is its plans for growth What is its vision Every company has a life If it is allowed to live a normal life it will grow upto a point and then begin to level out and eventually die It is at the point of leveling out that it must be given new life This can give it renewed vigour and a new lease of life
4 Labour RelationsLabour relations are extremely important A company that has motivated industrious work force has high productivity and practically no disruption of work On the other hand a company that has bad industrial relations will lose several hundred mandays as a consequence of strikes and go slows
5 Where the company is located and where its factories are One must also consider where the companies Plants and Factories are located
THE ANNUAL REPORT
The primary and most important source of information about a company is its Annual Report By law this is prepared every year and distributed to the shareholders Annual Reports are usually very well presented A tremendous amount of data is given about the performance of a company over a period of time The Annual Report is broken down into the following specific parts
23
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the Accounts
A The Directorrsquos ReportThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship 1 It enunciates the opinion of the directors on the state of the economy and the political situation vis-agrave-vis the company 2 Explains the performance and the financial results of the company in the period under review This is an extremely important part The results and operations of the various separate divisions are usually detailed and investors can determine the reasons for their good or bad performance3 The Directorrsquos Report details the companys plans for modernization expansion and diversification Without these a company will remain static and eventually decline4 Discusses the profit earned in the period under review and the dividend Recommended by the directors This paragraph should normally be read with some skepticism as the directors will always argue that the performance was satisfactory If adverse economic conditions are usually at fault 5 Elaborates on the directors views of the companys prospects in the future6 Discusses plans for new acquisition and investments An investor must intelligently evaluate the issues raised in a Directorrsquos Report Industry conditions and the managements knowledge of the business must be considered
B The Auditors ReportThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors Auditors are required to report whether the financial statements presented do in fact present a true and fair view of the state of the company Investors must remember that the auditors are their representatives and that they are required by law to point out if the financial statements are not true and fair
CFinancial StatementsThe published financial statements of a company in an Annual Report consist of its Balance Sheet as at the end of the accounting period detailing the financing condition of the company at that date and the Profit and Loss Account or Income Statement summarizing the activities of the company for the accounting period
BALANCE SHEETThe Balance Sheet details the financial position of a company on a particular date of the companys assets (that which the company owns) and liabilities (that which the companyowes) grouped logically under specific heads It must however be noted that the Balance Sheet details the financial position on a particular day and that the position can be materially different on the next day or the day after
24
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOURCES OF FUNDSSHAREHOLDERS FUNDSSHARE CAPITAL(i) Private Placement(ii) Public Issueiii) Rights issuesRESERVESi) Capital Reservesii) Revenue ReservesLOAN FUNDSi) Secured loansii) Unsecured loansFIXED ASSETSINVESTMENTSSTOCK OR INVENTORIESi) Raw materialsii) Work in progressiii) Finished goodsCASH AND BANK BALANCESLOANS AND ADVANCES
PROFIT AND LOSS ACCOUNTThe Profit and Loss account summarizes the activities of a company during an accounting period which may be a month a quarter six months a year or longer and the result achieved by the company It details the income earned by the company its cost and the resulting profit or loss It is in effect the performance appraisal not only of the company but also of its management- its competence foresight and ability to lead
RATIOS
Ratios express mathematically the relationship between performance figures andor assetsliabilities in a form that can be easily understood and interpretedNo single ratio tells the complete storyRatios can be broken down into four broad categories
(A) Profit and Loss RatiosThese show the relationship between two items or groups of items in a profit and loss account or income statement The more common of these ratios are1 Sales to cost of goods sold2 Selling expenses to sales3 Net profit to sales and4 Gross profit to sales
(B) Balance Sheet RatiosThese deal with the relationship in the balance sheet such as 1 Shareholders equity to borrowed funds
25
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
2 Current assets to current liabilities3 Liabilities to net worth4 Debt to assets and5 Liabilities to assets
(C) Balance Sheet and Profit and Loss Account RatiosThese relate an item on the balance sheet to another in the profit and loss account such as1 Earnings to shareholders funds2 Net income to assets employed3 Sales to stock4 Sales to debtors and5 Cost of goods sold to creditors
(D) Financial Statements and Market RatiosThese are normally known as market ratios and are arrived at by relative financial figures to market prices1 Market value to earnings and2 Book value to market value(a) Market value(b) Earnings(c) Profitability(d) Liquidity(e) Leverage(f) Debt Service Capacity(g) Asset ManagementEfficiency(h) Margins
The major ratios that are considered(i) Market value(ii) Price- earnings ratio(iii) Market-to-book ratio(iv) Earnings(v) Earning per share(vi) Dividend per share(vii) Dividend payout ratio(viii) Leverage ratios(ix) Return on investmentstotal assets
CASH FLOW A statement of sources and uses begins with the profit for the year to which are added the increases in liability accounts (sources) and from which are reduced the increases in asset accounts (uses) The net result shows whether there has been an excess or deficit of funds and how this was financed Investors must examine a companys cash flow as it reveals exactly where the money came from how it was utilized Investors must be
26
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
concerned if a company is financing either its inventories or paying dividends from borrowings without real growth as that shows deterioration
27
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-4 ANALYSIS
28
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
I FUNDAMENTAL ANALYSIS OF STOCKS
Basically fundamental analysis is covered in 3 parts
1 Market economy analysis
2 Industry Analysis
3 Company Analysis
1) TATA MOTORS
I Market Economy Analysis
It covers the macro economy analysis and the various macro economic factors on the national level like GDP Monetary policies of India Fiscal Policies and Inflation and money supply etc
GDP
Real GDP growth accelerated from 75 per cent during 2004-05 to 84 per cent during
2005-06 on the back of buoyant manufacturing and services activity supported by a
recovery in the agricultural sector Real GDP growth has thus averaged over eight per
cent during the last three years and over seven per cent in the first four years (2002-03 to
2005-06) of the Tenth Five Year Plan
Strengths of India today are
A well diversified industrial base which profits from self-reliance in all core industries A
large amp sophisticated financial architecture - The robust capital Markets today have over
9000 listed companies and boast of a massive Market capitalization
A healthy GDP composition with agriculture contributing 22 Industry 22 and
services which have gone strength to strength accounting For 56 of the GDP an
29
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
acknowledged strength in knowledge driven industries like Information technology
biotechnology entertainment Software etc
India has Over 3 million scientific amp technical manpower Over 06 million SampT post
graduates Over 07 million graduate engineers Over 3500 doctorates in sciences every
year
Assuming trend growth in agriculture under normal monsoon conditions and barring
domestic or external shocks the Reserve Bank in its Annual Policy Statement for 2007-
08 (April 2007) placed real GDP growth for policy purposes in the range of 75-80 per
cent during 2007-08 Growth prospects are however subject to a number of downside
risks The risks emanating from the global economy are potential escalation and
volatility in international crude oil prices firming up of overall inflationary pressures and
expectations and a hardening of international interest rates along with the withdrawal of
monetary accommodation
Indiarsquos demographic advantage ndash In contrast to developed Countries India will have a
younger population for the next 50 years Hence India would be the hub for RampD
Inflation
Inflation was contained to 63 per cent by end-March 2007 within the indicative
trajectory of 50-55 per cent during 2007-08 The actual inflation was considerably lower
than the indicative trajectory and this could be mainly attributed to the deferred pass-
through of even the cognisable permanent component of international crude oil prices
Money Supply
Monetary and liquidity conditions remained largely comfortable during 2006-07reflecting
proactive liquidity management operations by the Reserve Bank under the liquidity
adjustment facility flexible management of issuances under the market stabilisation
scheme and some private placement of Government securities
30
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
In short the Indian economy is exhibiting strong fundamentals and displaying
considerable resilience At the same time there are continuing signs of demand pressures
especially high credit growth that could exert upward pressure on prices when associated
with supply shocks such as from oil These pressures have the potential for impacting
stability and inflation expectations While domestic developments continue to dominate
the economy global factors tend to gain more attention now than before The global
outlook for growth is positive but downside risks in regard to inflation also RBI is
applying new repo and reverse repo for the balance of inflation and monetary policies
The following are macroeconomic policies generally found as part of government-
directed industrial auto policies
(a) Restrictions on domestic and foreign investment
(b) Domestic content requirements
(c) High tariff walls
(d) Auto export requirements
(e) National production to sales ratios
(f) Distribution controls
(g) Quotas and licensing requirements that significantly restrict imports
(h) Government approval for product related decisions including vehicle make
body type engine size etc
(i) Special government categories for auto taxes
II INDUSTRY ANALYSIS
Since 1991 opening of the economy has changed the face of auto industry Today it is
amongst the main drivers of growth of Indian economy with an output multiplier of
224(for every Re1 invested auto sector gives back Rs224 to the economy) In recent
years we have seen increasing number of global players entering Indian market by way of
Joint ventures collaborations or wholly owned subsidiary
The automobile industry is torn between trying to reduce costs on the one hand and on
the other dealing with the high price of performance-enhancing technology and
environmental compliance Key drivers in the automotive industry are
31
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Reducing air pollution
Reduction of weight
Recyclability
Safety
Better performance and engine efficiency
Aesthetics
Longer service Life
INDUSTRY LIFE CYCLE
The automobile market is at the maturity stage of the life cycle locally and globally due
to an increased number of competitors from domestic and foreign markets The
automobile market is characterized by a low potential for market growth but high sales
and profit potential as the products have still not saturated the market as a whole
MAJOR COMPETITORS OF TATA MOTORS ARE
Maruti Udyog Ltd
General Motors India
Ford India Ltd
Eicher Motors
Bajaj Auto
Hero Motors
Hindustan Motors
32
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Hyundai Motor India Ltd
Royal Enfield Motors
Telco
TVS Motors
FINANCIALS
Description 1 Day PriceChange
MarketCap
PEROE
Div Yield
Long-Term Debt toEquity
Price toBook Value
NetProfit Margin (mrq)
Price toFree Cash Flow (mrq)
Sector Consumer Goods 01125178B
2488
1707
222
1171076
706 40842
Industry Auto Manufacturers - Major (More Info)
0613310B
3000
750171
181 155 160 -440
Companies
Daimlerchrysler AG (DCX) 021 539B1072
1119
350
217 116 469 -354
Ford Motor Co (F) 121 157B NA-951
240
1107
115 -060 -8205
General Motors Corporation (GM) -024 165B NA
-6285
340
390 142 -621 014
Honda Motor Co Ltd (HMC) 083 622B1152
1654
100
083 173 552 20748
Tata Motors Ltd (TTM) -038 71B1864
NA150
NA 535 564 NA
Toyota Motor Corp (TM) 0731756B
1394
1505
120
103 197 659 NA
Opportunities and Threats
a) Opportunities
Road Development The ongoing road development program would improve
connectivity to ports cities and villages through a network of highways and
interconnecting roads by 2010-11 Improved road network would help in faster
33
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
movement of goods between various cities and towns The Company launched TATA
Novus range of vehicles in the heavy segment and TATA ACE for last mile distribution
Car penetration in India Car penetration in India is 7 cars per 1000 persons
International In FY 2006-07 the Company increased share of its overseas vehicle sales
from 76 last year to record high of 111 (as of its total sales) and has planned
further increase in this year
b) Threats
Global Competition India is increasingly attracting global players to set up
manufacturing facility for producing cars especially small cars Global automobile
manufacturers are also entering India in commercial vehicle segment to leverage Indiarsquos
low cost production advantage to their favor
Fuel Prices The continuing fuel price increase in the domestic market could
significantly impact demand of commercial and passenger vehicles
Input costs Commodity items particularly steel non-ferrous metals rubber and
engineering plastics have witnessed huge price increases in the past These prices are
expected to increase further affecting the Companyrsquos profitability
Interest rate hardening and other inflationary trends With interest rates hardening and
liquidity crunch in the system growth in sales may be adversely impacted
Government Regulations Stringent emission and safety requirements could bring new
complexities for automotive and component manufacturers impacting the Companyrsquos
business
Risks and Concerns
Interest Rates FY 2007-08 started with increasing interest rate regime and tightening
liquidity position in the economy Increasing interest rates could further affect vehicle
demand which could have an adverse impact on the Companyrsquos revenues and profits
Exchange rates The Company exports vehicles to many countries and exchange rate
fluctuations in the order execution period could impact the Companyrsquos business
34
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Freight rates In FY 2006-07 freight rates in road transport sector moved up mainly
due to surge in construction activity ongoing road development projects and severe
restriction on over-loading Demand for commercial vehicles could be impacted by
further change in freight rates and change in fuel prices
Domestic market The Company plans to reduce the impact of this cyclicality on its
business by strengthening its less cyclical businesses like buses light trucks small
commercial vehicles
Overseas market In overseas markets the Company competes with global players
which have multiple vehicle platforms large financial capability and global branding
Manufacturing The Company manufactures vehicles at multiple locations and given
the geographical dispersion of its suppliers it faces Logistics Problems
New Competition Competitive activity is expected to increase in commercial vehicle
and passenger vehicle domestic market in coming years
New projects The Company currently is in midst of executing many new projects
ranging from launch of new car platforms to development of new Truck models
III Company Analysis
Key Highlights
Symbol TTL
Sector Consumer Goods
Industry Auto Manufacturers Major
Market Cap Rs29232 crores
Data Since 1945
Last close Rs 74290
Brief Summary of the company
35
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Tata Motors is one of the largest companies in the Tata Group with a total income of US$
235 billion More than 3 million Tata vehicles ply on Indian roads making Tata a
dominant force in the Indian automobile industry
Joint Venture with Fiat and Hitachi
Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing
passenger vehicles engines and transmissions for both domestic and international
markets The Company has also entered into a JV with Hitachi to set up a new plant in
Kharagpur
Product Mix
Tata Motors is Indias only fully integrated automobile manufacturer with a portfolio that
covers trucks buses utility vehicles and passenger cars It would be no exaggeration to
say that Tata Motors provides the wheels for Indias growth
Segmental Overview
Commercial Vehicle Segment
The Company registered 696 volume growth in the domestic CV segment during
4QFY06 from 37228 units in Q3FY05 to 63082 units in Q3FY06 The market share in
this segment was 658 in Q4FY06 as compared to 552 in Q1FY06 The MHCV
goods-carrier segment registered a 544 growth YoY with sale of 33515 units and a
market share of 645 up by around 410 bps driven by infrastructure development and
increase in international trade
Passenger Vehicle Segment
The Company reported a growth of 212 YoY to 49907 vehicles in the domestic
passenger vehicle segment and a market share of 162 in the quarter The passenger
vehicle industry registered a volume growth of 204 during Q4FY06
36
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Plants
Tata Motors owes its leading position in the Indian automobile industry to its strong
focus on indigenisation Their manufacturing plants are situated at Jamshedpur in the
East Pune in the West and Lucknow in the North
Charts showing Key Statistics of tata motors
37
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Share holding pattern as on 31-Mar
shareholding pattern
34
1425
17
10
promotors
MF Banks Fis
FIIs
Others
Public
Financial highlights
38
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
39
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
RATIO ANALYSIS
Ratios 2006 2005 2004
Debtequity 056 049 044
Current ratio 108 087 076
Operating profit margin 1211 1151 1238
Gross profit margin 1087 1043 1104
ROCE 3125 3276 3377
total assets turnover ratio 315 353 343
ROE 2761 3009 2257
Dividend-equity 49794 45373 28211
Retention Ratio 6743 6332 6519
DPS (Rs) 1301 125 799
EPS (Rs) 25 34 41
Dividend Payout Ratio 039 042 037
CAGR of EPS 0177
CAGR of Dividend Payout Ratio -0017
Average ROE 2574
average retention 6354
Growth (g = Avg RR times Avg ROE ) 1636
Market return 1454
40
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
PE ratio (on the basis of historical analysis) = 1812
Therefore the Weighted PE ratio =(1812+2424)2 = 21181
Projected EPS = EPS OF 2006 + CAGR of EPSEPS OF 2006
= Rs48271
Value of Share at the end of financial year 06-07
= Projected EPS Weighted PE Ratio
= Rs1022
2) HPCL
Globalization and the Indian Petroleum Industry
Indian petroleum industry in the post independent period (1947-2001) it may be divided
into three distinct phases
(i) early phase (1947 to 1969)- when the government consolidated its control over
the industry with Soviet assistance
(ii) development phase (1970 to 1989)- in this period the US companies played
dominant role replacing the Soviets and
41
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
(iii) the economic liberalisation phase of 1990s
PORTERrsquoS MODEL
SWOT ANALYSIS
STRENGHS
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
WEAKNESSES
Dependence on refining function high
Moderate share in high profitable retail segment
42
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Diversifications in petrochemicals could trouble the company
High burden of subsidy loss on cooking gas and kerosene
OPPORTUNITIES
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
Overseas presence in upstream and downstream will determine growth
THREATS
Rising oil prices could dampen demand
High regulatory risk
Loss of market share to private players
Entrance of private players in pipelines will take away monopoly of company in
north India
COMPANY ANALYSIS
The Annual Report is broken down into the following specific parts
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the AccountsATHE DIRECTORrsquoS REPORTThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship Fundamental AnalysisB THE AUDITORS REPORTThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors
C FINANCIAL STATEMENTSIt comprises of Balance Sheet Profit and Loss account Cash Flows Its analysis would be discussed later
DSCHEDULES
43
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The schedules detail pertinent information about the items of Balance Sheet and Profit amp Loss Account It also details information about sales manufacturing costs administration costs interest and other income and expenses
1 THE MANAGEMENT
HPCL is a public sector undertaking Thus it is a professionally managed company
There are some parameters of management on which a company is analysed
a integrity of management
b past record of management
c how highly is the management rated by its peers in the same industry
d how the management fares in adversity
e the depth of the knowledge of management
f open and innovative management
on all these parameters HPCL scores good
2 COMPANY
Many times a company has made losses in the previous years but that does not mean
that the company is bad to invest Thus many factors are studied while studying a
company
a) perception of competitors
HPCL is the second largest petroleum company after IOCL Thus it is a competitor of
IOCL and it is trying hard to compete with IOCL on every front That is why now it
has decided to diversify itself in the oil exploration sector
b) company policies
As this is a PSU thus the policies are made by the government The oil sector is one
which is highly regulated by government Thus from time to time it is required to
watch out the various policies changed
3 ANNUAL REPORT
The most primary and most important source of information about a company is its
Annual Report This is prepared every year and distributed to its shareholders
44
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Ratio Analysis
Evaluation of Intrinsic Value of the Security
stdev mkt 0011934stdev sec 003831 Average
Retention Ratio 060504
correlation 0485958 ROE 019842Beta 156765 g 0120052Risk Free Rate 650
Mkt Rate 14
45
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
k 1826
Hence we see that here our g is less than k Thus we see that as per Dividend Discount Model our Intrinsic value is div=22(1+012)=240626= 387
Price= Projected EPS + Weighted PE ratioUsing CAGR EPS = 43468Weighted PE Ratio = 75+6652=33625
Price = 43468+33625 = 381
3) HDFC BANK
The Indian banking industry sector overview
With the economic growth picking up pace and the investment cycle on the way to recovery the banking sector has witnessed a transformation in its vital role of intermediating between the demand and supply of funds
Public sector banks have been very proactive in their restructuring initiatives be it in technology implementation or pruning their loss assets Windfall treasury gains made in the falling interest rate regime were used for writing off the doubtful and loss assets
Retail lending (especially mortgage financing) formed a significant portion of the portfolio for most banks and they customized their products to cater to the diverse demands
Apart from streamlining their processes through technology initiatives such as ATMs telephone banking online banking and web based products banks also resorted to cross selling of financial products such as credit cards mutual funds and insurance policies to augment their fee based income
PORTERrsquoS FIVE FORCES MODEL FOR THE BANKING INDUSTRY
1) BARRIERS TO ENTRY a Economies of scale Since the existing players in the market are well
established and already have a customer base they are able to bear the cost of using the advantages of technology to their maximum advantage
46
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Capital requirement for entry i The Banking Regulation Act prescribes the minimum capital
requirements for a bank Moreover banks have to maintain a capital adequacy ratio of 9 under the Basel I norms
ii Government has declared that the foreign banks will be permitted to establish their presence in India by way of setting up a wholly owned banking subsidiary (WOS) with a minimum capital of Rs300 crore
c Access to distribution channels Since banks have to set up their own distribution channels all the cost has to be directly born by them
d Cost advantage independent of size Existing banks have huge databases of customers which they use when they want to sell a new product launched by them
e Legislation or Government action Banks are governed by Banking Regulation Act 1949 which specifies the rules and regulations applicable to banks RBI is the governing body of banks in India
2) BARGAINING POWER OF BUYERS
Due to increased competition the services offered by banks to customers have improved considerably
3) BARGAINING POWER OF THE SUPPLIERS
Suppliers to banks can be both - the customers and RBIa Customers of banks provide money to banks in the form of deposits and in
return earn some interest on that b RBI acts as a supplier to banks by selling govt securities treasury bills
govt bonds etc c Call money market Banks sometimes have to borrow from other banks to
meet CRR and SLR requirements or other capital requirements as provided by RBI
4) THREAT OF SUBSTITUTES
a Product-for-product substitutioni Banks provide interest on deposits made by people Similar
services are offered by post offices which may act as substitutes to the deposit schemes of banks
ii Some banks offer locker services to customers for yearly rates Similar services are provided by many post offices
47
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Generic substitution People who deposit their savings in banks can invest their money in other sources like mutual funds shares and other securities and life insurance schemes
5) COMPETITIVE RIVALRY
a Extent of competitor balance b Market growth ratesc High Exit Barriers
PEST Analysis for Banking Industry
1 Political factors - The major factors affecting the banking sector are the following
Banking sector reforms ndash As per the RBI roadmap for reforms in the first stage from 2005 to 2009 foreign banks will be allowed to set up wholly owned subsidiaries as well as get greater freedom to set up new branches Fulfilling the minimum priority sector credit -The government mandation of fulfilling the minimum priority sector credit (of which 18 per cent is food credit) has forced the domestic banks to cater to this segment despite the low profitability and vulnerability of asset quality
Banks have also been allowed to set up Offshore Banking Units in SEZrsquos
2 Economic factors -
Basell II norms for the risk management in banking sector - The new Basel Accord has its foundation on three mutually reinforcing pillars The first pillar is compatible with the credit risk market risk and operational risk The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bankConcurrently it also casts responsibility on the supervisors to review and validate banksrsquo risk measurement models
Consolidation and merger and acquisitions in the banking sector- HDFC bank also acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Universal Banking has been introduced ICICI Bank HDFCs closest competitor is already into Universal Banking so HDFC is also getting into it as now it is providing retail banking and also depository facilities in the form of demat account
48
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
3 Social factors-
Big and growing middle class in India - This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans car loans education loans auto loans etc Retail loans have grown from 19 in FYrsquo99 to 51 FYrsquo06Consumer credit accounts for a meager 286 per cent of the countrys GDP and the buoyancy in the economy offers sufficient scope for it to grow
Geographical and Cultural diversity- This is leading to a greater demand for financial products and customization by the customers
4 Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999 It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector
Banks (All) No of players = 40
Sector statistics
We see the sector aggregates and make a financial comparison for the major banks
Top PlayersFY2006
Based on Total Income Based on OPBDT Total Income Change OPBDT Change
(Rs Mn) () (Rs Mn) ()ICICI BANK 631619 5450 S B I 763528 -129 PUNJAB NATIONAL B 29218 1491 ICICI BANK 37174 1936
CAN BANK 277095 2378 PUNJAB NATIONAL B 222052 3936
BANK OF INDIA 23317 2543 CAN BANK 168825 1953
H D F C BANK 185508 6024 H D F C BANK 14324 2748 change - indicates the change between current and corresponding quarter
49
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
An Uptrend is defined by successively higher low-prices A rising trend can be thought of as a rising support level the bulls are in control and are pushing prices higher A Downtrend is defined by successively lower high-prices A falling trend can be thought of as a falling resistance level the bears are in control and are pushing prices lower
33 MOVING AVERAGES
Moving averages are one of the oldest and most popular technical analysis tools A moving average is the average price of a financial instrument over a given time
The moving average represents the consensus of investorrsquos expectations over the indicated period of time
The classic interpretation of a moving average is to use it in observing changes in prices Investors typically buy when the price of an instrument rises above its moving average and sell when the it falls below its moving average
TECHNICAL INDICATORS
There is a vast number of elaborated technical indicators
15
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
MOVING AVERAGE ndashMA
RELATIVE STRENGTH INDEX mdash RSI The Relative Strength Index Technical Indicator (RSI) is a price-following oscillator that ranges between 0 and 100 When Wilder introduced the Relative Strength Index he recommended using a 14-day RSI Since then the 9-day and 25-day Relative Strength Index indicators have also gained popularity
ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the cumulative difference between advancing and declining issues
CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that closed on an uptick and those that closed on a downtick
CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading volume in declining issues to average trading volume in advancing issues
Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 shares HI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price CANDLESTICK CHART A candlestick chart is an extended version of the hi-lo-close
chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation When the stock price ldquopierces the necklinerdquo after the right shoulder is finished itrsquos time to sell
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins A win by the National Football Conference is bullish
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
16
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER- 3
FUNDAMENTAL ANALYSIS
A CONCEPTUAL OVERVIEW
17
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Fundamental analysis refers to the study of the core underlying elements that influence the economy of a particular entity It is a method of study that attempts to predict price action and market trends by analyzing economic indicators government policy and societal factors (to name just a few elements) within a business cycle framework
I ECONOMIC ANALYSIS
POLITICO-ECONOMIC ANALYSIS No industry or company can exist in isolation It may have splendid managers and a tremendous product However its sales and its costs are affected by factors some of which are beyond its control - the world economy price inflation taxes and a host of others It is important therefore to have an appreciation of the politico-economic factors that affect an industry and a company
The political equationA stable political environment is necessary for steady balanced growth If a country is ruled by a stable government which takes decisions for the long-term development of the country industry and companies will prosper Foreign Exchange ReservesA country needs foreign exchange reserves to meet its commitments pay for its imports and service foreign debts
Foreign Exchange RiskThis is a real risk and one must be cognizant of the effect of a revaluation or devaluation of the currency either in the home country or in the country the company deals in
Restrictive PracticesRestrictive practices or cartels imposed by countries can affect companies and industries crystallizing the exposure
Foreign Debt and the Balance of TradeForeign debt especially if it is very large can be a tremendous burden on an economy India pays around $ 5 billion a year in principal repayments and interest payments InflationInflation has an enormous effect in the economy Within the country it erodes purchasing power As a consequence demand falls If the rate of inflation in the country from which a company imports is high then the cost of production in that country will automatically go up
The Threat of NationalizationThe threat of nationalization is a real threat in many countries ndash the fear that a company may become nationalized
Interest Rates
18
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A low interest rate stimulates investment and industry Conversely high interest rates result in higher cost of production and lower consumption
TaxationThe level of taxation in a country has a direct effect on the economy If tax rates are low people have more disposable income
Government PolicyGovernment policy has a direct impact on the economy A government that is perceived to be proindustry will attract investment
THE ECONOMIC CYCLE
It affects investment decisions employment demand and the profitability of companiesThe four stages of an economic cycle are DepressionRecoveryBoom Recession DepressionAt the time of depression demand is low and falling Inflation is high and so are interest rates Companies crippled by high borrowing and falling sales are forced to curtail production close down plants built at times of higher demand and let workers go
RecoveryDuring this phase the economy begins to recover Investment begins anew and the demand grows Companies begin to post profits Conspicuous spending begins once again
BoomIn the boom phase demand reaches an all time high Investment is also high Interest rates are low Gradually as time goes on supply begins to exceed the demand Prices that had been rising begin to stabilize and even fall There is an increase in demand Then as the boom period matures prices begin to rise again
RecessionThe economy slowly begins to downturn Demand starts falling Interest rates and inflation are high Companies start finding it difficult to sell their goods The economy slowly begins to downturn
19
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II INDUSTRY ANALYSIS
The importance of industry analysis is now dawning on the Indian investor as never before
CycleThe first step in industry is to determine the cycle it is in or the stage of maturity of the industry All industries evolve through the following stages1 Entrepreneurial sunrise or nascent stage2 Expansion or growth stage3 Stabilization stagnation or maturity stage and4 Decline or sunset stage to properly establish itself In the early days it may actually make losses
The Entrepreneurial or Nascent StageAt the first stage the industry is new and it can take some time for it to properly establish itself
The Expansion or Growth StageOnce the industry has established itself it enters a growth stage As the industry grows many new companies enter the industry
The Stabilization or Maturity StageAfter the halcyon days of growth an industry matures and stabilizes Rewards are low and so too is the risk Growth is moderate Though sales may increase they do so at a
20
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
slower rate than before Products are more standardized and less innovative and there are several competitors
The Decline or Sunset StageFinally the industry declines This occurs when its products are no longer popular This may be on account of several factors such as a change in social habits The film and video industries
1 BARRIER TO ENTRYNew entrants increase the capacity in an industry and the inflow of funds The question that arises is how easy is it to enter an industry There are some barriers to entry
a) Economies of scaleb) Product differentiation c) Capital requirementd) Switching costse) Access to distribution channelsf) Cost disadvantages independent of scaleg) Government policyh) Expected retaliationj) International cartels
2 THE THREAT OF SUBSTITUTIONNew inventions are always taking place and new and better products replace existing ones An industry that can be replaced by substitutes or is threatened by substitutes is normally an industry one must be careful of investing in An industry where this occurs constantly is the packaging industry -bottles replaced by cans cans replaced by plastic bottles and the like To ward off the threat of substitution companies often have to spend large sums of money in advertising and promotion
3 BARGAINING POWER OF THE BUYERSIn an industry where buyers have control ie in a buyers market buyers are constantly forcing prices down demanding better services or higher quality and this often erodes profitability The factors one should check are whether a) A particular buyer buys most of the products (large purchase volumes) If such buyers withdraw their patronage they can destroy an industry They can also force prices downb) Buyers can play one company against another to bring prices down
4 BARGAINING POWER FOR THE SUPPLIERSAn industry unduly controlled by its suppliers is also under threat This occurs whena) The suppliers have a monopoly or if there are few suppliersb) Suppliers control an essential c) Demand for the product exceeds d) The supplier supplies to various industriese) The switching costs are high
21
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
f) The suppliers product does not have a substituteg) The suppliers product is an important input for the buyersh) The buyer is not important to the supplieri) The suppliers product is unique
5 RIVALRY AMONG COMPETITORSRivalry among competitors can cause an industry great harm This occurs mainly by price cuts heavy advertising additional high cost services or offers and the like This rivalry occurs mainly whena) There are many competitors and supply exceeds demand Companies resort to price cuts and advertise heavily in order to attract customers for their goodsb) The industry growth is slow and companies are competing with each other for a greater market sharec) The economy is in a recession and companies cut the price of their products and offer better service to stimulate demandd) There is lack of differentiation between the product of one company and that of another In such cases the buyer makes his choice on the basis of price or servicee) In some industries economies of scale will necessitate large additions to existing capacities in a company The increase in production could result in over capacity amp price cuttingf) Competitors may have very different strategies in selling their goods and in competing they may be continuously trying to stay ahead
III COMPANY ANALYSIS
At the final stage of fundamental analysis the investor analyzes the company This analysis has two thrustsHow has the company performed vis-agrave-vis other similar companies and How has the company performed in comparison to earlier years It is imperative that one completes the politico economic analysis and the industry analysis before a company is analyzed because the companys performance at a period of time is to an extent a reflection of the economy the political situation and the industry What does one look at when analyzing a company The different issues regarding a company that should be examined are The Management The Company The Annual Report Ratios Cash flow
THE MANAGEMENT
The single most important factor one should consider when investing in a company and one often never considered is its management In India management can be broadly
22
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
divided in two types Family Management Professional Management
THE COMPANY
An aspect not necessarily examined during an analysis of fundamentals is the company A company may have made losses consecutively for two years or more and one may not wish to touch its shares - yet it may be a good company and worth purchasing into There are several factors one should look at
1 How a company is perceived by its competitorsOne of the key factors to ascertain is how a company is perceived by its competitors It is held in high regard Its management may be known for its maturity vision competence and aggressiveness The investor must ascertain the reason and then determine whetherthe reason will continue into the foreseeable future
2 Whether the company is the market leader in its products or in its segmentAnother aspect that should be ascertained is whether the company is the market leader in its products or in its segment When you invest in market leaders the risk is less Theshares of market leaders do not fall as quickly as those of other companies There is a magic to their name that would make individuals prefer to buy their products as opposed to others
3 Company PoliciesThe policy a company follows is also important What is its plans for growth What is its vision Every company has a life If it is allowed to live a normal life it will grow upto a point and then begin to level out and eventually die It is at the point of leveling out that it must be given new life This can give it renewed vigour and a new lease of life
4 Labour RelationsLabour relations are extremely important A company that has motivated industrious work force has high productivity and practically no disruption of work On the other hand a company that has bad industrial relations will lose several hundred mandays as a consequence of strikes and go slows
5 Where the company is located and where its factories are One must also consider where the companies Plants and Factories are located
THE ANNUAL REPORT
The primary and most important source of information about a company is its Annual Report By law this is prepared every year and distributed to the shareholders Annual Reports are usually very well presented A tremendous amount of data is given about the performance of a company over a period of time The Annual Report is broken down into the following specific parts
23
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the Accounts
A The Directorrsquos ReportThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship 1 It enunciates the opinion of the directors on the state of the economy and the political situation vis-agrave-vis the company 2 Explains the performance and the financial results of the company in the period under review This is an extremely important part The results and operations of the various separate divisions are usually detailed and investors can determine the reasons for their good or bad performance3 The Directorrsquos Report details the companys plans for modernization expansion and diversification Without these a company will remain static and eventually decline4 Discusses the profit earned in the period under review and the dividend Recommended by the directors This paragraph should normally be read with some skepticism as the directors will always argue that the performance was satisfactory If adverse economic conditions are usually at fault 5 Elaborates on the directors views of the companys prospects in the future6 Discusses plans for new acquisition and investments An investor must intelligently evaluate the issues raised in a Directorrsquos Report Industry conditions and the managements knowledge of the business must be considered
B The Auditors ReportThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors Auditors are required to report whether the financial statements presented do in fact present a true and fair view of the state of the company Investors must remember that the auditors are their representatives and that they are required by law to point out if the financial statements are not true and fair
CFinancial StatementsThe published financial statements of a company in an Annual Report consist of its Balance Sheet as at the end of the accounting period detailing the financing condition of the company at that date and the Profit and Loss Account or Income Statement summarizing the activities of the company for the accounting period
BALANCE SHEETThe Balance Sheet details the financial position of a company on a particular date of the companys assets (that which the company owns) and liabilities (that which the companyowes) grouped logically under specific heads It must however be noted that the Balance Sheet details the financial position on a particular day and that the position can be materially different on the next day or the day after
24
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOURCES OF FUNDSSHAREHOLDERS FUNDSSHARE CAPITAL(i) Private Placement(ii) Public Issueiii) Rights issuesRESERVESi) Capital Reservesii) Revenue ReservesLOAN FUNDSi) Secured loansii) Unsecured loansFIXED ASSETSINVESTMENTSSTOCK OR INVENTORIESi) Raw materialsii) Work in progressiii) Finished goodsCASH AND BANK BALANCESLOANS AND ADVANCES
PROFIT AND LOSS ACCOUNTThe Profit and Loss account summarizes the activities of a company during an accounting period which may be a month a quarter six months a year or longer and the result achieved by the company It details the income earned by the company its cost and the resulting profit or loss It is in effect the performance appraisal not only of the company but also of its management- its competence foresight and ability to lead
RATIOS
Ratios express mathematically the relationship between performance figures andor assetsliabilities in a form that can be easily understood and interpretedNo single ratio tells the complete storyRatios can be broken down into four broad categories
(A) Profit and Loss RatiosThese show the relationship between two items or groups of items in a profit and loss account or income statement The more common of these ratios are1 Sales to cost of goods sold2 Selling expenses to sales3 Net profit to sales and4 Gross profit to sales
(B) Balance Sheet RatiosThese deal with the relationship in the balance sheet such as 1 Shareholders equity to borrowed funds
25
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
2 Current assets to current liabilities3 Liabilities to net worth4 Debt to assets and5 Liabilities to assets
(C) Balance Sheet and Profit and Loss Account RatiosThese relate an item on the balance sheet to another in the profit and loss account such as1 Earnings to shareholders funds2 Net income to assets employed3 Sales to stock4 Sales to debtors and5 Cost of goods sold to creditors
(D) Financial Statements and Market RatiosThese are normally known as market ratios and are arrived at by relative financial figures to market prices1 Market value to earnings and2 Book value to market value(a) Market value(b) Earnings(c) Profitability(d) Liquidity(e) Leverage(f) Debt Service Capacity(g) Asset ManagementEfficiency(h) Margins
The major ratios that are considered(i) Market value(ii) Price- earnings ratio(iii) Market-to-book ratio(iv) Earnings(v) Earning per share(vi) Dividend per share(vii) Dividend payout ratio(viii) Leverage ratios(ix) Return on investmentstotal assets
CASH FLOW A statement of sources and uses begins with the profit for the year to which are added the increases in liability accounts (sources) and from which are reduced the increases in asset accounts (uses) The net result shows whether there has been an excess or deficit of funds and how this was financed Investors must examine a companys cash flow as it reveals exactly where the money came from how it was utilized Investors must be
26
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
concerned if a company is financing either its inventories or paying dividends from borrowings without real growth as that shows deterioration
27
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-4 ANALYSIS
28
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
I FUNDAMENTAL ANALYSIS OF STOCKS
Basically fundamental analysis is covered in 3 parts
1 Market economy analysis
2 Industry Analysis
3 Company Analysis
1) TATA MOTORS
I Market Economy Analysis
It covers the macro economy analysis and the various macro economic factors on the national level like GDP Monetary policies of India Fiscal Policies and Inflation and money supply etc
GDP
Real GDP growth accelerated from 75 per cent during 2004-05 to 84 per cent during
2005-06 on the back of buoyant manufacturing and services activity supported by a
recovery in the agricultural sector Real GDP growth has thus averaged over eight per
cent during the last three years and over seven per cent in the first four years (2002-03 to
2005-06) of the Tenth Five Year Plan
Strengths of India today are
A well diversified industrial base which profits from self-reliance in all core industries A
large amp sophisticated financial architecture - The robust capital Markets today have over
9000 listed companies and boast of a massive Market capitalization
A healthy GDP composition with agriculture contributing 22 Industry 22 and
services which have gone strength to strength accounting For 56 of the GDP an
29
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
acknowledged strength in knowledge driven industries like Information technology
biotechnology entertainment Software etc
India has Over 3 million scientific amp technical manpower Over 06 million SampT post
graduates Over 07 million graduate engineers Over 3500 doctorates in sciences every
year
Assuming trend growth in agriculture under normal monsoon conditions and barring
domestic or external shocks the Reserve Bank in its Annual Policy Statement for 2007-
08 (April 2007) placed real GDP growth for policy purposes in the range of 75-80 per
cent during 2007-08 Growth prospects are however subject to a number of downside
risks The risks emanating from the global economy are potential escalation and
volatility in international crude oil prices firming up of overall inflationary pressures and
expectations and a hardening of international interest rates along with the withdrawal of
monetary accommodation
Indiarsquos demographic advantage ndash In contrast to developed Countries India will have a
younger population for the next 50 years Hence India would be the hub for RampD
Inflation
Inflation was contained to 63 per cent by end-March 2007 within the indicative
trajectory of 50-55 per cent during 2007-08 The actual inflation was considerably lower
than the indicative trajectory and this could be mainly attributed to the deferred pass-
through of even the cognisable permanent component of international crude oil prices
Money Supply
Monetary and liquidity conditions remained largely comfortable during 2006-07reflecting
proactive liquidity management operations by the Reserve Bank under the liquidity
adjustment facility flexible management of issuances under the market stabilisation
scheme and some private placement of Government securities
30
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
In short the Indian economy is exhibiting strong fundamentals and displaying
considerable resilience At the same time there are continuing signs of demand pressures
especially high credit growth that could exert upward pressure on prices when associated
with supply shocks such as from oil These pressures have the potential for impacting
stability and inflation expectations While domestic developments continue to dominate
the economy global factors tend to gain more attention now than before The global
outlook for growth is positive but downside risks in regard to inflation also RBI is
applying new repo and reverse repo for the balance of inflation and monetary policies
The following are macroeconomic policies generally found as part of government-
directed industrial auto policies
(a) Restrictions on domestic and foreign investment
(b) Domestic content requirements
(c) High tariff walls
(d) Auto export requirements
(e) National production to sales ratios
(f) Distribution controls
(g) Quotas and licensing requirements that significantly restrict imports
(h) Government approval for product related decisions including vehicle make
body type engine size etc
(i) Special government categories for auto taxes
II INDUSTRY ANALYSIS
Since 1991 opening of the economy has changed the face of auto industry Today it is
amongst the main drivers of growth of Indian economy with an output multiplier of
224(for every Re1 invested auto sector gives back Rs224 to the economy) In recent
years we have seen increasing number of global players entering Indian market by way of
Joint ventures collaborations or wholly owned subsidiary
The automobile industry is torn between trying to reduce costs on the one hand and on
the other dealing with the high price of performance-enhancing technology and
environmental compliance Key drivers in the automotive industry are
31
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Reducing air pollution
Reduction of weight
Recyclability
Safety
Better performance and engine efficiency
Aesthetics
Longer service Life
INDUSTRY LIFE CYCLE
The automobile market is at the maturity stage of the life cycle locally and globally due
to an increased number of competitors from domestic and foreign markets The
automobile market is characterized by a low potential for market growth but high sales
and profit potential as the products have still not saturated the market as a whole
MAJOR COMPETITORS OF TATA MOTORS ARE
Maruti Udyog Ltd
General Motors India
Ford India Ltd
Eicher Motors
Bajaj Auto
Hero Motors
Hindustan Motors
32
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Hyundai Motor India Ltd
Royal Enfield Motors
Telco
TVS Motors
FINANCIALS
Description 1 Day PriceChange
MarketCap
PEROE
Div Yield
Long-Term Debt toEquity
Price toBook Value
NetProfit Margin (mrq)
Price toFree Cash Flow (mrq)
Sector Consumer Goods 01125178B
2488
1707
222
1171076
706 40842
Industry Auto Manufacturers - Major (More Info)
0613310B
3000
750171
181 155 160 -440
Companies
Daimlerchrysler AG (DCX) 021 539B1072
1119
350
217 116 469 -354
Ford Motor Co (F) 121 157B NA-951
240
1107
115 -060 -8205
General Motors Corporation (GM) -024 165B NA
-6285
340
390 142 -621 014
Honda Motor Co Ltd (HMC) 083 622B1152
1654
100
083 173 552 20748
Tata Motors Ltd (TTM) -038 71B1864
NA150
NA 535 564 NA
Toyota Motor Corp (TM) 0731756B
1394
1505
120
103 197 659 NA
Opportunities and Threats
a) Opportunities
Road Development The ongoing road development program would improve
connectivity to ports cities and villages through a network of highways and
interconnecting roads by 2010-11 Improved road network would help in faster
33
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
movement of goods between various cities and towns The Company launched TATA
Novus range of vehicles in the heavy segment and TATA ACE for last mile distribution
Car penetration in India Car penetration in India is 7 cars per 1000 persons
International In FY 2006-07 the Company increased share of its overseas vehicle sales
from 76 last year to record high of 111 (as of its total sales) and has planned
further increase in this year
b) Threats
Global Competition India is increasingly attracting global players to set up
manufacturing facility for producing cars especially small cars Global automobile
manufacturers are also entering India in commercial vehicle segment to leverage Indiarsquos
low cost production advantage to their favor
Fuel Prices The continuing fuel price increase in the domestic market could
significantly impact demand of commercial and passenger vehicles
Input costs Commodity items particularly steel non-ferrous metals rubber and
engineering plastics have witnessed huge price increases in the past These prices are
expected to increase further affecting the Companyrsquos profitability
Interest rate hardening and other inflationary trends With interest rates hardening and
liquidity crunch in the system growth in sales may be adversely impacted
Government Regulations Stringent emission and safety requirements could bring new
complexities for automotive and component manufacturers impacting the Companyrsquos
business
Risks and Concerns
Interest Rates FY 2007-08 started with increasing interest rate regime and tightening
liquidity position in the economy Increasing interest rates could further affect vehicle
demand which could have an adverse impact on the Companyrsquos revenues and profits
Exchange rates The Company exports vehicles to many countries and exchange rate
fluctuations in the order execution period could impact the Companyrsquos business
34
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Freight rates In FY 2006-07 freight rates in road transport sector moved up mainly
due to surge in construction activity ongoing road development projects and severe
restriction on over-loading Demand for commercial vehicles could be impacted by
further change in freight rates and change in fuel prices
Domestic market The Company plans to reduce the impact of this cyclicality on its
business by strengthening its less cyclical businesses like buses light trucks small
commercial vehicles
Overseas market In overseas markets the Company competes with global players
which have multiple vehicle platforms large financial capability and global branding
Manufacturing The Company manufactures vehicles at multiple locations and given
the geographical dispersion of its suppliers it faces Logistics Problems
New Competition Competitive activity is expected to increase in commercial vehicle
and passenger vehicle domestic market in coming years
New projects The Company currently is in midst of executing many new projects
ranging from launch of new car platforms to development of new Truck models
III Company Analysis
Key Highlights
Symbol TTL
Sector Consumer Goods
Industry Auto Manufacturers Major
Market Cap Rs29232 crores
Data Since 1945
Last close Rs 74290
Brief Summary of the company
35
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Tata Motors is one of the largest companies in the Tata Group with a total income of US$
235 billion More than 3 million Tata vehicles ply on Indian roads making Tata a
dominant force in the Indian automobile industry
Joint Venture with Fiat and Hitachi
Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing
passenger vehicles engines and transmissions for both domestic and international
markets The Company has also entered into a JV with Hitachi to set up a new plant in
Kharagpur
Product Mix
Tata Motors is Indias only fully integrated automobile manufacturer with a portfolio that
covers trucks buses utility vehicles and passenger cars It would be no exaggeration to
say that Tata Motors provides the wheels for Indias growth
Segmental Overview
Commercial Vehicle Segment
The Company registered 696 volume growth in the domestic CV segment during
4QFY06 from 37228 units in Q3FY05 to 63082 units in Q3FY06 The market share in
this segment was 658 in Q4FY06 as compared to 552 in Q1FY06 The MHCV
goods-carrier segment registered a 544 growth YoY with sale of 33515 units and a
market share of 645 up by around 410 bps driven by infrastructure development and
increase in international trade
Passenger Vehicle Segment
The Company reported a growth of 212 YoY to 49907 vehicles in the domestic
passenger vehicle segment and a market share of 162 in the quarter The passenger
vehicle industry registered a volume growth of 204 during Q4FY06
36
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Plants
Tata Motors owes its leading position in the Indian automobile industry to its strong
focus on indigenisation Their manufacturing plants are situated at Jamshedpur in the
East Pune in the West and Lucknow in the North
Charts showing Key Statistics of tata motors
37
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Share holding pattern as on 31-Mar
shareholding pattern
34
1425
17
10
promotors
MF Banks Fis
FIIs
Others
Public
Financial highlights
38
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
39
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
RATIO ANALYSIS
Ratios 2006 2005 2004
Debtequity 056 049 044
Current ratio 108 087 076
Operating profit margin 1211 1151 1238
Gross profit margin 1087 1043 1104
ROCE 3125 3276 3377
total assets turnover ratio 315 353 343
ROE 2761 3009 2257
Dividend-equity 49794 45373 28211
Retention Ratio 6743 6332 6519
DPS (Rs) 1301 125 799
EPS (Rs) 25 34 41
Dividend Payout Ratio 039 042 037
CAGR of EPS 0177
CAGR of Dividend Payout Ratio -0017
Average ROE 2574
average retention 6354
Growth (g = Avg RR times Avg ROE ) 1636
Market return 1454
40
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
PE ratio (on the basis of historical analysis) = 1812
Therefore the Weighted PE ratio =(1812+2424)2 = 21181
Projected EPS = EPS OF 2006 + CAGR of EPSEPS OF 2006
= Rs48271
Value of Share at the end of financial year 06-07
= Projected EPS Weighted PE Ratio
= Rs1022
2) HPCL
Globalization and the Indian Petroleum Industry
Indian petroleum industry in the post independent period (1947-2001) it may be divided
into three distinct phases
(i) early phase (1947 to 1969)- when the government consolidated its control over
the industry with Soviet assistance
(ii) development phase (1970 to 1989)- in this period the US companies played
dominant role replacing the Soviets and
41
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
(iii) the economic liberalisation phase of 1990s
PORTERrsquoS MODEL
SWOT ANALYSIS
STRENGHS
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
WEAKNESSES
Dependence on refining function high
Moderate share in high profitable retail segment
42
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Diversifications in petrochemicals could trouble the company
High burden of subsidy loss on cooking gas and kerosene
OPPORTUNITIES
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
Overseas presence in upstream and downstream will determine growth
THREATS
Rising oil prices could dampen demand
High regulatory risk
Loss of market share to private players
Entrance of private players in pipelines will take away monopoly of company in
north India
COMPANY ANALYSIS
The Annual Report is broken down into the following specific parts
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the AccountsATHE DIRECTORrsquoS REPORTThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship Fundamental AnalysisB THE AUDITORS REPORTThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors
C FINANCIAL STATEMENTSIt comprises of Balance Sheet Profit and Loss account Cash Flows Its analysis would be discussed later
DSCHEDULES
43
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The schedules detail pertinent information about the items of Balance Sheet and Profit amp Loss Account It also details information about sales manufacturing costs administration costs interest and other income and expenses
1 THE MANAGEMENT
HPCL is a public sector undertaking Thus it is a professionally managed company
There are some parameters of management on which a company is analysed
a integrity of management
b past record of management
c how highly is the management rated by its peers in the same industry
d how the management fares in adversity
e the depth of the knowledge of management
f open and innovative management
on all these parameters HPCL scores good
2 COMPANY
Many times a company has made losses in the previous years but that does not mean
that the company is bad to invest Thus many factors are studied while studying a
company
a) perception of competitors
HPCL is the second largest petroleum company after IOCL Thus it is a competitor of
IOCL and it is trying hard to compete with IOCL on every front That is why now it
has decided to diversify itself in the oil exploration sector
b) company policies
As this is a PSU thus the policies are made by the government The oil sector is one
which is highly regulated by government Thus from time to time it is required to
watch out the various policies changed
3 ANNUAL REPORT
The most primary and most important source of information about a company is its
Annual Report This is prepared every year and distributed to its shareholders
44
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Ratio Analysis
Evaluation of Intrinsic Value of the Security
stdev mkt 0011934stdev sec 003831 Average
Retention Ratio 060504
correlation 0485958 ROE 019842Beta 156765 g 0120052Risk Free Rate 650
Mkt Rate 14
45
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
k 1826
Hence we see that here our g is less than k Thus we see that as per Dividend Discount Model our Intrinsic value is div=22(1+012)=240626= 387
Price= Projected EPS + Weighted PE ratioUsing CAGR EPS = 43468Weighted PE Ratio = 75+6652=33625
Price = 43468+33625 = 381
3) HDFC BANK
The Indian banking industry sector overview
With the economic growth picking up pace and the investment cycle on the way to recovery the banking sector has witnessed a transformation in its vital role of intermediating between the demand and supply of funds
Public sector banks have been very proactive in their restructuring initiatives be it in technology implementation or pruning their loss assets Windfall treasury gains made in the falling interest rate regime were used for writing off the doubtful and loss assets
Retail lending (especially mortgage financing) formed a significant portion of the portfolio for most banks and they customized their products to cater to the diverse demands
Apart from streamlining their processes through technology initiatives such as ATMs telephone banking online banking and web based products banks also resorted to cross selling of financial products such as credit cards mutual funds and insurance policies to augment their fee based income
PORTERrsquoS FIVE FORCES MODEL FOR THE BANKING INDUSTRY
1) BARRIERS TO ENTRY a Economies of scale Since the existing players in the market are well
established and already have a customer base they are able to bear the cost of using the advantages of technology to their maximum advantage
46
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Capital requirement for entry i The Banking Regulation Act prescribes the minimum capital
requirements for a bank Moreover banks have to maintain a capital adequacy ratio of 9 under the Basel I norms
ii Government has declared that the foreign banks will be permitted to establish their presence in India by way of setting up a wholly owned banking subsidiary (WOS) with a minimum capital of Rs300 crore
c Access to distribution channels Since banks have to set up their own distribution channels all the cost has to be directly born by them
d Cost advantage independent of size Existing banks have huge databases of customers which they use when they want to sell a new product launched by them
e Legislation or Government action Banks are governed by Banking Regulation Act 1949 which specifies the rules and regulations applicable to banks RBI is the governing body of banks in India
2) BARGAINING POWER OF BUYERS
Due to increased competition the services offered by banks to customers have improved considerably
3) BARGAINING POWER OF THE SUPPLIERS
Suppliers to banks can be both - the customers and RBIa Customers of banks provide money to banks in the form of deposits and in
return earn some interest on that b RBI acts as a supplier to banks by selling govt securities treasury bills
govt bonds etc c Call money market Banks sometimes have to borrow from other banks to
meet CRR and SLR requirements or other capital requirements as provided by RBI
4) THREAT OF SUBSTITUTES
a Product-for-product substitutioni Banks provide interest on deposits made by people Similar
services are offered by post offices which may act as substitutes to the deposit schemes of banks
ii Some banks offer locker services to customers for yearly rates Similar services are provided by many post offices
47
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Generic substitution People who deposit their savings in banks can invest their money in other sources like mutual funds shares and other securities and life insurance schemes
5) COMPETITIVE RIVALRY
a Extent of competitor balance b Market growth ratesc High Exit Barriers
PEST Analysis for Banking Industry
1 Political factors - The major factors affecting the banking sector are the following
Banking sector reforms ndash As per the RBI roadmap for reforms in the first stage from 2005 to 2009 foreign banks will be allowed to set up wholly owned subsidiaries as well as get greater freedom to set up new branches Fulfilling the minimum priority sector credit -The government mandation of fulfilling the minimum priority sector credit (of which 18 per cent is food credit) has forced the domestic banks to cater to this segment despite the low profitability and vulnerability of asset quality
Banks have also been allowed to set up Offshore Banking Units in SEZrsquos
2 Economic factors -
Basell II norms for the risk management in banking sector - The new Basel Accord has its foundation on three mutually reinforcing pillars The first pillar is compatible with the credit risk market risk and operational risk The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bankConcurrently it also casts responsibility on the supervisors to review and validate banksrsquo risk measurement models
Consolidation and merger and acquisitions in the banking sector- HDFC bank also acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Universal Banking has been introduced ICICI Bank HDFCs closest competitor is already into Universal Banking so HDFC is also getting into it as now it is providing retail banking and also depository facilities in the form of demat account
48
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
3 Social factors-
Big and growing middle class in India - This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans car loans education loans auto loans etc Retail loans have grown from 19 in FYrsquo99 to 51 FYrsquo06Consumer credit accounts for a meager 286 per cent of the countrys GDP and the buoyancy in the economy offers sufficient scope for it to grow
Geographical and Cultural diversity- This is leading to a greater demand for financial products and customization by the customers
4 Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999 It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector
Banks (All) No of players = 40
Sector statistics
We see the sector aggregates and make a financial comparison for the major banks
Top PlayersFY2006
Based on Total Income Based on OPBDT Total Income Change OPBDT Change
(Rs Mn) () (Rs Mn) ()ICICI BANK 631619 5450 S B I 763528 -129 PUNJAB NATIONAL B 29218 1491 ICICI BANK 37174 1936
CAN BANK 277095 2378 PUNJAB NATIONAL B 222052 3936
BANK OF INDIA 23317 2543 CAN BANK 168825 1953
H D F C BANK 185508 6024 H D F C BANK 14324 2748 change - indicates the change between current and corresponding quarter
49
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
MOVING AVERAGE ndashMA
RELATIVE STRENGTH INDEX mdash RSI The Relative Strength Index Technical Indicator (RSI) is a price-following oscillator that ranges between 0 and 100 When Wilder introduced the Relative Strength Index he recommended using a 14-day RSI Since then the 9-day and 25-day Relative Strength Index indicators have also gained popularity
ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the cumulative difference between advancing and declining issues
CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that closed on an uptick and those that closed on a downtick
CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading volume in declining issues to average trading volume in advancing issues
Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 shares HI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price CANDLESTICK CHART A candlestick chart is an extended version of the hi-lo-close
chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation When the stock price ldquopierces the necklinerdquo after the right shoulder is finished itrsquos time to sell
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins A win by the National Football Conference is bullish
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
16
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER- 3
FUNDAMENTAL ANALYSIS
A CONCEPTUAL OVERVIEW
17
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Fundamental analysis refers to the study of the core underlying elements that influence the economy of a particular entity It is a method of study that attempts to predict price action and market trends by analyzing economic indicators government policy and societal factors (to name just a few elements) within a business cycle framework
I ECONOMIC ANALYSIS
POLITICO-ECONOMIC ANALYSIS No industry or company can exist in isolation It may have splendid managers and a tremendous product However its sales and its costs are affected by factors some of which are beyond its control - the world economy price inflation taxes and a host of others It is important therefore to have an appreciation of the politico-economic factors that affect an industry and a company
The political equationA stable political environment is necessary for steady balanced growth If a country is ruled by a stable government which takes decisions for the long-term development of the country industry and companies will prosper Foreign Exchange ReservesA country needs foreign exchange reserves to meet its commitments pay for its imports and service foreign debts
Foreign Exchange RiskThis is a real risk and one must be cognizant of the effect of a revaluation or devaluation of the currency either in the home country or in the country the company deals in
Restrictive PracticesRestrictive practices or cartels imposed by countries can affect companies and industries crystallizing the exposure
Foreign Debt and the Balance of TradeForeign debt especially if it is very large can be a tremendous burden on an economy India pays around $ 5 billion a year in principal repayments and interest payments InflationInflation has an enormous effect in the economy Within the country it erodes purchasing power As a consequence demand falls If the rate of inflation in the country from which a company imports is high then the cost of production in that country will automatically go up
The Threat of NationalizationThe threat of nationalization is a real threat in many countries ndash the fear that a company may become nationalized
Interest Rates
18
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A low interest rate stimulates investment and industry Conversely high interest rates result in higher cost of production and lower consumption
TaxationThe level of taxation in a country has a direct effect on the economy If tax rates are low people have more disposable income
Government PolicyGovernment policy has a direct impact on the economy A government that is perceived to be proindustry will attract investment
THE ECONOMIC CYCLE
It affects investment decisions employment demand and the profitability of companiesThe four stages of an economic cycle are DepressionRecoveryBoom Recession DepressionAt the time of depression demand is low and falling Inflation is high and so are interest rates Companies crippled by high borrowing and falling sales are forced to curtail production close down plants built at times of higher demand and let workers go
RecoveryDuring this phase the economy begins to recover Investment begins anew and the demand grows Companies begin to post profits Conspicuous spending begins once again
BoomIn the boom phase demand reaches an all time high Investment is also high Interest rates are low Gradually as time goes on supply begins to exceed the demand Prices that had been rising begin to stabilize and even fall There is an increase in demand Then as the boom period matures prices begin to rise again
RecessionThe economy slowly begins to downturn Demand starts falling Interest rates and inflation are high Companies start finding it difficult to sell their goods The economy slowly begins to downturn
19
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II INDUSTRY ANALYSIS
The importance of industry analysis is now dawning on the Indian investor as never before
CycleThe first step in industry is to determine the cycle it is in or the stage of maturity of the industry All industries evolve through the following stages1 Entrepreneurial sunrise or nascent stage2 Expansion or growth stage3 Stabilization stagnation or maturity stage and4 Decline or sunset stage to properly establish itself In the early days it may actually make losses
The Entrepreneurial or Nascent StageAt the first stage the industry is new and it can take some time for it to properly establish itself
The Expansion or Growth StageOnce the industry has established itself it enters a growth stage As the industry grows many new companies enter the industry
The Stabilization or Maturity StageAfter the halcyon days of growth an industry matures and stabilizes Rewards are low and so too is the risk Growth is moderate Though sales may increase they do so at a
20
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
slower rate than before Products are more standardized and less innovative and there are several competitors
The Decline or Sunset StageFinally the industry declines This occurs when its products are no longer popular This may be on account of several factors such as a change in social habits The film and video industries
1 BARRIER TO ENTRYNew entrants increase the capacity in an industry and the inflow of funds The question that arises is how easy is it to enter an industry There are some barriers to entry
a) Economies of scaleb) Product differentiation c) Capital requirementd) Switching costse) Access to distribution channelsf) Cost disadvantages independent of scaleg) Government policyh) Expected retaliationj) International cartels
2 THE THREAT OF SUBSTITUTIONNew inventions are always taking place and new and better products replace existing ones An industry that can be replaced by substitutes or is threatened by substitutes is normally an industry one must be careful of investing in An industry where this occurs constantly is the packaging industry -bottles replaced by cans cans replaced by plastic bottles and the like To ward off the threat of substitution companies often have to spend large sums of money in advertising and promotion
3 BARGAINING POWER OF THE BUYERSIn an industry where buyers have control ie in a buyers market buyers are constantly forcing prices down demanding better services or higher quality and this often erodes profitability The factors one should check are whether a) A particular buyer buys most of the products (large purchase volumes) If such buyers withdraw their patronage they can destroy an industry They can also force prices downb) Buyers can play one company against another to bring prices down
4 BARGAINING POWER FOR THE SUPPLIERSAn industry unduly controlled by its suppliers is also under threat This occurs whena) The suppliers have a monopoly or if there are few suppliersb) Suppliers control an essential c) Demand for the product exceeds d) The supplier supplies to various industriese) The switching costs are high
21
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
f) The suppliers product does not have a substituteg) The suppliers product is an important input for the buyersh) The buyer is not important to the supplieri) The suppliers product is unique
5 RIVALRY AMONG COMPETITORSRivalry among competitors can cause an industry great harm This occurs mainly by price cuts heavy advertising additional high cost services or offers and the like This rivalry occurs mainly whena) There are many competitors and supply exceeds demand Companies resort to price cuts and advertise heavily in order to attract customers for their goodsb) The industry growth is slow and companies are competing with each other for a greater market sharec) The economy is in a recession and companies cut the price of their products and offer better service to stimulate demandd) There is lack of differentiation between the product of one company and that of another In such cases the buyer makes his choice on the basis of price or servicee) In some industries economies of scale will necessitate large additions to existing capacities in a company The increase in production could result in over capacity amp price cuttingf) Competitors may have very different strategies in selling their goods and in competing they may be continuously trying to stay ahead
III COMPANY ANALYSIS
At the final stage of fundamental analysis the investor analyzes the company This analysis has two thrustsHow has the company performed vis-agrave-vis other similar companies and How has the company performed in comparison to earlier years It is imperative that one completes the politico economic analysis and the industry analysis before a company is analyzed because the companys performance at a period of time is to an extent a reflection of the economy the political situation and the industry What does one look at when analyzing a company The different issues regarding a company that should be examined are The Management The Company The Annual Report Ratios Cash flow
THE MANAGEMENT
The single most important factor one should consider when investing in a company and one often never considered is its management In India management can be broadly
22
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
divided in two types Family Management Professional Management
THE COMPANY
An aspect not necessarily examined during an analysis of fundamentals is the company A company may have made losses consecutively for two years or more and one may not wish to touch its shares - yet it may be a good company and worth purchasing into There are several factors one should look at
1 How a company is perceived by its competitorsOne of the key factors to ascertain is how a company is perceived by its competitors It is held in high regard Its management may be known for its maturity vision competence and aggressiveness The investor must ascertain the reason and then determine whetherthe reason will continue into the foreseeable future
2 Whether the company is the market leader in its products or in its segmentAnother aspect that should be ascertained is whether the company is the market leader in its products or in its segment When you invest in market leaders the risk is less Theshares of market leaders do not fall as quickly as those of other companies There is a magic to their name that would make individuals prefer to buy their products as opposed to others
3 Company PoliciesThe policy a company follows is also important What is its plans for growth What is its vision Every company has a life If it is allowed to live a normal life it will grow upto a point and then begin to level out and eventually die It is at the point of leveling out that it must be given new life This can give it renewed vigour and a new lease of life
4 Labour RelationsLabour relations are extremely important A company that has motivated industrious work force has high productivity and practically no disruption of work On the other hand a company that has bad industrial relations will lose several hundred mandays as a consequence of strikes and go slows
5 Where the company is located and where its factories are One must also consider where the companies Plants and Factories are located
THE ANNUAL REPORT
The primary and most important source of information about a company is its Annual Report By law this is prepared every year and distributed to the shareholders Annual Reports are usually very well presented A tremendous amount of data is given about the performance of a company over a period of time The Annual Report is broken down into the following specific parts
23
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the Accounts
A The Directorrsquos ReportThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship 1 It enunciates the opinion of the directors on the state of the economy and the political situation vis-agrave-vis the company 2 Explains the performance and the financial results of the company in the period under review This is an extremely important part The results and operations of the various separate divisions are usually detailed and investors can determine the reasons for their good or bad performance3 The Directorrsquos Report details the companys plans for modernization expansion and diversification Without these a company will remain static and eventually decline4 Discusses the profit earned in the period under review and the dividend Recommended by the directors This paragraph should normally be read with some skepticism as the directors will always argue that the performance was satisfactory If adverse economic conditions are usually at fault 5 Elaborates on the directors views of the companys prospects in the future6 Discusses plans for new acquisition and investments An investor must intelligently evaluate the issues raised in a Directorrsquos Report Industry conditions and the managements knowledge of the business must be considered
B The Auditors ReportThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors Auditors are required to report whether the financial statements presented do in fact present a true and fair view of the state of the company Investors must remember that the auditors are their representatives and that they are required by law to point out if the financial statements are not true and fair
CFinancial StatementsThe published financial statements of a company in an Annual Report consist of its Balance Sheet as at the end of the accounting period detailing the financing condition of the company at that date and the Profit and Loss Account or Income Statement summarizing the activities of the company for the accounting period
BALANCE SHEETThe Balance Sheet details the financial position of a company on a particular date of the companys assets (that which the company owns) and liabilities (that which the companyowes) grouped logically under specific heads It must however be noted that the Balance Sheet details the financial position on a particular day and that the position can be materially different on the next day or the day after
24
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOURCES OF FUNDSSHAREHOLDERS FUNDSSHARE CAPITAL(i) Private Placement(ii) Public Issueiii) Rights issuesRESERVESi) Capital Reservesii) Revenue ReservesLOAN FUNDSi) Secured loansii) Unsecured loansFIXED ASSETSINVESTMENTSSTOCK OR INVENTORIESi) Raw materialsii) Work in progressiii) Finished goodsCASH AND BANK BALANCESLOANS AND ADVANCES
PROFIT AND LOSS ACCOUNTThe Profit and Loss account summarizes the activities of a company during an accounting period which may be a month a quarter six months a year or longer and the result achieved by the company It details the income earned by the company its cost and the resulting profit or loss It is in effect the performance appraisal not only of the company but also of its management- its competence foresight and ability to lead
RATIOS
Ratios express mathematically the relationship between performance figures andor assetsliabilities in a form that can be easily understood and interpretedNo single ratio tells the complete storyRatios can be broken down into four broad categories
(A) Profit and Loss RatiosThese show the relationship between two items or groups of items in a profit and loss account or income statement The more common of these ratios are1 Sales to cost of goods sold2 Selling expenses to sales3 Net profit to sales and4 Gross profit to sales
(B) Balance Sheet RatiosThese deal with the relationship in the balance sheet such as 1 Shareholders equity to borrowed funds
25
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
2 Current assets to current liabilities3 Liabilities to net worth4 Debt to assets and5 Liabilities to assets
(C) Balance Sheet and Profit and Loss Account RatiosThese relate an item on the balance sheet to another in the profit and loss account such as1 Earnings to shareholders funds2 Net income to assets employed3 Sales to stock4 Sales to debtors and5 Cost of goods sold to creditors
(D) Financial Statements and Market RatiosThese are normally known as market ratios and are arrived at by relative financial figures to market prices1 Market value to earnings and2 Book value to market value(a) Market value(b) Earnings(c) Profitability(d) Liquidity(e) Leverage(f) Debt Service Capacity(g) Asset ManagementEfficiency(h) Margins
The major ratios that are considered(i) Market value(ii) Price- earnings ratio(iii) Market-to-book ratio(iv) Earnings(v) Earning per share(vi) Dividend per share(vii) Dividend payout ratio(viii) Leverage ratios(ix) Return on investmentstotal assets
CASH FLOW A statement of sources and uses begins with the profit for the year to which are added the increases in liability accounts (sources) and from which are reduced the increases in asset accounts (uses) The net result shows whether there has been an excess or deficit of funds and how this was financed Investors must examine a companys cash flow as it reveals exactly where the money came from how it was utilized Investors must be
26
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
concerned if a company is financing either its inventories or paying dividends from borrowings without real growth as that shows deterioration
27
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-4 ANALYSIS
28
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
I FUNDAMENTAL ANALYSIS OF STOCKS
Basically fundamental analysis is covered in 3 parts
1 Market economy analysis
2 Industry Analysis
3 Company Analysis
1) TATA MOTORS
I Market Economy Analysis
It covers the macro economy analysis and the various macro economic factors on the national level like GDP Monetary policies of India Fiscal Policies and Inflation and money supply etc
GDP
Real GDP growth accelerated from 75 per cent during 2004-05 to 84 per cent during
2005-06 on the back of buoyant manufacturing and services activity supported by a
recovery in the agricultural sector Real GDP growth has thus averaged over eight per
cent during the last three years and over seven per cent in the first four years (2002-03 to
2005-06) of the Tenth Five Year Plan
Strengths of India today are
A well diversified industrial base which profits from self-reliance in all core industries A
large amp sophisticated financial architecture - The robust capital Markets today have over
9000 listed companies and boast of a massive Market capitalization
A healthy GDP composition with agriculture contributing 22 Industry 22 and
services which have gone strength to strength accounting For 56 of the GDP an
29
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
acknowledged strength in knowledge driven industries like Information technology
biotechnology entertainment Software etc
India has Over 3 million scientific amp technical manpower Over 06 million SampT post
graduates Over 07 million graduate engineers Over 3500 doctorates in sciences every
year
Assuming trend growth in agriculture under normal monsoon conditions and barring
domestic or external shocks the Reserve Bank in its Annual Policy Statement for 2007-
08 (April 2007) placed real GDP growth for policy purposes in the range of 75-80 per
cent during 2007-08 Growth prospects are however subject to a number of downside
risks The risks emanating from the global economy are potential escalation and
volatility in international crude oil prices firming up of overall inflationary pressures and
expectations and a hardening of international interest rates along with the withdrawal of
monetary accommodation
Indiarsquos demographic advantage ndash In contrast to developed Countries India will have a
younger population for the next 50 years Hence India would be the hub for RampD
Inflation
Inflation was contained to 63 per cent by end-March 2007 within the indicative
trajectory of 50-55 per cent during 2007-08 The actual inflation was considerably lower
than the indicative trajectory and this could be mainly attributed to the deferred pass-
through of even the cognisable permanent component of international crude oil prices
Money Supply
Monetary and liquidity conditions remained largely comfortable during 2006-07reflecting
proactive liquidity management operations by the Reserve Bank under the liquidity
adjustment facility flexible management of issuances under the market stabilisation
scheme and some private placement of Government securities
30
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
In short the Indian economy is exhibiting strong fundamentals and displaying
considerable resilience At the same time there are continuing signs of demand pressures
especially high credit growth that could exert upward pressure on prices when associated
with supply shocks such as from oil These pressures have the potential for impacting
stability and inflation expectations While domestic developments continue to dominate
the economy global factors tend to gain more attention now than before The global
outlook for growth is positive but downside risks in regard to inflation also RBI is
applying new repo and reverse repo for the balance of inflation and monetary policies
The following are macroeconomic policies generally found as part of government-
directed industrial auto policies
(a) Restrictions on domestic and foreign investment
(b) Domestic content requirements
(c) High tariff walls
(d) Auto export requirements
(e) National production to sales ratios
(f) Distribution controls
(g) Quotas and licensing requirements that significantly restrict imports
(h) Government approval for product related decisions including vehicle make
body type engine size etc
(i) Special government categories for auto taxes
II INDUSTRY ANALYSIS
Since 1991 opening of the economy has changed the face of auto industry Today it is
amongst the main drivers of growth of Indian economy with an output multiplier of
224(for every Re1 invested auto sector gives back Rs224 to the economy) In recent
years we have seen increasing number of global players entering Indian market by way of
Joint ventures collaborations or wholly owned subsidiary
The automobile industry is torn between trying to reduce costs on the one hand and on
the other dealing with the high price of performance-enhancing technology and
environmental compliance Key drivers in the automotive industry are
31
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Reducing air pollution
Reduction of weight
Recyclability
Safety
Better performance and engine efficiency
Aesthetics
Longer service Life
INDUSTRY LIFE CYCLE
The automobile market is at the maturity stage of the life cycle locally and globally due
to an increased number of competitors from domestic and foreign markets The
automobile market is characterized by a low potential for market growth but high sales
and profit potential as the products have still not saturated the market as a whole
MAJOR COMPETITORS OF TATA MOTORS ARE
Maruti Udyog Ltd
General Motors India
Ford India Ltd
Eicher Motors
Bajaj Auto
Hero Motors
Hindustan Motors
32
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Hyundai Motor India Ltd
Royal Enfield Motors
Telco
TVS Motors
FINANCIALS
Description 1 Day PriceChange
MarketCap
PEROE
Div Yield
Long-Term Debt toEquity
Price toBook Value
NetProfit Margin (mrq)
Price toFree Cash Flow (mrq)
Sector Consumer Goods 01125178B
2488
1707
222
1171076
706 40842
Industry Auto Manufacturers - Major (More Info)
0613310B
3000
750171
181 155 160 -440
Companies
Daimlerchrysler AG (DCX) 021 539B1072
1119
350
217 116 469 -354
Ford Motor Co (F) 121 157B NA-951
240
1107
115 -060 -8205
General Motors Corporation (GM) -024 165B NA
-6285
340
390 142 -621 014
Honda Motor Co Ltd (HMC) 083 622B1152
1654
100
083 173 552 20748
Tata Motors Ltd (TTM) -038 71B1864
NA150
NA 535 564 NA
Toyota Motor Corp (TM) 0731756B
1394
1505
120
103 197 659 NA
Opportunities and Threats
a) Opportunities
Road Development The ongoing road development program would improve
connectivity to ports cities and villages through a network of highways and
interconnecting roads by 2010-11 Improved road network would help in faster
33
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
movement of goods between various cities and towns The Company launched TATA
Novus range of vehicles in the heavy segment and TATA ACE for last mile distribution
Car penetration in India Car penetration in India is 7 cars per 1000 persons
International In FY 2006-07 the Company increased share of its overseas vehicle sales
from 76 last year to record high of 111 (as of its total sales) and has planned
further increase in this year
b) Threats
Global Competition India is increasingly attracting global players to set up
manufacturing facility for producing cars especially small cars Global automobile
manufacturers are also entering India in commercial vehicle segment to leverage Indiarsquos
low cost production advantage to their favor
Fuel Prices The continuing fuel price increase in the domestic market could
significantly impact demand of commercial and passenger vehicles
Input costs Commodity items particularly steel non-ferrous metals rubber and
engineering plastics have witnessed huge price increases in the past These prices are
expected to increase further affecting the Companyrsquos profitability
Interest rate hardening and other inflationary trends With interest rates hardening and
liquidity crunch in the system growth in sales may be adversely impacted
Government Regulations Stringent emission and safety requirements could bring new
complexities for automotive and component manufacturers impacting the Companyrsquos
business
Risks and Concerns
Interest Rates FY 2007-08 started with increasing interest rate regime and tightening
liquidity position in the economy Increasing interest rates could further affect vehicle
demand which could have an adverse impact on the Companyrsquos revenues and profits
Exchange rates The Company exports vehicles to many countries and exchange rate
fluctuations in the order execution period could impact the Companyrsquos business
34
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Freight rates In FY 2006-07 freight rates in road transport sector moved up mainly
due to surge in construction activity ongoing road development projects and severe
restriction on over-loading Demand for commercial vehicles could be impacted by
further change in freight rates and change in fuel prices
Domestic market The Company plans to reduce the impact of this cyclicality on its
business by strengthening its less cyclical businesses like buses light trucks small
commercial vehicles
Overseas market In overseas markets the Company competes with global players
which have multiple vehicle platforms large financial capability and global branding
Manufacturing The Company manufactures vehicles at multiple locations and given
the geographical dispersion of its suppliers it faces Logistics Problems
New Competition Competitive activity is expected to increase in commercial vehicle
and passenger vehicle domestic market in coming years
New projects The Company currently is in midst of executing many new projects
ranging from launch of new car platforms to development of new Truck models
III Company Analysis
Key Highlights
Symbol TTL
Sector Consumer Goods
Industry Auto Manufacturers Major
Market Cap Rs29232 crores
Data Since 1945
Last close Rs 74290
Brief Summary of the company
35
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Tata Motors is one of the largest companies in the Tata Group with a total income of US$
235 billion More than 3 million Tata vehicles ply on Indian roads making Tata a
dominant force in the Indian automobile industry
Joint Venture with Fiat and Hitachi
Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing
passenger vehicles engines and transmissions for both domestic and international
markets The Company has also entered into a JV with Hitachi to set up a new plant in
Kharagpur
Product Mix
Tata Motors is Indias only fully integrated automobile manufacturer with a portfolio that
covers trucks buses utility vehicles and passenger cars It would be no exaggeration to
say that Tata Motors provides the wheels for Indias growth
Segmental Overview
Commercial Vehicle Segment
The Company registered 696 volume growth in the domestic CV segment during
4QFY06 from 37228 units in Q3FY05 to 63082 units in Q3FY06 The market share in
this segment was 658 in Q4FY06 as compared to 552 in Q1FY06 The MHCV
goods-carrier segment registered a 544 growth YoY with sale of 33515 units and a
market share of 645 up by around 410 bps driven by infrastructure development and
increase in international trade
Passenger Vehicle Segment
The Company reported a growth of 212 YoY to 49907 vehicles in the domestic
passenger vehicle segment and a market share of 162 in the quarter The passenger
vehicle industry registered a volume growth of 204 during Q4FY06
36
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Plants
Tata Motors owes its leading position in the Indian automobile industry to its strong
focus on indigenisation Their manufacturing plants are situated at Jamshedpur in the
East Pune in the West and Lucknow in the North
Charts showing Key Statistics of tata motors
37
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Share holding pattern as on 31-Mar
shareholding pattern
34
1425
17
10
promotors
MF Banks Fis
FIIs
Others
Public
Financial highlights
38
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
39
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
RATIO ANALYSIS
Ratios 2006 2005 2004
Debtequity 056 049 044
Current ratio 108 087 076
Operating profit margin 1211 1151 1238
Gross profit margin 1087 1043 1104
ROCE 3125 3276 3377
total assets turnover ratio 315 353 343
ROE 2761 3009 2257
Dividend-equity 49794 45373 28211
Retention Ratio 6743 6332 6519
DPS (Rs) 1301 125 799
EPS (Rs) 25 34 41
Dividend Payout Ratio 039 042 037
CAGR of EPS 0177
CAGR of Dividend Payout Ratio -0017
Average ROE 2574
average retention 6354
Growth (g = Avg RR times Avg ROE ) 1636
Market return 1454
40
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
PE ratio (on the basis of historical analysis) = 1812
Therefore the Weighted PE ratio =(1812+2424)2 = 21181
Projected EPS = EPS OF 2006 + CAGR of EPSEPS OF 2006
= Rs48271
Value of Share at the end of financial year 06-07
= Projected EPS Weighted PE Ratio
= Rs1022
2) HPCL
Globalization and the Indian Petroleum Industry
Indian petroleum industry in the post independent period (1947-2001) it may be divided
into three distinct phases
(i) early phase (1947 to 1969)- when the government consolidated its control over
the industry with Soviet assistance
(ii) development phase (1970 to 1989)- in this period the US companies played
dominant role replacing the Soviets and
41
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
(iii) the economic liberalisation phase of 1990s
PORTERrsquoS MODEL
SWOT ANALYSIS
STRENGHS
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
WEAKNESSES
Dependence on refining function high
Moderate share in high profitable retail segment
42
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Diversifications in petrochemicals could trouble the company
High burden of subsidy loss on cooking gas and kerosene
OPPORTUNITIES
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
Overseas presence in upstream and downstream will determine growth
THREATS
Rising oil prices could dampen demand
High regulatory risk
Loss of market share to private players
Entrance of private players in pipelines will take away monopoly of company in
north India
COMPANY ANALYSIS
The Annual Report is broken down into the following specific parts
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the AccountsATHE DIRECTORrsquoS REPORTThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship Fundamental AnalysisB THE AUDITORS REPORTThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors
C FINANCIAL STATEMENTSIt comprises of Balance Sheet Profit and Loss account Cash Flows Its analysis would be discussed later
DSCHEDULES
43
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The schedules detail pertinent information about the items of Balance Sheet and Profit amp Loss Account It also details information about sales manufacturing costs administration costs interest and other income and expenses
1 THE MANAGEMENT
HPCL is a public sector undertaking Thus it is a professionally managed company
There are some parameters of management on which a company is analysed
a integrity of management
b past record of management
c how highly is the management rated by its peers in the same industry
d how the management fares in adversity
e the depth of the knowledge of management
f open and innovative management
on all these parameters HPCL scores good
2 COMPANY
Many times a company has made losses in the previous years but that does not mean
that the company is bad to invest Thus many factors are studied while studying a
company
a) perception of competitors
HPCL is the second largest petroleum company after IOCL Thus it is a competitor of
IOCL and it is trying hard to compete with IOCL on every front That is why now it
has decided to diversify itself in the oil exploration sector
b) company policies
As this is a PSU thus the policies are made by the government The oil sector is one
which is highly regulated by government Thus from time to time it is required to
watch out the various policies changed
3 ANNUAL REPORT
The most primary and most important source of information about a company is its
Annual Report This is prepared every year and distributed to its shareholders
44
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Ratio Analysis
Evaluation of Intrinsic Value of the Security
stdev mkt 0011934stdev sec 003831 Average
Retention Ratio 060504
correlation 0485958 ROE 019842Beta 156765 g 0120052Risk Free Rate 650
Mkt Rate 14
45
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
k 1826
Hence we see that here our g is less than k Thus we see that as per Dividend Discount Model our Intrinsic value is div=22(1+012)=240626= 387
Price= Projected EPS + Weighted PE ratioUsing CAGR EPS = 43468Weighted PE Ratio = 75+6652=33625
Price = 43468+33625 = 381
3) HDFC BANK
The Indian banking industry sector overview
With the economic growth picking up pace and the investment cycle on the way to recovery the banking sector has witnessed a transformation in its vital role of intermediating between the demand and supply of funds
Public sector banks have been very proactive in their restructuring initiatives be it in technology implementation or pruning their loss assets Windfall treasury gains made in the falling interest rate regime were used for writing off the doubtful and loss assets
Retail lending (especially mortgage financing) formed a significant portion of the portfolio for most banks and they customized their products to cater to the diverse demands
Apart from streamlining their processes through technology initiatives such as ATMs telephone banking online banking and web based products banks also resorted to cross selling of financial products such as credit cards mutual funds and insurance policies to augment their fee based income
PORTERrsquoS FIVE FORCES MODEL FOR THE BANKING INDUSTRY
1) BARRIERS TO ENTRY a Economies of scale Since the existing players in the market are well
established and already have a customer base they are able to bear the cost of using the advantages of technology to their maximum advantage
46
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Capital requirement for entry i The Banking Regulation Act prescribes the minimum capital
requirements for a bank Moreover banks have to maintain a capital adequacy ratio of 9 under the Basel I norms
ii Government has declared that the foreign banks will be permitted to establish their presence in India by way of setting up a wholly owned banking subsidiary (WOS) with a minimum capital of Rs300 crore
c Access to distribution channels Since banks have to set up their own distribution channels all the cost has to be directly born by them
d Cost advantage independent of size Existing banks have huge databases of customers which they use when they want to sell a new product launched by them
e Legislation or Government action Banks are governed by Banking Regulation Act 1949 which specifies the rules and regulations applicable to banks RBI is the governing body of banks in India
2) BARGAINING POWER OF BUYERS
Due to increased competition the services offered by banks to customers have improved considerably
3) BARGAINING POWER OF THE SUPPLIERS
Suppliers to banks can be both - the customers and RBIa Customers of banks provide money to banks in the form of deposits and in
return earn some interest on that b RBI acts as a supplier to banks by selling govt securities treasury bills
govt bonds etc c Call money market Banks sometimes have to borrow from other banks to
meet CRR and SLR requirements or other capital requirements as provided by RBI
4) THREAT OF SUBSTITUTES
a Product-for-product substitutioni Banks provide interest on deposits made by people Similar
services are offered by post offices which may act as substitutes to the deposit schemes of banks
ii Some banks offer locker services to customers for yearly rates Similar services are provided by many post offices
47
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Generic substitution People who deposit their savings in banks can invest their money in other sources like mutual funds shares and other securities and life insurance schemes
5) COMPETITIVE RIVALRY
a Extent of competitor balance b Market growth ratesc High Exit Barriers
PEST Analysis for Banking Industry
1 Political factors - The major factors affecting the banking sector are the following
Banking sector reforms ndash As per the RBI roadmap for reforms in the first stage from 2005 to 2009 foreign banks will be allowed to set up wholly owned subsidiaries as well as get greater freedom to set up new branches Fulfilling the minimum priority sector credit -The government mandation of fulfilling the minimum priority sector credit (of which 18 per cent is food credit) has forced the domestic banks to cater to this segment despite the low profitability and vulnerability of asset quality
Banks have also been allowed to set up Offshore Banking Units in SEZrsquos
2 Economic factors -
Basell II norms for the risk management in banking sector - The new Basel Accord has its foundation on three mutually reinforcing pillars The first pillar is compatible with the credit risk market risk and operational risk The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bankConcurrently it also casts responsibility on the supervisors to review and validate banksrsquo risk measurement models
Consolidation and merger and acquisitions in the banking sector- HDFC bank also acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Universal Banking has been introduced ICICI Bank HDFCs closest competitor is already into Universal Banking so HDFC is also getting into it as now it is providing retail banking and also depository facilities in the form of demat account
48
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
3 Social factors-
Big and growing middle class in India - This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans car loans education loans auto loans etc Retail loans have grown from 19 in FYrsquo99 to 51 FYrsquo06Consumer credit accounts for a meager 286 per cent of the countrys GDP and the buoyancy in the economy offers sufficient scope for it to grow
Geographical and Cultural diversity- This is leading to a greater demand for financial products and customization by the customers
4 Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999 It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector
Banks (All) No of players = 40
Sector statistics
We see the sector aggregates and make a financial comparison for the major banks
Top PlayersFY2006
Based on Total Income Based on OPBDT Total Income Change OPBDT Change
(Rs Mn) () (Rs Mn) ()ICICI BANK 631619 5450 S B I 763528 -129 PUNJAB NATIONAL B 29218 1491 ICICI BANK 37174 1936
CAN BANK 277095 2378 PUNJAB NATIONAL B 222052 3936
BANK OF INDIA 23317 2543 CAN BANK 168825 1953
H D F C BANK 185508 6024 H D F C BANK 14324 2748 change - indicates the change between current and corresponding quarter
49
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER- 3
FUNDAMENTAL ANALYSIS
A CONCEPTUAL OVERVIEW
17
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Fundamental analysis refers to the study of the core underlying elements that influence the economy of a particular entity It is a method of study that attempts to predict price action and market trends by analyzing economic indicators government policy and societal factors (to name just a few elements) within a business cycle framework
I ECONOMIC ANALYSIS
POLITICO-ECONOMIC ANALYSIS No industry or company can exist in isolation It may have splendid managers and a tremendous product However its sales and its costs are affected by factors some of which are beyond its control - the world economy price inflation taxes and a host of others It is important therefore to have an appreciation of the politico-economic factors that affect an industry and a company
The political equationA stable political environment is necessary for steady balanced growth If a country is ruled by a stable government which takes decisions for the long-term development of the country industry and companies will prosper Foreign Exchange ReservesA country needs foreign exchange reserves to meet its commitments pay for its imports and service foreign debts
Foreign Exchange RiskThis is a real risk and one must be cognizant of the effect of a revaluation or devaluation of the currency either in the home country or in the country the company deals in
Restrictive PracticesRestrictive practices or cartels imposed by countries can affect companies and industries crystallizing the exposure
Foreign Debt and the Balance of TradeForeign debt especially if it is very large can be a tremendous burden on an economy India pays around $ 5 billion a year in principal repayments and interest payments InflationInflation has an enormous effect in the economy Within the country it erodes purchasing power As a consequence demand falls If the rate of inflation in the country from which a company imports is high then the cost of production in that country will automatically go up
The Threat of NationalizationThe threat of nationalization is a real threat in many countries ndash the fear that a company may become nationalized
Interest Rates
18
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A low interest rate stimulates investment and industry Conversely high interest rates result in higher cost of production and lower consumption
TaxationThe level of taxation in a country has a direct effect on the economy If tax rates are low people have more disposable income
Government PolicyGovernment policy has a direct impact on the economy A government that is perceived to be proindustry will attract investment
THE ECONOMIC CYCLE
It affects investment decisions employment demand and the profitability of companiesThe four stages of an economic cycle are DepressionRecoveryBoom Recession DepressionAt the time of depression demand is low and falling Inflation is high and so are interest rates Companies crippled by high borrowing and falling sales are forced to curtail production close down plants built at times of higher demand and let workers go
RecoveryDuring this phase the economy begins to recover Investment begins anew and the demand grows Companies begin to post profits Conspicuous spending begins once again
BoomIn the boom phase demand reaches an all time high Investment is also high Interest rates are low Gradually as time goes on supply begins to exceed the demand Prices that had been rising begin to stabilize and even fall There is an increase in demand Then as the boom period matures prices begin to rise again
RecessionThe economy slowly begins to downturn Demand starts falling Interest rates and inflation are high Companies start finding it difficult to sell their goods The economy slowly begins to downturn
19
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II INDUSTRY ANALYSIS
The importance of industry analysis is now dawning on the Indian investor as never before
CycleThe first step in industry is to determine the cycle it is in or the stage of maturity of the industry All industries evolve through the following stages1 Entrepreneurial sunrise or nascent stage2 Expansion or growth stage3 Stabilization stagnation or maturity stage and4 Decline or sunset stage to properly establish itself In the early days it may actually make losses
The Entrepreneurial or Nascent StageAt the first stage the industry is new and it can take some time for it to properly establish itself
The Expansion or Growth StageOnce the industry has established itself it enters a growth stage As the industry grows many new companies enter the industry
The Stabilization or Maturity StageAfter the halcyon days of growth an industry matures and stabilizes Rewards are low and so too is the risk Growth is moderate Though sales may increase they do so at a
20
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
slower rate than before Products are more standardized and less innovative and there are several competitors
The Decline or Sunset StageFinally the industry declines This occurs when its products are no longer popular This may be on account of several factors such as a change in social habits The film and video industries
1 BARRIER TO ENTRYNew entrants increase the capacity in an industry and the inflow of funds The question that arises is how easy is it to enter an industry There are some barriers to entry
a) Economies of scaleb) Product differentiation c) Capital requirementd) Switching costse) Access to distribution channelsf) Cost disadvantages independent of scaleg) Government policyh) Expected retaliationj) International cartels
2 THE THREAT OF SUBSTITUTIONNew inventions are always taking place and new and better products replace existing ones An industry that can be replaced by substitutes or is threatened by substitutes is normally an industry one must be careful of investing in An industry where this occurs constantly is the packaging industry -bottles replaced by cans cans replaced by plastic bottles and the like To ward off the threat of substitution companies often have to spend large sums of money in advertising and promotion
3 BARGAINING POWER OF THE BUYERSIn an industry where buyers have control ie in a buyers market buyers are constantly forcing prices down demanding better services or higher quality and this often erodes profitability The factors one should check are whether a) A particular buyer buys most of the products (large purchase volumes) If such buyers withdraw their patronage they can destroy an industry They can also force prices downb) Buyers can play one company against another to bring prices down
4 BARGAINING POWER FOR THE SUPPLIERSAn industry unduly controlled by its suppliers is also under threat This occurs whena) The suppliers have a monopoly or if there are few suppliersb) Suppliers control an essential c) Demand for the product exceeds d) The supplier supplies to various industriese) The switching costs are high
21
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
f) The suppliers product does not have a substituteg) The suppliers product is an important input for the buyersh) The buyer is not important to the supplieri) The suppliers product is unique
5 RIVALRY AMONG COMPETITORSRivalry among competitors can cause an industry great harm This occurs mainly by price cuts heavy advertising additional high cost services or offers and the like This rivalry occurs mainly whena) There are many competitors and supply exceeds demand Companies resort to price cuts and advertise heavily in order to attract customers for their goodsb) The industry growth is slow and companies are competing with each other for a greater market sharec) The economy is in a recession and companies cut the price of their products and offer better service to stimulate demandd) There is lack of differentiation between the product of one company and that of another In such cases the buyer makes his choice on the basis of price or servicee) In some industries economies of scale will necessitate large additions to existing capacities in a company The increase in production could result in over capacity amp price cuttingf) Competitors may have very different strategies in selling their goods and in competing they may be continuously trying to stay ahead
III COMPANY ANALYSIS
At the final stage of fundamental analysis the investor analyzes the company This analysis has two thrustsHow has the company performed vis-agrave-vis other similar companies and How has the company performed in comparison to earlier years It is imperative that one completes the politico economic analysis and the industry analysis before a company is analyzed because the companys performance at a period of time is to an extent a reflection of the economy the political situation and the industry What does one look at when analyzing a company The different issues regarding a company that should be examined are The Management The Company The Annual Report Ratios Cash flow
THE MANAGEMENT
The single most important factor one should consider when investing in a company and one often never considered is its management In India management can be broadly
22
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
divided in two types Family Management Professional Management
THE COMPANY
An aspect not necessarily examined during an analysis of fundamentals is the company A company may have made losses consecutively for two years or more and one may not wish to touch its shares - yet it may be a good company and worth purchasing into There are several factors one should look at
1 How a company is perceived by its competitorsOne of the key factors to ascertain is how a company is perceived by its competitors It is held in high regard Its management may be known for its maturity vision competence and aggressiveness The investor must ascertain the reason and then determine whetherthe reason will continue into the foreseeable future
2 Whether the company is the market leader in its products or in its segmentAnother aspect that should be ascertained is whether the company is the market leader in its products or in its segment When you invest in market leaders the risk is less Theshares of market leaders do not fall as quickly as those of other companies There is a magic to their name that would make individuals prefer to buy their products as opposed to others
3 Company PoliciesThe policy a company follows is also important What is its plans for growth What is its vision Every company has a life If it is allowed to live a normal life it will grow upto a point and then begin to level out and eventually die It is at the point of leveling out that it must be given new life This can give it renewed vigour and a new lease of life
4 Labour RelationsLabour relations are extremely important A company that has motivated industrious work force has high productivity and practically no disruption of work On the other hand a company that has bad industrial relations will lose several hundred mandays as a consequence of strikes and go slows
5 Where the company is located and where its factories are One must also consider where the companies Plants and Factories are located
THE ANNUAL REPORT
The primary and most important source of information about a company is its Annual Report By law this is prepared every year and distributed to the shareholders Annual Reports are usually very well presented A tremendous amount of data is given about the performance of a company over a period of time The Annual Report is broken down into the following specific parts
23
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the Accounts
A The Directorrsquos ReportThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship 1 It enunciates the opinion of the directors on the state of the economy and the political situation vis-agrave-vis the company 2 Explains the performance and the financial results of the company in the period under review This is an extremely important part The results and operations of the various separate divisions are usually detailed and investors can determine the reasons for their good or bad performance3 The Directorrsquos Report details the companys plans for modernization expansion and diversification Without these a company will remain static and eventually decline4 Discusses the profit earned in the period under review and the dividend Recommended by the directors This paragraph should normally be read with some skepticism as the directors will always argue that the performance was satisfactory If adverse economic conditions are usually at fault 5 Elaborates on the directors views of the companys prospects in the future6 Discusses plans for new acquisition and investments An investor must intelligently evaluate the issues raised in a Directorrsquos Report Industry conditions and the managements knowledge of the business must be considered
B The Auditors ReportThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors Auditors are required to report whether the financial statements presented do in fact present a true and fair view of the state of the company Investors must remember that the auditors are their representatives and that they are required by law to point out if the financial statements are not true and fair
CFinancial StatementsThe published financial statements of a company in an Annual Report consist of its Balance Sheet as at the end of the accounting period detailing the financing condition of the company at that date and the Profit and Loss Account or Income Statement summarizing the activities of the company for the accounting period
BALANCE SHEETThe Balance Sheet details the financial position of a company on a particular date of the companys assets (that which the company owns) and liabilities (that which the companyowes) grouped logically under specific heads It must however be noted that the Balance Sheet details the financial position on a particular day and that the position can be materially different on the next day or the day after
24
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOURCES OF FUNDSSHAREHOLDERS FUNDSSHARE CAPITAL(i) Private Placement(ii) Public Issueiii) Rights issuesRESERVESi) Capital Reservesii) Revenue ReservesLOAN FUNDSi) Secured loansii) Unsecured loansFIXED ASSETSINVESTMENTSSTOCK OR INVENTORIESi) Raw materialsii) Work in progressiii) Finished goodsCASH AND BANK BALANCESLOANS AND ADVANCES
PROFIT AND LOSS ACCOUNTThe Profit and Loss account summarizes the activities of a company during an accounting period which may be a month a quarter six months a year or longer and the result achieved by the company It details the income earned by the company its cost and the resulting profit or loss It is in effect the performance appraisal not only of the company but also of its management- its competence foresight and ability to lead
RATIOS
Ratios express mathematically the relationship between performance figures andor assetsliabilities in a form that can be easily understood and interpretedNo single ratio tells the complete storyRatios can be broken down into four broad categories
(A) Profit and Loss RatiosThese show the relationship between two items or groups of items in a profit and loss account or income statement The more common of these ratios are1 Sales to cost of goods sold2 Selling expenses to sales3 Net profit to sales and4 Gross profit to sales
(B) Balance Sheet RatiosThese deal with the relationship in the balance sheet such as 1 Shareholders equity to borrowed funds
25
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
2 Current assets to current liabilities3 Liabilities to net worth4 Debt to assets and5 Liabilities to assets
(C) Balance Sheet and Profit and Loss Account RatiosThese relate an item on the balance sheet to another in the profit and loss account such as1 Earnings to shareholders funds2 Net income to assets employed3 Sales to stock4 Sales to debtors and5 Cost of goods sold to creditors
(D) Financial Statements and Market RatiosThese are normally known as market ratios and are arrived at by relative financial figures to market prices1 Market value to earnings and2 Book value to market value(a) Market value(b) Earnings(c) Profitability(d) Liquidity(e) Leverage(f) Debt Service Capacity(g) Asset ManagementEfficiency(h) Margins
The major ratios that are considered(i) Market value(ii) Price- earnings ratio(iii) Market-to-book ratio(iv) Earnings(v) Earning per share(vi) Dividend per share(vii) Dividend payout ratio(viii) Leverage ratios(ix) Return on investmentstotal assets
CASH FLOW A statement of sources and uses begins with the profit for the year to which are added the increases in liability accounts (sources) and from which are reduced the increases in asset accounts (uses) The net result shows whether there has been an excess or deficit of funds and how this was financed Investors must examine a companys cash flow as it reveals exactly where the money came from how it was utilized Investors must be
26
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
concerned if a company is financing either its inventories or paying dividends from borrowings without real growth as that shows deterioration
27
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-4 ANALYSIS
28
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
I FUNDAMENTAL ANALYSIS OF STOCKS
Basically fundamental analysis is covered in 3 parts
1 Market economy analysis
2 Industry Analysis
3 Company Analysis
1) TATA MOTORS
I Market Economy Analysis
It covers the macro economy analysis and the various macro economic factors on the national level like GDP Monetary policies of India Fiscal Policies and Inflation and money supply etc
GDP
Real GDP growth accelerated from 75 per cent during 2004-05 to 84 per cent during
2005-06 on the back of buoyant manufacturing and services activity supported by a
recovery in the agricultural sector Real GDP growth has thus averaged over eight per
cent during the last three years and over seven per cent in the first four years (2002-03 to
2005-06) of the Tenth Five Year Plan
Strengths of India today are
A well diversified industrial base which profits from self-reliance in all core industries A
large amp sophisticated financial architecture - The robust capital Markets today have over
9000 listed companies and boast of a massive Market capitalization
A healthy GDP composition with agriculture contributing 22 Industry 22 and
services which have gone strength to strength accounting For 56 of the GDP an
29
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
acknowledged strength in knowledge driven industries like Information technology
biotechnology entertainment Software etc
India has Over 3 million scientific amp technical manpower Over 06 million SampT post
graduates Over 07 million graduate engineers Over 3500 doctorates in sciences every
year
Assuming trend growth in agriculture under normal monsoon conditions and barring
domestic or external shocks the Reserve Bank in its Annual Policy Statement for 2007-
08 (April 2007) placed real GDP growth for policy purposes in the range of 75-80 per
cent during 2007-08 Growth prospects are however subject to a number of downside
risks The risks emanating from the global economy are potential escalation and
volatility in international crude oil prices firming up of overall inflationary pressures and
expectations and a hardening of international interest rates along with the withdrawal of
monetary accommodation
Indiarsquos demographic advantage ndash In contrast to developed Countries India will have a
younger population for the next 50 years Hence India would be the hub for RampD
Inflation
Inflation was contained to 63 per cent by end-March 2007 within the indicative
trajectory of 50-55 per cent during 2007-08 The actual inflation was considerably lower
than the indicative trajectory and this could be mainly attributed to the deferred pass-
through of even the cognisable permanent component of international crude oil prices
Money Supply
Monetary and liquidity conditions remained largely comfortable during 2006-07reflecting
proactive liquidity management operations by the Reserve Bank under the liquidity
adjustment facility flexible management of issuances under the market stabilisation
scheme and some private placement of Government securities
30
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
In short the Indian economy is exhibiting strong fundamentals and displaying
considerable resilience At the same time there are continuing signs of demand pressures
especially high credit growth that could exert upward pressure on prices when associated
with supply shocks such as from oil These pressures have the potential for impacting
stability and inflation expectations While domestic developments continue to dominate
the economy global factors tend to gain more attention now than before The global
outlook for growth is positive but downside risks in regard to inflation also RBI is
applying new repo and reverse repo for the balance of inflation and monetary policies
The following are macroeconomic policies generally found as part of government-
directed industrial auto policies
(a) Restrictions on domestic and foreign investment
(b) Domestic content requirements
(c) High tariff walls
(d) Auto export requirements
(e) National production to sales ratios
(f) Distribution controls
(g) Quotas and licensing requirements that significantly restrict imports
(h) Government approval for product related decisions including vehicle make
body type engine size etc
(i) Special government categories for auto taxes
II INDUSTRY ANALYSIS
Since 1991 opening of the economy has changed the face of auto industry Today it is
amongst the main drivers of growth of Indian economy with an output multiplier of
224(for every Re1 invested auto sector gives back Rs224 to the economy) In recent
years we have seen increasing number of global players entering Indian market by way of
Joint ventures collaborations or wholly owned subsidiary
The automobile industry is torn between trying to reduce costs on the one hand and on
the other dealing with the high price of performance-enhancing technology and
environmental compliance Key drivers in the automotive industry are
31
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Reducing air pollution
Reduction of weight
Recyclability
Safety
Better performance and engine efficiency
Aesthetics
Longer service Life
INDUSTRY LIFE CYCLE
The automobile market is at the maturity stage of the life cycle locally and globally due
to an increased number of competitors from domestic and foreign markets The
automobile market is characterized by a low potential for market growth but high sales
and profit potential as the products have still not saturated the market as a whole
MAJOR COMPETITORS OF TATA MOTORS ARE
Maruti Udyog Ltd
General Motors India
Ford India Ltd
Eicher Motors
Bajaj Auto
Hero Motors
Hindustan Motors
32
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Hyundai Motor India Ltd
Royal Enfield Motors
Telco
TVS Motors
FINANCIALS
Description 1 Day PriceChange
MarketCap
PEROE
Div Yield
Long-Term Debt toEquity
Price toBook Value
NetProfit Margin (mrq)
Price toFree Cash Flow (mrq)
Sector Consumer Goods 01125178B
2488
1707
222
1171076
706 40842
Industry Auto Manufacturers - Major (More Info)
0613310B
3000
750171
181 155 160 -440
Companies
Daimlerchrysler AG (DCX) 021 539B1072
1119
350
217 116 469 -354
Ford Motor Co (F) 121 157B NA-951
240
1107
115 -060 -8205
General Motors Corporation (GM) -024 165B NA
-6285
340
390 142 -621 014
Honda Motor Co Ltd (HMC) 083 622B1152
1654
100
083 173 552 20748
Tata Motors Ltd (TTM) -038 71B1864
NA150
NA 535 564 NA
Toyota Motor Corp (TM) 0731756B
1394
1505
120
103 197 659 NA
Opportunities and Threats
a) Opportunities
Road Development The ongoing road development program would improve
connectivity to ports cities and villages through a network of highways and
interconnecting roads by 2010-11 Improved road network would help in faster
33
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
movement of goods between various cities and towns The Company launched TATA
Novus range of vehicles in the heavy segment and TATA ACE for last mile distribution
Car penetration in India Car penetration in India is 7 cars per 1000 persons
International In FY 2006-07 the Company increased share of its overseas vehicle sales
from 76 last year to record high of 111 (as of its total sales) and has planned
further increase in this year
b) Threats
Global Competition India is increasingly attracting global players to set up
manufacturing facility for producing cars especially small cars Global automobile
manufacturers are also entering India in commercial vehicle segment to leverage Indiarsquos
low cost production advantage to their favor
Fuel Prices The continuing fuel price increase in the domestic market could
significantly impact demand of commercial and passenger vehicles
Input costs Commodity items particularly steel non-ferrous metals rubber and
engineering plastics have witnessed huge price increases in the past These prices are
expected to increase further affecting the Companyrsquos profitability
Interest rate hardening and other inflationary trends With interest rates hardening and
liquidity crunch in the system growth in sales may be adversely impacted
Government Regulations Stringent emission and safety requirements could bring new
complexities for automotive and component manufacturers impacting the Companyrsquos
business
Risks and Concerns
Interest Rates FY 2007-08 started with increasing interest rate regime and tightening
liquidity position in the economy Increasing interest rates could further affect vehicle
demand which could have an adverse impact on the Companyrsquos revenues and profits
Exchange rates The Company exports vehicles to many countries and exchange rate
fluctuations in the order execution period could impact the Companyrsquos business
34
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Freight rates In FY 2006-07 freight rates in road transport sector moved up mainly
due to surge in construction activity ongoing road development projects and severe
restriction on over-loading Demand for commercial vehicles could be impacted by
further change in freight rates and change in fuel prices
Domestic market The Company plans to reduce the impact of this cyclicality on its
business by strengthening its less cyclical businesses like buses light trucks small
commercial vehicles
Overseas market In overseas markets the Company competes with global players
which have multiple vehicle platforms large financial capability and global branding
Manufacturing The Company manufactures vehicles at multiple locations and given
the geographical dispersion of its suppliers it faces Logistics Problems
New Competition Competitive activity is expected to increase in commercial vehicle
and passenger vehicle domestic market in coming years
New projects The Company currently is in midst of executing many new projects
ranging from launch of new car platforms to development of new Truck models
III Company Analysis
Key Highlights
Symbol TTL
Sector Consumer Goods
Industry Auto Manufacturers Major
Market Cap Rs29232 crores
Data Since 1945
Last close Rs 74290
Brief Summary of the company
35
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Tata Motors is one of the largest companies in the Tata Group with a total income of US$
235 billion More than 3 million Tata vehicles ply on Indian roads making Tata a
dominant force in the Indian automobile industry
Joint Venture with Fiat and Hitachi
Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing
passenger vehicles engines and transmissions for both domestic and international
markets The Company has also entered into a JV with Hitachi to set up a new plant in
Kharagpur
Product Mix
Tata Motors is Indias only fully integrated automobile manufacturer with a portfolio that
covers trucks buses utility vehicles and passenger cars It would be no exaggeration to
say that Tata Motors provides the wheels for Indias growth
Segmental Overview
Commercial Vehicle Segment
The Company registered 696 volume growth in the domestic CV segment during
4QFY06 from 37228 units in Q3FY05 to 63082 units in Q3FY06 The market share in
this segment was 658 in Q4FY06 as compared to 552 in Q1FY06 The MHCV
goods-carrier segment registered a 544 growth YoY with sale of 33515 units and a
market share of 645 up by around 410 bps driven by infrastructure development and
increase in international trade
Passenger Vehicle Segment
The Company reported a growth of 212 YoY to 49907 vehicles in the domestic
passenger vehicle segment and a market share of 162 in the quarter The passenger
vehicle industry registered a volume growth of 204 during Q4FY06
36
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Plants
Tata Motors owes its leading position in the Indian automobile industry to its strong
focus on indigenisation Their manufacturing plants are situated at Jamshedpur in the
East Pune in the West and Lucknow in the North
Charts showing Key Statistics of tata motors
37
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Share holding pattern as on 31-Mar
shareholding pattern
34
1425
17
10
promotors
MF Banks Fis
FIIs
Others
Public
Financial highlights
38
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
39
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
RATIO ANALYSIS
Ratios 2006 2005 2004
Debtequity 056 049 044
Current ratio 108 087 076
Operating profit margin 1211 1151 1238
Gross profit margin 1087 1043 1104
ROCE 3125 3276 3377
total assets turnover ratio 315 353 343
ROE 2761 3009 2257
Dividend-equity 49794 45373 28211
Retention Ratio 6743 6332 6519
DPS (Rs) 1301 125 799
EPS (Rs) 25 34 41
Dividend Payout Ratio 039 042 037
CAGR of EPS 0177
CAGR of Dividend Payout Ratio -0017
Average ROE 2574
average retention 6354
Growth (g = Avg RR times Avg ROE ) 1636
Market return 1454
40
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
PE ratio (on the basis of historical analysis) = 1812
Therefore the Weighted PE ratio =(1812+2424)2 = 21181
Projected EPS = EPS OF 2006 + CAGR of EPSEPS OF 2006
= Rs48271
Value of Share at the end of financial year 06-07
= Projected EPS Weighted PE Ratio
= Rs1022
2) HPCL
Globalization and the Indian Petroleum Industry
Indian petroleum industry in the post independent period (1947-2001) it may be divided
into three distinct phases
(i) early phase (1947 to 1969)- when the government consolidated its control over
the industry with Soviet assistance
(ii) development phase (1970 to 1989)- in this period the US companies played
dominant role replacing the Soviets and
41
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
(iii) the economic liberalisation phase of 1990s
PORTERrsquoS MODEL
SWOT ANALYSIS
STRENGHS
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
WEAKNESSES
Dependence on refining function high
Moderate share in high profitable retail segment
42
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Diversifications in petrochemicals could trouble the company
High burden of subsidy loss on cooking gas and kerosene
OPPORTUNITIES
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
Overseas presence in upstream and downstream will determine growth
THREATS
Rising oil prices could dampen demand
High regulatory risk
Loss of market share to private players
Entrance of private players in pipelines will take away monopoly of company in
north India
COMPANY ANALYSIS
The Annual Report is broken down into the following specific parts
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the AccountsATHE DIRECTORrsquoS REPORTThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship Fundamental AnalysisB THE AUDITORS REPORTThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors
C FINANCIAL STATEMENTSIt comprises of Balance Sheet Profit and Loss account Cash Flows Its analysis would be discussed later
DSCHEDULES
43
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The schedules detail pertinent information about the items of Balance Sheet and Profit amp Loss Account It also details information about sales manufacturing costs administration costs interest and other income and expenses
1 THE MANAGEMENT
HPCL is a public sector undertaking Thus it is a professionally managed company
There are some parameters of management on which a company is analysed
a integrity of management
b past record of management
c how highly is the management rated by its peers in the same industry
d how the management fares in adversity
e the depth of the knowledge of management
f open and innovative management
on all these parameters HPCL scores good
2 COMPANY
Many times a company has made losses in the previous years but that does not mean
that the company is bad to invest Thus many factors are studied while studying a
company
a) perception of competitors
HPCL is the second largest petroleum company after IOCL Thus it is a competitor of
IOCL and it is trying hard to compete with IOCL on every front That is why now it
has decided to diversify itself in the oil exploration sector
b) company policies
As this is a PSU thus the policies are made by the government The oil sector is one
which is highly regulated by government Thus from time to time it is required to
watch out the various policies changed
3 ANNUAL REPORT
The most primary and most important source of information about a company is its
Annual Report This is prepared every year and distributed to its shareholders
44
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Ratio Analysis
Evaluation of Intrinsic Value of the Security
stdev mkt 0011934stdev sec 003831 Average
Retention Ratio 060504
correlation 0485958 ROE 019842Beta 156765 g 0120052Risk Free Rate 650
Mkt Rate 14
45
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
k 1826
Hence we see that here our g is less than k Thus we see that as per Dividend Discount Model our Intrinsic value is div=22(1+012)=240626= 387
Price= Projected EPS + Weighted PE ratioUsing CAGR EPS = 43468Weighted PE Ratio = 75+6652=33625
Price = 43468+33625 = 381
3) HDFC BANK
The Indian banking industry sector overview
With the economic growth picking up pace and the investment cycle on the way to recovery the banking sector has witnessed a transformation in its vital role of intermediating between the demand and supply of funds
Public sector banks have been very proactive in their restructuring initiatives be it in technology implementation or pruning their loss assets Windfall treasury gains made in the falling interest rate regime were used for writing off the doubtful and loss assets
Retail lending (especially mortgage financing) formed a significant portion of the portfolio for most banks and they customized their products to cater to the diverse demands
Apart from streamlining their processes through technology initiatives such as ATMs telephone banking online banking and web based products banks also resorted to cross selling of financial products such as credit cards mutual funds and insurance policies to augment their fee based income
PORTERrsquoS FIVE FORCES MODEL FOR THE BANKING INDUSTRY
1) BARRIERS TO ENTRY a Economies of scale Since the existing players in the market are well
established and already have a customer base they are able to bear the cost of using the advantages of technology to their maximum advantage
46
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Capital requirement for entry i The Banking Regulation Act prescribes the minimum capital
requirements for a bank Moreover banks have to maintain a capital adequacy ratio of 9 under the Basel I norms
ii Government has declared that the foreign banks will be permitted to establish their presence in India by way of setting up a wholly owned banking subsidiary (WOS) with a minimum capital of Rs300 crore
c Access to distribution channels Since banks have to set up their own distribution channels all the cost has to be directly born by them
d Cost advantage independent of size Existing banks have huge databases of customers which they use when they want to sell a new product launched by them
e Legislation or Government action Banks are governed by Banking Regulation Act 1949 which specifies the rules and regulations applicable to banks RBI is the governing body of banks in India
2) BARGAINING POWER OF BUYERS
Due to increased competition the services offered by banks to customers have improved considerably
3) BARGAINING POWER OF THE SUPPLIERS
Suppliers to banks can be both - the customers and RBIa Customers of banks provide money to banks in the form of deposits and in
return earn some interest on that b RBI acts as a supplier to banks by selling govt securities treasury bills
govt bonds etc c Call money market Banks sometimes have to borrow from other banks to
meet CRR and SLR requirements or other capital requirements as provided by RBI
4) THREAT OF SUBSTITUTES
a Product-for-product substitutioni Banks provide interest on deposits made by people Similar
services are offered by post offices which may act as substitutes to the deposit schemes of banks
ii Some banks offer locker services to customers for yearly rates Similar services are provided by many post offices
47
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Generic substitution People who deposit their savings in banks can invest their money in other sources like mutual funds shares and other securities and life insurance schemes
5) COMPETITIVE RIVALRY
a Extent of competitor balance b Market growth ratesc High Exit Barriers
PEST Analysis for Banking Industry
1 Political factors - The major factors affecting the banking sector are the following
Banking sector reforms ndash As per the RBI roadmap for reforms in the first stage from 2005 to 2009 foreign banks will be allowed to set up wholly owned subsidiaries as well as get greater freedom to set up new branches Fulfilling the minimum priority sector credit -The government mandation of fulfilling the minimum priority sector credit (of which 18 per cent is food credit) has forced the domestic banks to cater to this segment despite the low profitability and vulnerability of asset quality
Banks have also been allowed to set up Offshore Banking Units in SEZrsquos
2 Economic factors -
Basell II norms for the risk management in banking sector - The new Basel Accord has its foundation on three mutually reinforcing pillars The first pillar is compatible with the credit risk market risk and operational risk The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bankConcurrently it also casts responsibility on the supervisors to review and validate banksrsquo risk measurement models
Consolidation and merger and acquisitions in the banking sector- HDFC bank also acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Universal Banking has been introduced ICICI Bank HDFCs closest competitor is already into Universal Banking so HDFC is also getting into it as now it is providing retail banking and also depository facilities in the form of demat account
48
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
3 Social factors-
Big and growing middle class in India - This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans car loans education loans auto loans etc Retail loans have grown from 19 in FYrsquo99 to 51 FYrsquo06Consumer credit accounts for a meager 286 per cent of the countrys GDP and the buoyancy in the economy offers sufficient scope for it to grow
Geographical and Cultural diversity- This is leading to a greater demand for financial products and customization by the customers
4 Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999 It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector
Banks (All) No of players = 40
Sector statistics
We see the sector aggregates and make a financial comparison for the major banks
Top PlayersFY2006
Based on Total Income Based on OPBDT Total Income Change OPBDT Change
(Rs Mn) () (Rs Mn) ()ICICI BANK 631619 5450 S B I 763528 -129 PUNJAB NATIONAL B 29218 1491 ICICI BANK 37174 1936
CAN BANK 277095 2378 PUNJAB NATIONAL B 222052 3936
BANK OF INDIA 23317 2543 CAN BANK 168825 1953
H D F C BANK 185508 6024 H D F C BANK 14324 2748 change - indicates the change between current and corresponding quarter
49
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Fundamental analysis refers to the study of the core underlying elements that influence the economy of a particular entity It is a method of study that attempts to predict price action and market trends by analyzing economic indicators government policy and societal factors (to name just a few elements) within a business cycle framework
I ECONOMIC ANALYSIS
POLITICO-ECONOMIC ANALYSIS No industry or company can exist in isolation It may have splendid managers and a tremendous product However its sales and its costs are affected by factors some of which are beyond its control - the world economy price inflation taxes and a host of others It is important therefore to have an appreciation of the politico-economic factors that affect an industry and a company
The political equationA stable political environment is necessary for steady balanced growth If a country is ruled by a stable government which takes decisions for the long-term development of the country industry and companies will prosper Foreign Exchange ReservesA country needs foreign exchange reserves to meet its commitments pay for its imports and service foreign debts
Foreign Exchange RiskThis is a real risk and one must be cognizant of the effect of a revaluation or devaluation of the currency either in the home country or in the country the company deals in
Restrictive PracticesRestrictive practices or cartels imposed by countries can affect companies and industries crystallizing the exposure
Foreign Debt and the Balance of TradeForeign debt especially if it is very large can be a tremendous burden on an economy India pays around $ 5 billion a year in principal repayments and interest payments InflationInflation has an enormous effect in the economy Within the country it erodes purchasing power As a consequence demand falls If the rate of inflation in the country from which a company imports is high then the cost of production in that country will automatically go up
The Threat of NationalizationThe threat of nationalization is a real threat in many countries ndash the fear that a company may become nationalized
Interest Rates
18
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A low interest rate stimulates investment and industry Conversely high interest rates result in higher cost of production and lower consumption
TaxationThe level of taxation in a country has a direct effect on the economy If tax rates are low people have more disposable income
Government PolicyGovernment policy has a direct impact on the economy A government that is perceived to be proindustry will attract investment
THE ECONOMIC CYCLE
It affects investment decisions employment demand and the profitability of companiesThe four stages of an economic cycle are DepressionRecoveryBoom Recession DepressionAt the time of depression demand is low and falling Inflation is high and so are interest rates Companies crippled by high borrowing and falling sales are forced to curtail production close down plants built at times of higher demand and let workers go
RecoveryDuring this phase the economy begins to recover Investment begins anew and the demand grows Companies begin to post profits Conspicuous spending begins once again
BoomIn the boom phase demand reaches an all time high Investment is also high Interest rates are low Gradually as time goes on supply begins to exceed the demand Prices that had been rising begin to stabilize and even fall There is an increase in demand Then as the boom period matures prices begin to rise again
RecessionThe economy slowly begins to downturn Demand starts falling Interest rates and inflation are high Companies start finding it difficult to sell their goods The economy slowly begins to downturn
19
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II INDUSTRY ANALYSIS
The importance of industry analysis is now dawning on the Indian investor as never before
CycleThe first step in industry is to determine the cycle it is in or the stage of maturity of the industry All industries evolve through the following stages1 Entrepreneurial sunrise or nascent stage2 Expansion or growth stage3 Stabilization stagnation or maturity stage and4 Decline or sunset stage to properly establish itself In the early days it may actually make losses
The Entrepreneurial or Nascent StageAt the first stage the industry is new and it can take some time for it to properly establish itself
The Expansion or Growth StageOnce the industry has established itself it enters a growth stage As the industry grows many new companies enter the industry
The Stabilization or Maturity StageAfter the halcyon days of growth an industry matures and stabilizes Rewards are low and so too is the risk Growth is moderate Though sales may increase they do so at a
20
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
slower rate than before Products are more standardized and less innovative and there are several competitors
The Decline or Sunset StageFinally the industry declines This occurs when its products are no longer popular This may be on account of several factors such as a change in social habits The film and video industries
1 BARRIER TO ENTRYNew entrants increase the capacity in an industry and the inflow of funds The question that arises is how easy is it to enter an industry There are some barriers to entry
a) Economies of scaleb) Product differentiation c) Capital requirementd) Switching costse) Access to distribution channelsf) Cost disadvantages independent of scaleg) Government policyh) Expected retaliationj) International cartels
2 THE THREAT OF SUBSTITUTIONNew inventions are always taking place and new and better products replace existing ones An industry that can be replaced by substitutes or is threatened by substitutes is normally an industry one must be careful of investing in An industry where this occurs constantly is the packaging industry -bottles replaced by cans cans replaced by plastic bottles and the like To ward off the threat of substitution companies often have to spend large sums of money in advertising and promotion
3 BARGAINING POWER OF THE BUYERSIn an industry where buyers have control ie in a buyers market buyers are constantly forcing prices down demanding better services or higher quality and this often erodes profitability The factors one should check are whether a) A particular buyer buys most of the products (large purchase volumes) If such buyers withdraw their patronage they can destroy an industry They can also force prices downb) Buyers can play one company against another to bring prices down
4 BARGAINING POWER FOR THE SUPPLIERSAn industry unduly controlled by its suppliers is also under threat This occurs whena) The suppliers have a monopoly or if there are few suppliersb) Suppliers control an essential c) Demand for the product exceeds d) The supplier supplies to various industriese) The switching costs are high
21
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
f) The suppliers product does not have a substituteg) The suppliers product is an important input for the buyersh) The buyer is not important to the supplieri) The suppliers product is unique
5 RIVALRY AMONG COMPETITORSRivalry among competitors can cause an industry great harm This occurs mainly by price cuts heavy advertising additional high cost services or offers and the like This rivalry occurs mainly whena) There are many competitors and supply exceeds demand Companies resort to price cuts and advertise heavily in order to attract customers for their goodsb) The industry growth is slow and companies are competing with each other for a greater market sharec) The economy is in a recession and companies cut the price of their products and offer better service to stimulate demandd) There is lack of differentiation between the product of one company and that of another In such cases the buyer makes his choice on the basis of price or servicee) In some industries economies of scale will necessitate large additions to existing capacities in a company The increase in production could result in over capacity amp price cuttingf) Competitors may have very different strategies in selling their goods and in competing they may be continuously trying to stay ahead
III COMPANY ANALYSIS
At the final stage of fundamental analysis the investor analyzes the company This analysis has two thrustsHow has the company performed vis-agrave-vis other similar companies and How has the company performed in comparison to earlier years It is imperative that one completes the politico economic analysis and the industry analysis before a company is analyzed because the companys performance at a period of time is to an extent a reflection of the economy the political situation and the industry What does one look at when analyzing a company The different issues regarding a company that should be examined are The Management The Company The Annual Report Ratios Cash flow
THE MANAGEMENT
The single most important factor one should consider when investing in a company and one often never considered is its management In India management can be broadly
22
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
divided in two types Family Management Professional Management
THE COMPANY
An aspect not necessarily examined during an analysis of fundamentals is the company A company may have made losses consecutively for two years or more and one may not wish to touch its shares - yet it may be a good company and worth purchasing into There are several factors one should look at
1 How a company is perceived by its competitorsOne of the key factors to ascertain is how a company is perceived by its competitors It is held in high regard Its management may be known for its maturity vision competence and aggressiveness The investor must ascertain the reason and then determine whetherthe reason will continue into the foreseeable future
2 Whether the company is the market leader in its products or in its segmentAnother aspect that should be ascertained is whether the company is the market leader in its products or in its segment When you invest in market leaders the risk is less Theshares of market leaders do not fall as quickly as those of other companies There is a magic to their name that would make individuals prefer to buy their products as opposed to others
3 Company PoliciesThe policy a company follows is also important What is its plans for growth What is its vision Every company has a life If it is allowed to live a normal life it will grow upto a point and then begin to level out and eventually die It is at the point of leveling out that it must be given new life This can give it renewed vigour and a new lease of life
4 Labour RelationsLabour relations are extremely important A company that has motivated industrious work force has high productivity and practically no disruption of work On the other hand a company that has bad industrial relations will lose several hundred mandays as a consequence of strikes and go slows
5 Where the company is located and where its factories are One must also consider where the companies Plants and Factories are located
THE ANNUAL REPORT
The primary and most important source of information about a company is its Annual Report By law this is prepared every year and distributed to the shareholders Annual Reports are usually very well presented A tremendous amount of data is given about the performance of a company over a period of time The Annual Report is broken down into the following specific parts
23
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the Accounts
A The Directorrsquos ReportThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship 1 It enunciates the opinion of the directors on the state of the economy and the political situation vis-agrave-vis the company 2 Explains the performance and the financial results of the company in the period under review This is an extremely important part The results and operations of the various separate divisions are usually detailed and investors can determine the reasons for their good or bad performance3 The Directorrsquos Report details the companys plans for modernization expansion and diversification Without these a company will remain static and eventually decline4 Discusses the profit earned in the period under review and the dividend Recommended by the directors This paragraph should normally be read with some skepticism as the directors will always argue that the performance was satisfactory If adverse economic conditions are usually at fault 5 Elaborates on the directors views of the companys prospects in the future6 Discusses plans for new acquisition and investments An investor must intelligently evaluate the issues raised in a Directorrsquos Report Industry conditions and the managements knowledge of the business must be considered
B The Auditors ReportThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors Auditors are required to report whether the financial statements presented do in fact present a true and fair view of the state of the company Investors must remember that the auditors are their representatives and that they are required by law to point out if the financial statements are not true and fair
CFinancial StatementsThe published financial statements of a company in an Annual Report consist of its Balance Sheet as at the end of the accounting period detailing the financing condition of the company at that date and the Profit and Loss Account or Income Statement summarizing the activities of the company for the accounting period
BALANCE SHEETThe Balance Sheet details the financial position of a company on a particular date of the companys assets (that which the company owns) and liabilities (that which the companyowes) grouped logically under specific heads It must however be noted that the Balance Sheet details the financial position on a particular day and that the position can be materially different on the next day or the day after
24
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOURCES OF FUNDSSHAREHOLDERS FUNDSSHARE CAPITAL(i) Private Placement(ii) Public Issueiii) Rights issuesRESERVESi) Capital Reservesii) Revenue ReservesLOAN FUNDSi) Secured loansii) Unsecured loansFIXED ASSETSINVESTMENTSSTOCK OR INVENTORIESi) Raw materialsii) Work in progressiii) Finished goodsCASH AND BANK BALANCESLOANS AND ADVANCES
PROFIT AND LOSS ACCOUNTThe Profit and Loss account summarizes the activities of a company during an accounting period which may be a month a quarter six months a year or longer and the result achieved by the company It details the income earned by the company its cost and the resulting profit or loss It is in effect the performance appraisal not only of the company but also of its management- its competence foresight and ability to lead
RATIOS
Ratios express mathematically the relationship between performance figures andor assetsliabilities in a form that can be easily understood and interpretedNo single ratio tells the complete storyRatios can be broken down into four broad categories
(A) Profit and Loss RatiosThese show the relationship between two items or groups of items in a profit and loss account or income statement The more common of these ratios are1 Sales to cost of goods sold2 Selling expenses to sales3 Net profit to sales and4 Gross profit to sales
(B) Balance Sheet RatiosThese deal with the relationship in the balance sheet such as 1 Shareholders equity to borrowed funds
25
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
2 Current assets to current liabilities3 Liabilities to net worth4 Debt to assets and5 Liabilities to assets
(C) Balance Sheet and Profit and Loss Account RatiosThese relate an item on the balance sheet to another in the profit and loss account such as1 Earnings to shareholders funds2 Net income to assets employed3 Sales to stock4 Sales to debtors and5 Cost of goods sold to creditors
(D) Financial Statements and Market RatiosThese are normally known as market ratios and are arrived at by relative financial figures to market prices1 Market value to earnings and2 Book value to market value(a) Market value(b) Earnings(c) Profitability(d) Liquidity(e) Leverage(f) Debt Service Capacity(g) Asset ManagementEfficiency(h) Margins
The major ratios that are considered(i) Market value(ii) Price- earnings ratio(iii) Market-to-book ratio(iv) Earnings(v) Earning per share(vi) Dividend per share(vii) Dividend payout ratio(viii) Leverage ratios(ix) Return on investmentstotal assets
CASH FLOW A statement of sources and uses begins with the profit for the year to which are added the increases in liability accounts (sources) and from which are reduced the increases in asset accounts (uses) The net result shows whether there has been an excess or deficit of funds and how this was financed Investors must examine a companys cash flow as it reveals exactly where the money came from how it was utilized Investors must be
26
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
concerned if a company is financing either its inventories or paying dividends from borrowings without real growth as that shows deterioration
27
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-4 ANALYSIS
28
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
I FUNDAMENTAL ANALYSIS OF STOCKS
Basically fundamental analysis is covered in 3 parts
1 Market economy analysis
2 Industry Analysis
3 Company Analysis
1) TATA MOTORS
I Market Economy Analysis
It covers the macro economy analysis and the various macro economic factors on the national level like GDP Monetary policies of India Fiscal Policies and Inflation and money supply etc
GDP
Real GDP growth accelerated from 75 per cent during 2004-05 to 84 per cent during
2005-06 on the back of buoyant manufacturing and services activity supported by a
recovery in the agricultural sector Real GDP growth has thus averaged over eight per
cent during the last three years and over seven per cent in the first four years (2002-03 to
2005-06) of the Tenth Five Year Plan
Strengths of India today are
A well diversified industrial base which profits from self-reliance in all core industries A
large amp sophisticated financial architecture - The robust capital Markets today have over
9000 listed companies and boast of a massive Market capitalization
A healthy GDP composition with agriculture contributing 22 Industry 22 and
services which have gone strength to strength accounting For 56 of the GDP an
29
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
acknowledged strength in knowledge driven industries like Information technology
biotechnology entertainment Software etc
India has Over 3 million scientific amp technical manpower Over 06 million SampT post
graduates Over 07 million graduate engineers Over 3500 doctorates in sciences every
year
Assuming trend growth in agriculture under normal monsoon conditions and barring
domestic or external shocks the Reserve Bank in its Annual Policy Statement for 2007-
08 (April 2007) placed real GDP growth for policy purposes in the range of 75-80 per
cent during 2007-08 Growth prospects are however subject to a number of downside
risks The risks emanating from the global economy are potential escalation and
volatility in international crude oil prices firming up of overall inflationary pressures and
expectations and a hardening of international interest rates along with the withdrawal of
monetary accommodation
Indiarsquos demographic advantage ndash In contrast to developed Countries India will have a
younger population for the next 50 years Hence India would be the hub for RampD
Inflation
Inflation was contained to 63 per cent by end-March 2007 within the indicative
trajectory of 50-55 per cent during 2007-08 The actual inflation was considerably lower
than the indicative trajectory and this could be mainly attributed to the deferred pass-
through of even the cognisable permanent component of international crude oil prices
Money Supply
Monetary and liquidity conditions remained largely comfortable during 2006-07reflecting
proactive liquidity management operations by the Reserve Bank under the liquidity
adjustment facility flexible management of issuances under the market stabilisation
scheme and some private placement of Government securities
30
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
In short the Indian economy is exhibiting strong fundamentals and displaying
considerable resilience At the same time there are continuing signs of demand pressures
especially high credit growth that could exert upward pressure on prices when associated
with supply shocks such as from oil These pressures have the potential for impacting
stability and inflation expectations While domestic developments continue to dominate
the economy global factors tend to gain more attention now than before The global
outlook for growth is positive but downside risks in regard to inflation also RBI is
applying new repo and reverse repo for the balance of inflation and monetary policies
The following are macroeconomic policies generally found as part of government-
directed industrial auto policies
(a) Restrictions on domestic and foreign investment
(b) Domestic content requirements
(c) High tariff walls
(d) Auto export requirements
(e) National production to sales ratios
(f) Distribution controls
(g) Quotas and licensing requirements that significantly restrict imports
(h) Government approval for product related decisions including vehicle make
body type engine size etc
(i) Special government categories for auto taxes
II INDUSTRY ANALYSIS
Since 1991 opening of the economy has changed the face of auto industry Today it is
amongst the main drivers of growth of Indian economy with an output multiplier of
224(for every Re1 invested auto sector gives back Rs224 to the economy) In recent
years we have seen increasing number of global players entering Indian market by way of
Joint ventures collaborations or wholly owned subsidiary
The automobile industry is torn between trying to reduce costs on the one hand and on
the other dealing with the high price of performance-enhancing technology and
environmental compliance Key drivers in the automotive industry are
31
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Reducing air pollution
Reduction of weight
Recyclability
Safety
Better performance and engine efficiency
Aesthetics
Longer service Life
INDUSTRY LIFE CYCLE
The automobile market is at the maturity stage of the life cycle locally and globally due
to an increased number of competitors from domestic and foreign markets The
automobile market is characterized by a low potential for market growth but high sales
and profit potential as the products have still not saturated the market as a whole
MAJOR COMPETITORS OF TATA MOTORS ARE
Maruti Udyog Ltd
General Motors India
Ford India Ltd
Eicher Motors
Bajaj Auto
Hero Motors
Hindustan Motors
32
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Hyundai Motor India Ltd
Royal Enfield Motors
Telco
TVS Motors
FINANCIALS
Description 1 Day PriceChange
MarketCap
PEROE
Div Yield
Long-Term Debt toEquity
Price toBook Value
NetProfit Margin (mrq)
Price toFree Cash Flow (mrq)
Sector Consumer Goods 01125178B
2488
1707
222
1171076
706 40842
Industry Auto Manufacturers - Major (More Info)
0613310B
3000
750171
181 155 160 -440
Companies
Daimlerchrysler AG (DCX) 021 539B1072
1119
350
217 116 469 -354
Ford Motor Co (F) 121 157B NA-951
240
1107
115 -060 -8205
General Motors Corporation (GM) -024 165B NA
-6285
340
390 142 -621 014
Honda Motor Co Ltd (HMC) 083 622B1152
1654
100
083 173 552 20748
Tata Motors Ltd (TTM) -038 71B1864
NA150
NA 535 564 NA
Toyota Motor Corp (TM) 0731756B
1394
1505
120
103 197 659 NA
Opportunities and Threats
a) Opportunities
Road Development The ongoing road development program would improve
connectivity to ports cities and villages through a network of highways and
interconnecting roads by 2010-11 Improved road network would help in faster
33
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
movement of goods between various cities and towns The Company launched TATA
Novus range of vehicles in the heavy segment and TATA ACE for last mile distribution
Car penetration in India Car penetration in India is 7 cars per 1000 persons
International In FY 2006-07 the Company increased share of its overseas vehicle sales
from 76 last year to record high of 111 (as of its total sales) and has planned
further increase in this year
b) Threats
Global Competition India is increasingly attracting global players to set up
manufacturing facility for producing cars especially small cars Global automobile
manufacturers are also entering India in commercial vehicle segment to leverage Indiarsquos
low cost production advantage to their favor
Fuel Prices The continuing fuel price increase in the domestic market could
significantly impact demand of commercial and passenger vehicles
Input costs Commodity items particularly steel non-ferrous metals rubber and
engineering plastics have witnessed huge price increases in the past These prices are
expected to increase further affecting the Companyrsquos profitability
Interest rate hardening and other inflationary trends With interest rates hardening and
liquidity crunch in the system growth in sales may be adversely impacted
Government Regulations Stringent emission and safety requirements could bring new
complexities for automotive and component manufacturers impacting the Companyrsquos
business
Risks and Concerns
Interest Rates FY 2007-08 started with increasing interest rate regime and tightening
liquidity position in the economy Increasing interest rates could further affect vehicle
demand which could have an adverse impact on the Companyrsquos revenues and profits
Exchange rates The Company exports vehicles to many countries and exchange rate
fluctuations in the order execution period could impact the Companyrsquos business
34
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Freight rates In FY 2006-07 freight rates in road transport sector moved up mainly
due to surge in construction activity ongoing road development projects and severe
restriction on over-loading Demand for commercial vehicles could be impacted by
further change in freight rates and change in fuel prices
Domestic market The Company plans to reduce the impact of this cyclicality on its
business by strengthening its less cyclical businesses like buses light trucks small
commercial vehicles
Overseas market In overseas markets the Company competes with global players
which have multiple vehicle platforms large financial capability and global branding
Manufacturing The Company manufactures vehicles at multiple locations and given
the geographical dispersion of its suppliers it faces Logistics Problems
New Competition Competitive activity is expected to increase in commercial vehicle
and passenger vehicle domestic market in coming years
New projects The Company currently is in midst of executing many new projects
ranging from launch of new car platforms to development of new Truck models
III Company Analysis
Key Highlights
Symbol TTL
Sector Consumer Goods
Industry Auto Manufacturers Major
Market Cap Rs29232 crores
Data Since 1945
Last close Rs 74290
Brief Summary of the company
35
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Tata Motors is one of the largest companies in the Tata Group with a total income of US$
235 billion More than 3 million Tata vehicles ply on Indian roads making Tata a
dominant force in the Indian automobile industry
Joint Venture with Fiat and Hitachi
Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing
passenger vehicles engines and transmissions for both domestic and international
markets The Company has also entered into a JV with Hitachi to set up a new plant in
Kharagpur
Product Mix
Tata Motors is Indias only fully integrated automobile manufacturer with a portfolio that
covers trucks buses utility vehicles and passenger cars It would be no exaggeration to
say that Tata Motors provides the wheels for Indias growth
Segmental Overview
Commercial Vehicle Segment
The Company registered 696 volume growth in the domestic CV segment during
4QFY06 from 37228 units in Q3FY05 to 63082 units in Q3FY06 The market share in
this segment was 658 in Q4FY06 as compared to 552 in Q1FY06 The MHCV
goods-carrier segment registered a 544 growth YoY with sale of 33515 units and a
market share of 645 up by around 410 bps driven by infrastructure development and
increase in international trade
Passenger Vehicle Segment
The Company reported a growth of 212 YoY to 49907 vehicles in the domestic
passenger vehicle segment and a market share of 162 in the quarter The passenger
vehicle industry registered a volume growth of 204 during Q4FY06
36
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Plants
Tata Motors owes its leading position in the Indian automobile industry to its strong
focus on indigenisation Their manufacturing plants are situated at Jamshedpur in the
East Pune in the West and Lucknow in the North
Charts showing Key Statistics of tata motors
37
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Share holding pattern as on 31-Mar
shareholding pattern
34
1425
17
10
promotors
MF Banks Fis
FIIs
Others
Public
Financial highlights
38
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
39
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
RATIO ANALYSIS
Ratios 2006 2005 2004
Debtequity 056 049 044
Current ratio 108 087 076
Operating profit margin 1211 1151 1238
Gross profit margin 1087 1043 1104
ROCE 3125 3276 3377
total assets turnover ratio 315 353 343
ROE 2761 3009 2257
Dividend-equity 49794 45373 28211
Retention Ratio 6743 6332 6519
DPS (Rs) 1301 125 799
EPS (Rs) 25 34 41
Dividend Payout Ratio 039 042 037
CAGR of EPS 0177
CAGR of Dividend Payout Ratio -0017
Average ROE 2574
average retention 6354
Growth (g = Avg RR times Avg ROE ) 1636
Market return 1454
40
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
PE ratio (on the basis of historical analysis) = 1812
Therefore the Weighted PE ratio =(1812+2424)2 = 21181
Projected EPS = EPS OF 2006 + CAGR of EPSEPS OF 2006
= Rs48271
Value of Share at the end of financial year 06-07
= Projected EPS Weighted PE Ratio
= Rs1022
2) HPCL
Globalization and the Indian Petroleum Industry
Indian petroleum industry in the post independent period (1947-2001) it may be divided
into three distinct phases
(i) early phase (1947 to 1969)- when the government consolidated its control over
the industry with Soviet assistance
(ii) development phase (1970 to 1989)- in this period the US companies played
dominant role replacing the Soviets and
41
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
(iii) the economic liberalisation phase of 1990s
PORTERrsquoS MODEL
SWOT ANALYSIS
STRENGHS
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
WEAKNESSES
Dependence on refining function high
Moderate share in high profitable retail segment
42
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Diversifications in petrochemicals could trouble the company
High burden of subsidy loss on cooking gas and kerosene
OPPORTUNITIES
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
Overseas presence in upstream and downstream will determine growth
THREATS
Rising oil prices could dampen demand
High regulatory risk
Loss of market share to private players
Entrance of private players in pipelines will take away monopoly of company in
north India
COMPANY ANALYSIS
The Annual Report is broken down into the following specific parts
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the AccountsATHE DIRECTORrsquoS REPORTThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship Fundamental AnalysisB THE AUDITORS REPORTThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors
C FINANCIAL STATEMENTSIt comprises of Balance Sheet Profit and Loss account Cash Flows Its analysis would be discussed later
DSCHEDULES
43
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The schedules detail pertinent information about the items of Balance Sheet and Profit amp Loss Account It also details information about sales manufacturing costs administration costs interest and other income and expenses
1 THE MANAGEMENT
HPCL is a public sector undertaking Thus it is a professionally managed company
There are some parameters of management on which a company is analysed
a integrity of management
b past record of management
c how highly is the management rated by its peers in the same industry
d how the management fares in adversity
e the depth of the knowledge of management
f open and innovative management
on all these parameters HPCL scores good
2 COMPANY
Many times a company has made losses in the previous years but that does not mean
that the company is bad to invest Thus many factors are studied while studying a
company
a) perception of competitors
HPCL is the second largest petroleum company after IOCL Thus it is a competitor of
IOCL and it is trying hard to compete with IOCL on every front That is why now it
has decided to diversify itself in the oil exploration sector
b) company policies
As this is a PSU thus the policies are made by the government The oil sector is one
which is highly regulated by government Thus from time to time it is required to
watch out the various policies changed
3 ANNUAL REPORT
The most primary and most important source of information about a company is its
Annual Report This is prepared every year and distributed to its shareholders
44
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Ratio Analysis
Evaluation of Intrinsic Value of the Security
stdev mkt 0011934stdev sec 003831 Average
Retention Ratio 060504
correlation 0485958 ROE 019842Beta 156765 g 0120052Risk Free Rate 650
Mkt Rate 14
45
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
k 1826
Hence we see that here our g is less than k Thus we see that as per Dividend Discount Model our Intrinsic value is div=22(1+012)=240626= 387
Price= Projected EPS + Weighted PE ratioUsing CAGR EPS = 43468Weighted PE Ratio = 75+6652=33625
Price = 43468+33625 = 381
3) HDFC BANK
The Indian banking industry sector overview
With the economic growth picking up pace and the investment cycle on the way to recovery the banking sector has witnessed a transformation in its vital role of intermediating between the demand and supply of funds
Public sector banks have been very proactive in their restructuring initiatives be it in technology implementation or pruning their loss assets Windfall treasury gains made in the falling interest rate regime were used for writing off the doubtful and loss assets
Retail lending (especially mortgage financing) formed a significant portion of the portfolio for most banks and they customized their products to cater to the diverse demands
Apart from streamlining their processes through technology initiatives such as ATMs telephone banking online banking and web based products banks also resorted to cross selling of financial products such as credit cards mutual funds and insurance policies to augment their fee based income
PORTERrsquoS FIVE FORCES MODEL FOR THE BANKING INDUSTRY
1) BARRIERS TO ENTRY a Economies of scale Since the existing players in the market are well
established and already have a customer base they are able to bear the cost of using the advantages of technology to their maximum advantage
46
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Capital requirement for entry i The Banking Regulation Act prescribes the minimum capital
requirements for a bank Moreover banks have to maintain a capital adequacy ratio of 9 under the Basel I norms
ii Government has declared that the foreign banks will be permitted to establish their presence in India by way of setting up a wholly owned banking subsidiary (WOS) with a minimum capital of Rs300 crore
c Access to distribution channels Since banks have to set up their own distribution channels all the cost has to be directly born by them
d Cost advantage independent of size Existing banks have huge databases of customers which they use when they want to sell a new product launched by them
e Legislation or Government action Banks are governed by Banking Regulation Act 1949 which specifies the rules and regulations applicable to banks RBI is the governing body of banks in India
2) BARGAINING POWER OF BUYERS
Due to increased competition the services offered by banks to customers have improved considerably
3) BARGAINING POWER OF THE SUPPLIERS
Suppliers to banks can be both - the customers and RBIa Customers of banks provide money to banks in the form of deposits and in
return earn some interest on that b RBI acts as a supplier to banks by selling govt securities treasury bills
govt bonds etc c Call money market Banks sometimes have to borrow from other banks to
meet CRR and SLR requirements or other capital requirements as provided by RBI
4) THREAT OF SUBSTITUTES
a Product-for-product substitutioni Banks provide interest on deposits made by people Similar
services are offered by post offices which may act as substitutes to the deposit schemes of banks
ii Some banks offer locker services to customers for yearly rates Similar services are provided by many post offices
47
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Generic substitution People who deposit their savings in banks can invest their money in other sources like mutual funds shares and other securities and life insurance schemes
5) COMPETITIVE RIVALRY
a Extent of competitor balance b Market growth ratesc High Exit Barriers
PEST Analysis for Banking Industry
1 Political factors - The major factors affecting the banking sector are the following
Banking sector reforms ndash As per the RBI roadmap for reforms in the first stage from 2005 to 2009 foreign banks will be allowed to set up wholly owned subsidiaries as well as get greater freedom to set up new branches Fulfilling the minimum priority sector credit -The government mandation of fulfilling the minimum priority sector credit (of which 18 per cent is food credit) has forced the domestic banks to cater to this segment despite the low profitability and vulnerability of asset quality
Banks have also been allowed to set up Offshore Banking Units in SEZrsquos
2 Economic factors -
Basell II norms for the risk management in banking sector - The new Basel Accord has its foundation on three mutually reinforcing pillars The first pillar is compatible with the credit risk market risk and operational risk The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bankConcurrently it also casts responsibility on the supervisors to review and validate banksrsquo risk measurement models
Consolidation and merger and acquisitions in the banking sector- HDFC bank also acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Universal Banking has been introduced ICICI Bank HDFCs closest competitor is already into Universal Banking so HDFC is also getting into it as now it is providing retail banking and also depository facilities in the form of demat account
48
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
3 Social factors-
Big and growing middle class in India - This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans car loans education loans auto loans etc Retail loans have grown from 19 in FYrsquo99 to 51 FYrsquo06Consumer credit accounts for a meager 286 per cent of the countrys GDP and the buoyancy in the economy offers sufficient scope for it to grow
Geographical and Cultural diversity- This is leading to a greater demand for financial products and customization by the customers
4 Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999 It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector
Banks (All) No of players = 40
Sector statistics
We see the sector aggregates and make a financial comparison for the major banks
Top PlayersFY2006
Based on Total Income Based on OPBDT Total Income Change OPBDT Change
(Rs Mn) () (Rs Mn) ()ICICI BANK 631619 5450 S B I 763528 -129 PUNJAB NATIONAL B 29218 1491 ICICI BANK 37174 1936
CAN BANK 277095 2378 PUNJAB NATIONAL B 222052 3936
BANK OF INDIA 23317 2543 CAN BANK 168825 1953
H D F C BANK 185508 6024 H D F C BANK 14324 2748 change - indicates the change between current and corresponding quarter
49
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A low interest rate stimulates investment and industry Conversely high interest rates result in higher cost of production and lower consumption
TaxationThe level of taxation in a country has a direct effect on the economy If tax rates are low people have more disposable income
Government PolicyGovernment policy has a direct impact on the economy A government that is perceived to be proindustry will attract investment
THE ECONOMIC CYCLE
It affects investment decisions employment demand and the profitability of companiesThe four stages of an economic cycle are DepressionRecoveryBoom Recession DepressionAt the time of depression demand is low and falling Inflation is high and so are interest rates Companies crippled by high borrowing and falling sales are forced to curtail production close down plants built at times of higher demand and let workers go
RecoveryDuring this phase the economy begins to recover Investment begins anew and the demand grows Companies begin to post profits Conspicuous spending begins once again
BoomIn the boom phase demand reaches an all time high Investment is also high Interest rates are low Gradually as time goes on supply begins to exceed the demand Prices that had been rising begin to stabilize and even fall There is an increase in demand Then as the boom period matures prices begin to rise again
RecessionThe economy slowly begins to downturn Demand starts falling Interest rates and inflation are high Companies start finding it difficult to sell their goods The economy slowly begins to downturn
19
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II INDUSTRY ANALYSIS
The importance of industry analysis is now dawning on the Indian investor as never before
CycleThe first step in industry is to determine the cycle it is in or the stage of maturity of the industry All industries evolve through the following stages1 Entrepreneurial sunrise or nascent stage2 Expansion or growth stage3 Stabilization stagnation or maturity stage and4 Decline or sunset stage to properly establish itself In the early days it may actually make losses
The Entrepreneurial or Nascent StageAt the first stage the industry is new and it can take some time for it to properly establish itself
The Expansion or Growth StageOnce the industry has established itself it enters a growth stage As the industry grows many new companies enter the industry
The Stabilization or Maturity StageAfter the halcyon days of growth an industry matures and stabilizes Rewards are low and so too is the risk Growth is moderate Though sales may increase they do so at a
20
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
slower rate than before Products are more standardized and less innovative and there are several competitors
The Decline or Sunset StageFinally the industry declines This occurs when its products are no longer popular This may be on account of several factors such as a change in social habits The film and video industries
1 BARRIER TO ENTRYNew entrants increase the capacity in an industry and the inflow of funds The question that arises is how easy is it to enter an industry There are some barriers to entry
a) Economies of scaleb) Product differentiation c) Capital requirementd) Switching costse) Access to distribution channelsf) Cost disadvantages independent of scaleg) Government policyh) Expected retaliationj) International cartels
2 THE THREAT OF SUBSTITUTIONNew inventions are always taking place and new and better products replace existing ones An industry that can be replaced by substitutes or is threatened by substitutes is normally an industry one must be careful of investing in An industry where this occurs constantly is the packaging industry -bottles replaced by cans cans replaced by plastic bottles and the like To ward off the threat of substitution companies often have to spend large sums of money in advertising and promotion
3 BARGAINING POWER OF THE BUYERSIn an industry where buyers have control ie in a buyers market buyers are constantly forcing prices down demanding better services or higher quality and this often erodes profitability The factors one should check are whether a) A particular buyer buys most of the products (large purchase volumes) If such buyers withdraw their patronage they can destroy an industry They can also force prices downb) Buyers can play one company against another to bring prices down
4 BARGAINING POWER FOR THE SUPPLIERSAn industry unduly controlled by its suppliers is also under threat This occurs whena) The suppliers have a monopoly or if there are few suppliersb) Suppliers control an essential c) Demand for the product exceeds d) The supplier supplies to various industriese) The switching costs are high
21
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
f) The suppliers product does not have a substituteg) The suppliers product is an important input for the buyersh) The buyer is not important to the supplieri) The suppliers product is unique
5 RIVALRY AMONG COMPETITORSRivalry among competitors can cause an industry great harm This occurs mainly by price cuts heavy advertising additional high cost services or offers and the like This rivalry occurs mainly whena) There are many competitors and supply exceeds demand Companies resort to price cuts and advertise heavily in order to attract customers for their goodsb) The industry growth is slow and companies are competing with each other for a greater market sharec) The economy is in a recession and companies cut the price of their products and offer better service to stimulate demandd) There is lack of differentiation between the product of one company and that of another In such cases the buyer makes his choice on the basis of price or servicee) In some industries economies of scale will necessitate large additions to existing capacities in a company The increase in production could result in over capacity amp price cuttingf) Competitors may have very different strategies in selling their goods and in competing they may be continuously trying to stay ahead
III COMPANY ANALYSIS
At the final stage of fundamental analysis the investor analyzes the company This analysis has two thrustsHow has the company performed vis-agrave-vis other similar companies and How has the company performed in comparison to earlier years It is imperative that one completes the politico economic analysis and the industry analysis before a company is analyzed because the companys performance at a period of time is to an extent a reflection of the economy the political situation and the industry What does one look at when analyzing a company The different issues regarding a company that should be examined are The Management The Company The Annual Report Ratios Cash flow
THE MANAGEMENT
The single most important factor one should consider when investing in a company and one often never considered is its management In India management can be broadly
22
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
divided in two types Family Management Professional Management
THE COMPANY
An aspect not necessarily examined during an analysis of fundamentals is the company A company may have made losses consecutively for two years or more and one may not wish to touch its shares - yet it may be a good company and worth purchasing into There are several factors one should look at
1 How a company is perceived by its competitorsOne of the key factors to ascertain is how a company is perceived by its competitors It is held in high regard Its management may be known for its maturity vision competence and aggressiveness The investor must ascertain the reason and then determine whetherthe reason will continue into the foreseeable future
2 Whether the company is the market leader in its products or in its segmentAnother aspect that should be ascertained is whether the company is the market leader in its products or in its segment When you invest in market leaders the risk is less Theshares of market leaders do not fall as quickly as those of other companies There is a magic to their name that would make individuals prefer to buy their products as opposed to others
3 Company PoliciesThe policy a company follows is also important What is its plans for growth What is its vision Every company has a life If it is allowed to live a normal life it will grow upto a point and then begin to level out and eventually die It is at the point of leveling out that it must be given new life This can give it renewed vigour and a new lease of life
4 Labour RelationsLabour relations are extremely important A company that has motivated industrious work force has high productivity and practically no disruption of work On the other hand a company that has bad industrial relations will lose several hundred mandays as a consequence of strikes and go slows
5 Where the company is located and where its factories are One must also consider where the companies Plants and Factories are located
THE ANNUAL REPORT
The primary and most important source of information about a company is its Annual Report By law this is prepared every year and distributed to the shareholders Annual Reports are usually very well presented A tremendous amount of data is given about the performance of a company over a period of time The Annual Report is broken down into the following specific parts
23
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the Accounts
A The Directorrsquos ReportThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship 1 It enunciates the opinion of the directors on the state of the economy and the political situation vis-agrave-vis the company 2 Explains the performance and the financial results of the company in the period under review This is an extremely important part The results and operations of the various separate divisions are usually detailed and investors can determine the reasons for their good or bad performance3 The Directorrsquos Report details the companys plans for modernization expansion and diversification Without these a company will remain static and eventually decline4 Discusses the profit earned in the period under review and the dividend Recommended by the directors This paragraph should normally be read with some skepticism as the directors will always argue that the performance was satisfactory If adverse economic conditions are usually at fault 5 Elaborates on the directors views of the companys prospects in the future6 Discusses plans for new acquisition and investments An investor must intelligently evaluate the issues raised in a Directorrsquos Report Industry conditions and the managements knowledge of the business must be considered
B The Auditors ReportThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors Auditors are required to report whether the financial statements presented do in fact present a true and fair view of the state of the company Investors must remember that the auditors are their representatives and that they are required by law to point out if the financial statements are not true and fair
CFinancial StatementsThe published financial statements of a company in an Annual Report consist of its Balance Sheet as at the end of the accounting period detailing the financing condition of the company at that date and the Profit and Loss Account or Income Statement summarizing the activities of the company for the accounting period
BALANCE SHEETThe Balance Sheet details the financial position of a company on a particular date of the companys assets (that which the company owns) and liabilities (that which the companyowes) grouped logically under specific heads It must however be noted that the Balance Sheet details the financial position on a particular day and that the position can be materially different on the next day or the day after
24
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOURCES OF FUNDSSHAREHOLDERS FUNDSSHARE CAPITAL(i) Private Placement(ii) Public Issueiii) Rights issuesRESERVESi) Capital Reservesii) Revenue ReservesLOAN FUNDSi) Secured loansii) Unsecured loansFIXED ASSETSINVESTMENTSSTOCK OR INVENTORIESi) Raw materialsii) Work in progressiii) Finished goodsCASH AND BANK BALANCESLOANS AND ADVANCES
PROFIT AND LOSS ACCOUNTThe Profit and Loss account summarizes the activities of a company during an accounting period which may be a month a quarter six months a year or longer and the result achieved by the company It details the income earned by the company its cost and the resulting profit or loss It is in effect the performance appraisal not only of the company but also of its management- its competence foresight and ability to lead
RATIOS
Ratios express mathematically the relationship between performance figures andor assetsliabilities in a form that can be easily understood and interpretedNo single ratio tells the complete storyRatios can be broken down into four broad categories
(A) Profit and Loss RatiosThese show the relationship between two items or groups of items in a profit and loss account or income statement The more common of these ratios are1 Sales to cost of goods sold2 Selling expenses to sales3 Net profit to sales and4 Gross profit to sales
(B) Balance Sheet RatiosThese deal with the relationship in the balance sheet such as 1 Shareholders equity to borrowed funds
25
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
2 Current assets to current liabilities3 Liabilities to net worth4 Debt to assets and5 Liabilities to assets
(C) Balance Sheet and Profit and Loss Account RatiosThese relate an item on the balance sheet to another in the profit and loss account such as1 Earnings to shareholders funds2 Net income to assets employed3 Sales to stock4 Sales to debtors and5 Cost of goods sold to creditors
(D) Financial Statements and Market RatiosThese are normally known as market ratios and are arrived at by relative financial figures to market prices1 Market value to earnings and2 Book value to market value(a) Market value(b) Earnings(c) Profitability(d) Liquidity(e) Leverage(f) Debt Service Capacity(g) Asset ManagementEfficiency(h) Margins
The major ratios that are considered(i) Market value(ii) Price- earnings ratio(iii) Market-to-book ratio(iv) Earnings(v) Earning per share(vi) Dividend per share(vii) Dividend payout ratio(viii) Leverage ratios(ix) Return on investmentstotal assets
CASH FLOW A statement of sources and uses begins with the profit for the year to which are added the increases in liability accounts (sources) and from which are reduced the increases in asset accounts (uses) The net result shows whether there has been an excess or deficit of funds and how this was financed Investors must examine a companys cash flow as it reveals exactly where the money came from how it was utilized Investors must be
26
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
concerned if a company is financing either its inventories or paying dividends from borrowings without real growth as that shows deterioration
27
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-4 ANALYSIS
28
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
I FUNDAMENTAL ANALYSIS OF STOCKS
Basically fundamental analysis is covered in 3 parts
1 Market economy analysis
2 Industry Analysis
3 Company Analysis
1) TATA MOTORS
I Market Economy Analysis
It covers the macro economy analysis and the various macro economic factors on the national level like GDP Monetary policies of India Fiscal Policies and Inflation and money supply etc
GDP
Real GDP growth accelerated from 75 per cent during 2004-05 to 84 per cent during
2005-06 on the back of buoyant manufacturing and services activity supported by a
recovery in the agricultural sector Real GDP growth has thus averaged over eight per
cent during the last three years and over seven per cent in the first four years (2002-03 to
2005-06) of the Tenth Five Year Plan
Strengths of India today are
A well diversified industrial base which profits from self-reliance in all core industries A
large amp sophisticated financial architecture - The robust capital Markets today have over
9000 listed companies and boast of a massive Market capitalization
A healthy GDP composition with agriculture contributing 22 Industry 22 and
services which have gone strength to strength accounting For 56 of the GDP an
29
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
acknowledged strength in knowledge driven industries like Information technology
biotechnology entertainment Software etc
India has Over 3 million scientific amp technical manpower Over 06 million SampT post
graduates Over 07 million graduate engineers Over 3500 doctorates in sciences every
year
Assuming trend growth in agriculture under normal monsoon conditions and barring
domestic or external shocks the Reserve Bank in its Annual Policy Statement for 2007-
08 (April 2007) placed real GDP growth for policy purposes in the range of 75-80 per
cent during 2007-08 Growth prospects are however subject to a number of downside
risks The risks emanating from the global economy are potential escalation and
volatility in international crude oil prices firming up of overall inflationary pressures and
expectations and a hardening of international interest rates along with the withdrawal of
monetary accommodation
Indiarsquos demographic advantage ndash In contrast to developed Countries India will have a
younger population for the next 50 years Hence India would be the hub for RampD
Inflation
Inflation was contained to 63 per cent by end-March 2007 within the indicative
trajectory of 50-55 per cent during 2007-08 The actual inflation was considerably lower
than the indicative trajectory and this could be mainly attributed to the deferred pass-
through of even the cognisable permanent component of international crude oil prices
Money Supply
Monetary and liquidity conditions remained largely comfortable during 2006-07reflecting
proactive liquidity management operations by the Reserve Bank under the liquidity
adjustment facility flexible management of issuances under the market stabilisation
scheme and some private placement of Government securities
30
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
In short the Indian economy is exhibiting strong fundamentals and displaying
considerable resilience At the same time there are continuing signs of demand pressures
especially high credit growth that could exert upward pressure on prices when associated
with supply shocks such as from oil These pressures have the potential for impacting
stability and inflation expectations While domestic developments continue to dominate
the economy global factors tend to gain more attention now than before The global
outlook for growth is positive but downside risks in regard to inflation also RBI is
applying new repo and reverse repo for the balance of inflation and monetary policies
The following are macroeconomic policies generally found as part of government-
directed industrial auto policies
(a) Restrictions on domestic and foreign investment
(b) Domestic content requirements
(c) High tariff walls
(d) Auto export requirements
(e) National production to sales ratios
(f) Distribution controls
(g) Quotas and licensing requirements that significantly restrict imports
(h) Government approval for product related decisions including vehicle make
body type engine size etc
(i) Special government categories for auto taxes
II INDUSTRY ANALYSIS
Since 1991 opening of the economy has changed the face of auto industry Today it is
amongst the main drivers of growth of Indian economy with an output multiplier of
224(for every Re1 invested auto sector gives back Rs224 to the economy) In recent
years we have seen increasing number of global players entering Indian market by way of
Joint ventures collaborations or wholly owned subsidiary
The automobile industry is torn between trying to reduce costs on the one hand and on
the other dealing with the high price of performance-enhancing technology and
environmental compliance Key drivers in the automotive industry are
31
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Reducing air pollution
Reduction of weight
Recyclability
Safety
Better performance and engine efficiency
Aesthetics
Longer service Life
INDUSTRY LIFE CYCLE
The automobile market is at the maturity stage of the life cycle locally and globally due
to an increased number of competitors from domestic and foreign markets The
automobile market is characterized by a low potential for market growth but high sales
and profit potential as the products have still not saturated the market as a whole
MAJOR COMPETITORS OF TATA MOTORS ARE
Maruti Udyog Ltd
General Motors India
Ford India Ltd
Eicher Motors
Bajaj Auto
Hero Motors
Hindustan Motors
32
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Hyundai Motor India Ltd
Royal Enfield Motors
Telco
TVS Motors
FINANCIALS
Description 1 Day PriceChange
MarketCap
PEROE
Div Yield
Long-Term Debt toEquity
Price toBook Value
NetProfit Margin (mrq)
Price toFree Cash Flow (mrq)
Sector Consumer Goods 01125178B
2488
1707
222
1171076
706 40842
Industry Auto Manufacturers - Major (More Info)
0613310B
3000
750171
181 155 160 -440
Companies
Daimlerchrysler AG (DCX) 021 539B1072
1119
350
217 116 469 -354
Ford Motor Co (F) 121 157B NA-951
240
1107
115 -060 -8205
General Motors Corporation (GM) -024 165B NA
-6285
340
390 142 -621 014
Honda Motor Co Ltd (HMC) 083 622B1152
1654
100
083 173 552 20748
Tata Motors Ltd (TTM) -038 71B1864
NA150
NA 535 564 NA
Toyota Motor Corp (TM) 0731756B
1394
1505
120
103 197 659 NA
Opportunities and Threats
a) Opportunities
Road Development The ongoing road development program would improve
connectivity to ports cities and villages through a network of highways and
interconnecting roads by 2010-11 Improved road network would help in faster
33
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
movement of goods between various cities and towns The Company launched TATA
Novus range of vehicles in the heavy segment and TATA ACE for last mile distribution
Car penetration in India Car penetration in India is 7 cars per 1000 persons
International In FY 2006-07 the Company increased share of its overseas vehicle sales
from 76 last year to record high of 111 (as of its total sales) and has planned
further increase in this year
b) Threats
Global Competition India is increasingly attracting global players to set up
manufacturing facility for producing cars especially small cars Global automobile
manufacturers are also entering India in commercial vehicle segment to leverage Indiarsquos
low cost production advantage to their favor
Fuel Prices The continuing fuel price increase in the domestic market could
significantly impact demand of commercial and passenger vehicles
Input costs Commodity items particularly steel non-ferrous metals rubber and
engineering plastics have witnessed huge price increases in the past These prices are
expected to increase further affecting the Companyrsquos profitability
Interest rate hardening and other inflationary trends With interest rates hardening and
liquidity crunch in the system growth in sales may be adversely impacted
Government Regulations Stringent emission and safety requirements could bring new
complexities for automotive and component manufacturers impacting the Companyrsquos
business
Risks and Concerns
Interest Rates FY 2007-08 started with increasing interest rate regime and tightening
liquidity position in the economy Increasing interest rates could further affect vehicle
demand which could have an adverse impact on the Companyrsquos revenues and profits
Exchange rates The Company exports vehicles to many countries and exchange rate
fluctuations in the order execution period could impact the Companyrsquos business
34
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Freight rates In FY 2006-07 freight rates in road transport sector moved up mainly
due to surge in construction activity ongoing road development projects and severe
restriction on over-loading Demand for commercial vehicles could be impacted by
further change in freight rates and change in fuel prices
Domestic market The Company plans to reduce the impact of this cyclicality on its
business by strengthening its less cyclical businesses like buses light trucks small
commercial vehicles
Overseas market In overseas markets the Company competes with global players
which have multiple vehicle platforms large financial capability and global branding
Manufacturing The Company manufactures vehicles at multiple locations and given
the geographical dispersion of its suppliers it faces Logistics Problems
New Competition Competitive activity is expected to increase in commercial vehicle
and passenger vehicle domestic market in coming years
New projects The Company currently is in midst of executing many new projects
ranging from launch of new car platforms to development of new Truck models
III Company Analysis
Key Highlights
Symbol TTL
Sector Consumer Goods
Industry Auto Manufacturers Major
Market Cap Rs29232 crores
Data Since 1945
Last close Rs 74290
Brief Summary of the company
35
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Tata Motors is one of the largest companies in the Tata Group with a total income of US$
235 billion More than 3 million Tata vehicles ply on Indian roads making Tata a
dominant force in the Indian automobile industry
Joint Venture with Fiat and Hitachi
Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing
passenger vehicles engines and transmissions for both domestic and international
markets The Company has also entered into a JV with Hitachi to set up a new plant in
Kharagpur
Product Mix
Tata Motors is Indias only fully integrated automobile manufacturer with a portfolio that
covers trucks buses utility vehicles and passenger cars It would be no exaggeration to
say that Tata Motors provides the wheels for Indias growth
Segmental Overview
Commercial Vehicle Segment
The Company registered 696 volume growth in the domestic CV segment during
4QFY06 from 37228 units in Q3FY05 to 63082 units in Q3FY06 The market share in
this segment was 658 in Q4FY06 as compared to 552 in Q1FY06 The MHCV
goods-carrier segment registered a 544 growth YoY with sale of 33515 units and a
market share of 645 up by around 410 bps driven by infrastructure development and
increase in international trade
Passenger Vehicle Segment
The Company reported a growth of 212 YoY to 49907 vehicles in the domestic
passenger vehicle segment and a market share of 162 in the quarter The passenger
vehicle industry registered a volume growth of 204 during Q4FY06
36
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Plants
Tata Motors owes its leading position in the Indian automobile industry to its strong
focus on indigenisation Their manufacturing plants are situated at Jamshedpur in the
East Pune in the West and Lucknow in the North
Charts showing Key Statistics of tata motors
37
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Share holding pattern as on 31-Mar
shareholding pattern
34
1425
17
10
promotors
MF Banks Fis
FIIs
Others
Public
Financial highlights
38
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
39
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
RATIO ANALYSIS
Ratios 2006 2005 2004
Debtequity 056 049 044
Current ratio 108 087 076
Operating profit margin 1211 1151 1238
Gross profit margin 1087 1043 1104
ROCE 3125 3276 3377
total assets turnover ratio 315 353 343
ROE 2761 3009 2257
Dividend-equity 49794 45373 28211
Retention Ratio 6743 6332 6519
DPS (Rs) 1301 125 799
EPS (Rs) 25 34 41
Dividend Payout Ratio 039 042 037
CAGR of EPS 0177
CAGR of Dividend Payout Ratio -0017
Average ROE 2574
average retention 6354
Growth (g = Avg RR times Avg ROE ) 1636
Market return 1454
40
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
PE ratio (on the basis of historical analysis) = 1812
Therefore the Weighted PE ratio =(1812+2424)2 = 21181
Projected EPS = EPS OF 2006 + CAGR of EPSEPS OF 2006
= Rs48271
Value of Share at the end of financial year 06-07
= Projected EPS Weighted PE Ratio
= Rs1022
2) HPCL
Globalization and the Indian Petroleum Industry
Indian petroleum industry in the post independent period (1947-2001) it may be divided
into three distinct phases
(i) early phase (1947 to 1969)- when the government consolidated its control over
the industry with Soviet assistance
(ii) development phase (1970 to 1989)- in this period the US companies played
dominant role replacing the Soviets and
41
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
(iii) the economic liberalisation phase of 1990s
PORTERrsquoS MODEL
SWOT ANALYSIS
STRENGHS
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
WEAKNESSES
Dependence on refining function high
Moderate share in high profitable retail segment
42
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Diversifications in petrochemicals could trouble the company
High burden of subsidy loss on cooking gas and kerosene
OPPORTUNITIES
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
Overseas presence in upstream and downstream will determine growth
THREATS
Rising oil prices could dampen demand
High regulatory risk
Loss of market share to private players
Entrance of private players in pipelines will take away monopoly of company in
north India
COMPANY ANALYSIS
The Annual Report is broken down into the following specific parts
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the AccountsATHE DIRECTORrsquoS REPORTThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship Fundamental AnalysisB THE AUDITORS REPORTThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors
C FINANCIAL STATEMENTSIt comprises of Balance Sheet Profit and Loss account Cash Flows Its analysis would be discussed later
DSCHEDULES
43
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The schedules detail pertinent information about the items of Balance Sheet and Profit amp Loss Account It also details information about sales manufacturing costs administration costs interest and other income and expenses
1 THE MANAGEMENT
HPCL is a public sector undertaking Thus it is a professionally managed company
There are some parameters of management on which a company is analysed
a integrity of management
b past record of management
c how highly is the management rated by its peers in the same industry
d how the management fares in adversity
e the depth of the knowledge of management
f open and innovative management
on all these parameters HPCL scores good
2 COMPANY
Many times a company has made losses in the previous years but that does not mean
that the company is bad to invest Thus many factors are studied while studying a
company
a) perception of competitors
HPCL is the second largest petroleum company after IOCL Thus it is a competitor of
IOCL and it is trying hard to compete with IOCL on every front That is why now it
has decided to diversify itself in the oil exploration sector
b) company policies
As this is a PSU thus the policies are made by the government The oil sector is one
which is highly regulated by government Thus from time to time it is required to
watch out the various policies changed
3 ANNUAL REPORT
The most primary and most important source of information about a company is its
Annual Report This is prepared every year and distributed to its shareholders
44
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Ratio Analysis
Evaluation of Intrinsic Value of the Security
stdev mkt 0011934stdev sec 003831 Average
Retention Ratio 060504
correlation 0485958 ROE 019842Beta 156765 g 0120052Risk Free Rate 650
Mkt Rate 14
45
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
k 1826
Hence we see that here our g is less than k Thus we see that as per Dividend Discount Model our Intrinsic value is div=22(1+012)=240626= 387
Price= Projected EPS + Weighted PE ratioUsing CAGR EPS = 43468Weighted PE Ratio = 75+6652=33625
Price = 43468+33625 = 381
3) HDFC BANK
The Indian banking industry sector overview
With the economic growth picking up pace and the investment cycle on the way to recovery the banking sector has witnessed a transformation in its vital role of intermediating between the demand and supply of funds
Public sector banks have been very proactive in their restructuring initiatives be it in technology implementation or pruning their loss assets Windfall treasury gains made in the falling interest rate regime were used for writing off the doubtful and loss assets
Retail lending (especially mortgage financing) formed a significant portion of the portfolio for most banks and they customized their products to cater to the diverse demands
Apart from streamlining their processes through technology initiatives such as ATMs telephone banking online banking and web based products banks also resorted to cross selling of financial products such as credit cards mutual funds and insurance policies to augment their fee based income
PORTERrsquoS FIVE FORCES MODEL FOR THE BANKING INDUSTRY
1) BARRIERS TO ENTRY a Economies of scale Since the existing players in the market are well
established and already have a customer base they are able to bear the cost of using the advantages of technology to their maximum advantage
46
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Capital requirement for entry i The Banking Regulation Act prescribes the minimum capital
requirements for a bank Moreover banks have to maintain a capital adequacy ratio of 9 under the Basel I norms
ii Government has declared that the foreign banks will be permitted to establish their presence in India by way of setting up a wholly owned banking subsidiary (WOS) with a minimum capital of Rs300 crore
c Access to distribution channels Since banks have to set up their own distribution channels all the cost has to be directly born by them
d Cost advantage independent of size Existing banks have huge databases of customers which they use when they want to sell a new product launched by them
e Legislation or Government action Banks are governed by Banking Regulation Act 1949 which specifies the rules and regulations applicable to banks RBI is the governing body of banks in India
2) BARGAINING POWER OF BUYERS
Due to increased competition the services offered by banks to customers have improved considerably
3) BARGAINING POWER OF THE SUPPLIERS
Suppliers to banks can be both - the customers and RBIa Customers of banks provide money to banks in the form of deposits and in
return earn some interest on that b RBI acts as a supplier to banks by selling govt securities treasury bills
govt bonds etc c Call money market Banks sometimes have to borrow from other banks to
meet CRR and SLR requirements or other capital requirements as provided by RBI
4) THREAT OF SUBSTITUTES
a Product-for-product substitutioni Banks provide interest on deposits made by people Similar
services are offered by post offices which may act as substitutes to the deposit schemes of banks
ii Some banks offer locker services to customers for yearly rates Similar services are provided by many post offices
47
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Generic substitution People who deposit their savings in banks can invest their money in other sources like mutual funds shares and other securities and life insurance schemes
5) COMPETITIVE RIVALRY
a Extent of competitor balance b Market growth ratesc High Exit Barriers
PEST Analysis for Banking Industry
1 Political factors - The major factors affecting the banking sector are the following
Banking sector reforms ndash As per the RBI roadmap for reforms in the first stage from 2005 to 2009 foreign banks will be allowed to set up wholly owned subsidiaries as well as get greater freedom to set up new branches Fulfilling the minimum priority sector credit -The government mandation of fulfilling the minimum priority sector credit (of which 18 per cent is food credit) has forced the domestic banks to cater to this segment despite the low profitability and vulnerability of asset quality
Banks have also been allowed to set up Offshore Banking Units in SEZrsquos
2 Economic factors -
Basell II norms for the risk management in banking sector - The new Basel Accord has its foundation on three mutually reinforcing pillars The first pillar is compatible with the credit risk market risk and operational risk The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bankConcurrently it also casts responsibility on the supervisors to review and validate banksrsquo risk measurement models
Consolidation and merger and acquisitions in the banking sector- HDFC bank also acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Universal Banking has been introduced ICICI Bank HDFCs closest competitor is already into Universal Banking so HDFC is also getting into it as now it is providing retail banking and also depository facilities in the form of demat account
48
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
3 Social factors-
Big and growing middle class in India - This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans car loans education loans auto loans etc Retail loans have grown from 19 in FYrsquo99 to 51 FYrsquo06Consumer credit accounts for a meager 286 per cent of the countrys GDP and the buoyancy in the economy offers sufficient scope for it to grow
Geographical and Cultural diversity- This is leading to a greater demand for financial products and customization by the customers
4 Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999 It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector
Banks (All) No of players = 40
Sector statistics
We see the sector aggregates and make a financial comparison for the major banks
Top PlayersFY2006
Based on Total Income Based on OPBDT Total Income Change OPBDT Change
(Rs Mn) () (Rs Mn) ()ICICI BANK 631619 5450 S B I 763528 -129 PUNJAB NATIONAL B 29218 1491 ICICI BANK 37174 1936
CAN BANK 277095 2378 PUNJAB NATIONAL B 222052 3936
BANK OF INDIA 23317 2543 CAN BANK 168825 1953
H D F C BANK 185508 6024 H D F C BANK 14324 2748 change - indicates the change between current and corresponding quarter
49
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II INDUSTRY ANALYSIS
The importance of industry analysis is now dawning on the Indian investor as never before
CycleThe first step in industry is to determine the cycle it is in or the stage of maturity of the industry All industries evolve through the following stages1 Entrepreneurial sunrise or nascent stage2 Expansion or growth stage3 Stabilization stagnation or maturity stage and4 Decline or sunset stage to properly establish itself In the early days it may actually make losses
The Entrepreneurial or Nascent StageAt the first stage the industry is new and it can take some time for it to properly establish itself
The Expansion or Growth StageOnce the industry has established itself it enters a growth stage As the industry grows many new companies enter the industry
The Stabilization or Maturity StageAfter the halcyon days of growth an industry matures and stabilizes Rewards are low and so too is the risk Growth is moderate Though sales may increase they do so at a
20
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
slower rate than before Products are more standardized and less innovative and there are several competitors
The Decline or Sunset StageFinally the industry declines This occurs when its products are no longer popular This may be on account of several factors such as a change in social habits The film and video industries
1 BARRIER TO ENTRYNew entrants increase the capacity in an industry and the inflow of funds The question that arises is how easy is it to enter an industry There are some barriers to entry
a) Economies of scaleb) Product differentiation c) Capital requirementd) Switching costse) Access to distribution channelsf) Cost disadvantages independent of scaleg) Government policyh) Expected retaliationj) International cartels
2 THE THREAT OF SUBSTITUTIONNew inventions are always taking place and new and better products replace existing ones An industry that can be replaced by substitutes or is threatened by substitutes is normally an industry one must be careful of investing in An industry where this occurs constantly is the packaging industry -bottles replaced by cans cans replaced by plastic bottles and the like To ward off the threat of substitution companies often have to spend large sums of money in advertising and promotion
3 BARGAINING POWER OF THE BUYERSIn an industry where buyers have control ie in a buyers market buyers are constantly forcing prices down demanding better services or higher quality and this often erodes profitability The factors one should check are whether a) A particular buyer buys most of the products (large purchase volumes) If such buyers withdraw their patronage they can destroy an industry They can also force prices downb) Buyers can play one company against another to bring prices down
4 BARGAINING POWER FOR THE SUPPLIERSAn industry unduly controlled by its suppliers is also under threat This occurs whena) The suppliers have a monopoly or if there are few suppliersb) Suppliers control an essential c) Demand for the product exceeds d) The supplier supplies to various industriese) The switching costs are high
21
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
f) The suppliers product does not have a substituteg) The suppliers product is an important input for the buyersh) The buyer is not important to the supplieri) The suppliers product is unique
5 RIVALRY AMONG COMPETITORSRivalry among competitors can cause an industry great harm This occurs mainly by price cuts heavy advertising additional high cost services or offers and the like This rivalry occurs mainly whena) There are many competitors and supply exceeds demand Companies resort to price cuts and advertise heavily in order to attract customers for their goodsb) The industry growth is slow and companies are competing with each other for a greater market sharec) The economy is in a recession and companies cut the price of their products and offer better service to stimulate demandd) There is lack of differentiation between the product of one company and that of another In such cases the buyer makes his choice on the basis of price or servicee) In some industries economies of scale will necessitate large additions to existing capacities in a company The increase in production could result in over capacity amp price cuttingf) Competitors may have very different strategies in selling their goods and in competing they may be continuously trying to stay ahead
III COMPANY ANALYSIS
At the final stage of fundamental analysis the investor analyzes the company This analysis has two thrustsHow has the company performed vis-agrave-vis other similar companies and How has the company performed in comparison to earlier years It is imperative that one completes the politico economic analysis and the industry analysis before a company is analyzed because the companys performance at a period of time is to an extent a reflection of the economy the political situation and the industry What does one look at when analyzing a company The different issues regarding a company that should be examined are The Management The Company The Annual Report Ratios Cash flow
THE MANAGEMENT
The single most important factor one should consider when investing in a company and one often never considered is its management In India management can be broadly
22
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
divided in two types Family Management Professional Management
THE COMPANY
An aspect not necessarily examined during an analysis of fundamentals is the company A company may have made losses consecutively for two years or more and one may not wish to touch its shares - yet it may be a good company and worth purchasing into There are several factors one should look at
1 How a company is perceived by its competitorsOne of the key factors to ascertain is how a company is perceived by its competitors It is held in high regard Its management may be known for its maturity vision competence and aggressiveness The investor must ascertain the reason and then determine whetherthe reason will continue into the foreseeable future
2 Whether the company is the market leader in its products or in its segmentAnother aspect that should be ascertained is whether the company is the market leader in its products or in its segment When you invest in market leaders the risk is less Theshares of market leaders do not fall as quickly as those of other companies There is a magic to their name that would make individuals prefer to buy their products as opposed to others
3 Company PoliciesThe policy a company follows is also important What is its plans for growth What is its vision Every company has a life If it is allowed to live a normal life it will grow upto a point and then begin to level out and eventually die It is at the point of leveling out that it must be given new life This can give it renewed vigour and a new lease of life
4 Labour RelationsLabour relations are extremely important A company that has motivated industrious work force has high productivity and practically no disruption of work On the other hand a company that has bad industrial relations will lose several hundred mandays as a consequence of strikes and go slows
5 Where the company is located and where its factories are One must also consider where the companies Plants and Factories are located
THE ANNUAL REPORT
The primary and most important source of information about a company is its Annual Report By law this is prepared every year and distributed to the shareholders Annual Reports are usually very well presented A tremendous amount of data is given about the performance of a company over a period of time The Annual Report is broken down into the following specific parts
23
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the Accounts
A The Directorrsquos ReportThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship 1 It enunciates the opinion of the directors on the state of the economy and the political situation vis-agrave-vis the company 2 Explains the performance and the financial results of the company in the period under review This is an extremely important part The results and operations of the various separate divisions are usually detailed and investors can determine the reasons for their good or bad performance3 The Directorrsquos Report details the companys plans for modernization expansion and diversification Without these a company will remain static and eventually decline4 Discusses the profit earned in the period under review and the dividend Recommended by the directors This paragraph should normally be read with some skepticism as the directors will always argue that the performance was satisfactory If adverse economic conditions are usually at fault 5 Elaborates on the directors views of the companys prospects in the future6 Discusses plans for new acquisition and investments An investor must intelligently evaluate the issues raised in a Directorrsquos Report Industry conditions and the managements knowledge of the business must be considered
B The Auditors ReportThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors Auditors are required to report whether the financial statements presented do in fact present a true and fair view of the state of the company Investors must remember that the auditors are their representatives and that they are required by law to point out if the financial statements are not true and fair
CFinancial StatementsThe published financial statements of a company in an Annual Report consist of its Balance Sheet as at the end of the accounting period detailing the financing condition of the company at that date and the Profit and Loss Account or Income Statement summarizing the activities of the company for the accounting period
BALANCE SHEETThe Balance Sheet details the financial position of a company on a particular date of the companys assets (that which the company owns) and liabilities (that which the companyowes) grouped logically under specific heads It must however be noted that the Balance Sheet details the financial position on a particular day and that the position can be materially different on the next day or the day after
24
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOURCES OF FUNDSSHAREHOLDERS FUNDSSHARE CAPITAL(i) Private Placement(ii) Public Issueiii) Rights issuesRESERVESi) Capital Reservesii) Revenue ReservesLOAN FUNDSi) Secured loansii) Unsecured loansFIXED ASSETSINVESTMENTSSTOCK OR INVENTORIESi) Raw materialsii) Work in progressiii) Finished goodsCASH AND BANK BALANCESLOANS AND ADVANCES
PROFIT AND LOSS ACCOUNTThe Profit and Loss account summarizes the activities of a company during an accounting period which may be a month a quarter six months a year or longer and the result achieved by the company It details the income earned by the company its cost and the resulting profit or loss It is in effect the performance appraisal not only of the company but also of its management- its competence foresight and ability to lead
RATIOS
Ratios express mathematically the relationship between performance figures andor assetsliabilities in a form that can be easily understood and interpretedNo single ratio tells the complete storyRatios can be broken down into four broad categories
(A) Profit and Loss RatiosThese show the relationship between two items or groups of items in a profit and loss account or income statement The more common of these ratios are1 Sales to cost of goods sold2 Selling expenses to sales3 Net profit to sales and4 Gross profit to sales
(B) Balance Sheet RatiosThese deal with the relationship in the balance sheet such as 1 Shareholders equity to borrowed funds
25
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
2 Current assets to current liabilities3 Liabilities to net worth4 Debt to assets and5 Liabilities to assets
(C) Balance Sheet and Profit and Loss Account RatiosThese relate an item on the balance sheet to another in the profit and loss account such as1 Earnings to shareholders funds2 Net income to assets employed3 Sales to stock4 Sales to debtors and5 Cost of goods sold to creditors
(D) Financial Statements and Market RatiosThese are normally known as market ratios and are arrived at by relative financial figures to market prices1 Market value to earnings and2 Book value to market value(a) Market value(b) Earnings(c) Profitability(d) Liquidity(e) Leverage(f) Debt Service Capacity(g) Asset ManagementEfficiency(h) Margins
The major ratios that are considered(i) Market value(ii) Price- earnings ratio(iii) Market-to-book ratio(iv) Earnings(v) Earning per share(vi) Dividend per share(vii) Dividend payout ratio(viii) Leverage ratios(ix) Return on investmentstotal assets
CASH FLOW A statement of sources and uses begins with the profit for the year to which are added the increases in liability accounts (sources) and from which are reduced the increases in asset accounts (uses) The net result shows whether there has been an excess or deficit of funds and how this was financed Investors must examine a companys cash flow as it reveals exactly where the money came from how it was utilized Investors must be
26
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
concerned if a company is financing either its inventories or paying dividends from borrowings without real growth as that shows deterioration
27
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-4 ANALYSIS
28
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
I FUNDAMENTAL ANALYSIS OF STOCKS
Basically fundamental analysis is covered in 3 parts
1 Market economy analysis
2 Industry Analysis
3 Company Analysis
1) TATA MOTORS
I Market Economy Analysis
It covers the macro economy analysis and the various macro economic factors on the national level like GDP Monetary policies of India Fiscal Policies and Inflation and money supply etc
GDP
Real GDP growth accelerated from 75 per cent during 2004-05 to 84 per cent during
2005-06 on the back of buoyant manufacturing and services activity supported by a
recovery in the agricultural sector Real GDP growth has thus averaged over eight per
cent during the last three years and over seven per cent in the first four years (2002-03 to
2005-06) of the Tenth Five Year Plan
Strengths of India today are
A well diversified industrial base which profits from self-reliance in all core industries A
large amp sophisticated financial architecture - The robust capital Markets today have over
9000 listed companies and boast of a massive Market capitalization
A healthy GDP composition with agriculture contributing 22 Industry 22 and
services which have gone strength to strength accounting For 56 of the GDP an
29
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
acknowledged strength in knowledge driven industries like Information technology
biotechnology entertainment Software etc
India has Over 3 million scientific amp technical manpower Over 06 million SampT post
graduates Over 07 million graduate engineers Over 3500 doctorates in sciences every
year
Assuming trend growth in agriculture under normal monsoon conditions and barring
domestic or external shocks the Reserve Bank in its Annual Policy Statement for 2007-
08 (April 2007) placed real GDP growth for policy purposes in the range of 75-80 per
cent during 2007-08 Growth prospects are however subject to a number of downside
risks The risks emanating from the global economy are potential escalation and
volatility in international crude oil prices firming up of overall inflationary pressures and
expectations and a hardening of international interest rates along with the withdrawal of
monetary accommodation
Indiarsquos demographic advantage ndash In contrast to developed Countries India will have a
younger population for the next 50 years Hence India would be the hub for RampD
Inflation
Inflation was contained to 63 per cent by end-March 2007 within the indicative
trajectory of 50-55 per cent during 2007-08 The actual inflation was considerably lower
than the indicative trajectory and this could be mainly attributed to the deferred pass-
through of even the cognisable permanent component of international crude oil prices
Money Supply
Monetary and liquidity conditions remained largely comfortable during 2006-07reflecting
proactive liquidity management operations by the Reserve Bank under the liquidity
adjustment facility flexible management of issuances under the market stabilisation
scheme and some private placement of Government securities
30
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
In short the Indian economy is exhibiting strong fundamentals and displaying
considerable resilience At the same time there are continuing signs of demand pressures
especially high credit growth that could exert upward pressure on prices when associated
with supply shocks such as from oil These pressures have the potential for impacting
stability and inflation expectations While domestic developments continue to dominate
the economy global factors tend to gain more attention now than before The global
outlook for growth is positive but downside risks in regard to inflation also RBI is
applying new repo and reverse repo for the balance of inflation and monetary policies
The following are macroeconomic policies generally found as part of government-
directed industrial auto policies
(a) Restrictions on domestic and foreign investment
(b) Domestic content requirements
(c) High tariff walls
(d) Auto export requirements
(e) National production to sales ratios
(f) Distribution controls
(g) Quotas and licensing requirements that significantly restrict imports
(h) Government approval for product related decisions including vehicle make
body type engine size etc
(i) Special government categories for auto taxes
II INDUSTRY ANALYSIS
Since 1991 opening of the economy has changed the face of auto industry Today it is
amongst the main drivers of growth of Indian economy with an output multiplier of
224(for every Re1 invested auto sector gives back Rs224 to the economy) In recent
years we have seen increasing number of global players entering Indian market by way of
Joint ventures collaborations or wholly owned subsidiary
The automobile industry is torn between trying to reduce costs on the one hand and on
the other dealing with the high price of performance-enhancing technology and
environmental compliance Key drivers in the automotive industry are
31
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Reducing air pollution
Reduction of weight
Recyclability
Safety
Better performance and engine efficiency
Aesthetics
Longer service Life
INDUSTRY LIFE CYCLE
The automobile market is at the maturity stage of the life cycle locally and globally due
to an increased number of competitors from domestic and foreign markets The
automobile market is characterized by a low potential for market growth but high sales
and profit potential as the products have still not saturated the market as a whole
MAJOR COMPETITORS OF TATA MOTORS ARE
Maruti Udyog Ltd
General Motors India
Ford India Ltd
Eicher Motors
Bajaj Auto
Hero Motors
Hindustan Motors
32
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Hyundai Motor India Ltd
Royal Enfield Motors
Telco
TVS Motors
FINANCIALS
Description 1 Day PriceChange
MarketCap
PEROE
Div Yield
Long-Term Debt toEquity
Price toBook Value
NetProfit Margin (mrq)
Price toFree Cash Flow (mrq)
Sector Consumer Goods 01125178B
2488
1707
222
1171076
706 40842
Industry Auto Manufacturers - Major (More Info)
0613310B
3000
750171
181 155 160 -440
Companies
Daimlerchrysler AG (DCX) 021 539B1072
1119
350
217 116 469 -354
Ford Motor Co (F) 121 157B NA-951
240
1107
115 -060 -8205
General Motors Corporation (GM) -024 165B NA
-6285
340
390 142 -621 014
Honda Motor Co Ltd (HMC) 083 622B1152
1654
100
083 173 552 20748
Tata Motors Ltd (TTM) -038 71B1864
NA150
NA 535 564 NA
Toyota Motor Corp (TM) 0731756B
1394
1505
120
103 197 659 NA
Opportunities and Threats
a) Opportunities
Road Development The ongoing road development program would improve
connectivity to ports cities and villages through a network of highways and
interconnecting roads by 2010-11 Improved road network would help in faster
33
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
movement of goods between various cities and towns The Company launched TATA
Novus range of vehicles in the heavy segment and TATA ACE for last mile distribution
Car penetration in India Car penetration in India is 7 cars per 1000 persons
International In FY 2006-07 the Company increased share of its overseas vehicle sales
from 76 last year to record high of 111 (as of its total sales) and has planned
further increase in this year
b) Threats
Global Competition India is increasingly attracting global players to set up
manufacturing facility for producing cars especially small cars Global automobile
manufacturers are also entering India in commercial vehicle segment to leverage Indiarsquos
low cost production advantage to their favor
Fuel Prices The continuing fuel price increase in the domestic market could
significantly impact demand of commercial and passenger vehicles
Input costs Commodity items particularly steel non-ferrous metals rubber and
engineering plastics have witnessed huge price increases in the past These prices are
expected to increase further affecting the Companyrsquos profitability
Interest rate hardening and other inflationary trends With interest rates hardening and
liquidity crunch in the system growth in sales may be adversely impacted
Government Regulations Stringent emission and safety requirements could bring new
complexities for automotive and component manufacturers impacting the Companyrsquos
business
Risks and Concerns
Interest Rates FY 2007-08 started with increasing interest rate regime and tightening
liquidity position in the economy Increasing interest rates could further affect vehicle
demand which could have an adverse impact on the Companyrsquos revenues and profits
Exchange rates The Company exports vehicles to many countries and exchange rate
fluctuations in the order execution period could impact the Companyrsquos business
34
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Freight rates In FY 2006-07 freight rates in road transport sector moved up mainly
due to surge in construction activity ongoing road development projects and severe
restriction on over-loading Demand for commercial vehicles could be impacted by
further change in freight rates and change in fuel prices
Domestic market The Company plans to reduce the impact of this cyclicality on its
business by strengthening its less cyclical businesses like buses light trucks small
commercial vehicles
Overseas market In overseas markets the Company competes with global players
which have multiple vehicle platforms large financial capability and global branding
Manufacturing The Company manufactures vehicles at multiple locations and given
the geographical dispersion of its suppliers it faces Logistics Problems
New Competition Competitive activity is expected to increase in commercial vehicle
and passenger vehicle domestic market in coming years
New projects The Company currently is in midst of executing many new projects
ranging from launch of new car platforms to development of new Truck models
III Company Analysis
Key Highlights
Symbol TTL
Sector Consumer Goods
Industry Auto Manufacturers Major
Market Cap Rs29232 crores
Data Since 1945
Last close Rs 74290
Brief Summary of the company
35
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Tata Motors is one of the largest companies in the Tata Group with a total income of US$
235 billion More than 3 million Tata vehicles ply on Indian roads making Tata a
dominant force in the Indian automobile industry
Joint Venture with Fiat and Hitachi
Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing
passenger vehicles engines and transmissions for both domestic and international
markets The Company has also entered into a JV with Hitachi to set up a new plant in
Kharagpur
Product Mix
Tata Motors is Indias only fully integrated automobile manufacturer with a portfolio that
covers trucks buses utility vehicles and passenger cars It would be no exaggeration to
say that Tata Motors provides the wheels for Indias growth
Segmental Overview
Commercial Vehicle Segment
The Company registered 696 volume growth in the domestic CV segment during
4QFY06 from 37228 units in Q3FY05 to 63082 units in Q3FY06 The market share in
this segment was 658 in Q4FY06 as compared to 552 in Q1FY06 The MHCV
goods-carrier segment registered a 544 growth YoY with sale of 33515 units and a
market share of 645 up by around 410 bps driven by infrastructure development and
increase in international trade
Passenger Vehicle Segment
The Company reported a growth of 212 YoY to 49907 vehicles in the domestic
passenger vehicle segment and a market share of 162 in the quarter The passenger
vehicle industry registered a volume growth of 204 during Q4FY06
36
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Plants
Tata Motors owes its leading position in the Indian automobile industry to its strong
focus on indigenisation Their manufacturing plants are situated at Jamshedpur in the
East Pune in the West and Lucknow in the North
Charts showing Key Statistics of tata motors
37
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Share holding pattern as on 31-Mar
shareholding pattern
34
1425
17
10
promotors
MF Banks Fis
FIIs
Others
Public
Financial highlights
38
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
39
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
RATIO ANALYSIS
Ratios 2006 2005 2004
Debtequity 056 049 044
Current ratio 108 087 076
Operating profit margin 1211 1151 1238
Gross profit margin 1087 1043 1104
ROCE 3125 3276 3377
total assets turnover ratio 315 353 343
ROE 2761 3009 2257
Dividend-equity 49794 45373 28211
Retention Ratio 6743 6332 6519
DPS (Rs) 1301 125 799
EPS (Rs) 25 34 41
Dividend Payout Ratio 039 042 037
CAGR of EPS 0177
CAGR of Dividend Payout Ratio -0017
Average ROE 2574
average retention 6354
Growth (g = Avg RR times Avg ROE ) 1636
Market return 1454
40
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
PE ratio (on the basis of historical analysis) = 1812
Therefore the Weighted PE ratio =(1812+2424)2 = 21181
Projected EPS = EPS OF 2006 + CAGR of EPSEPS OF 2006
= Rs48271
Value of Share at the end of financial year 06-07
= Projected EPS Weighted PE Ratio
= Rs1022
2) HPCL
Globalization and the Indian Petroleum Industry
Indian petroleum industry in the post independent period (1947-2001) it may be divided
into three distinct phases
(i) early phase (1947 to 1969)- when the government consolidated its control over
the industry with Soviet assistance
(ii) development phase (1970 to 1989)- in this period the US companies played
dominant role replacing the Soviets and
41
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
(iii) the economic liberalisation phase of 1990s
PORTERrsquoS MODEL
SWOT ANALYSIS
STRENGHS
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
WEAKNESSES
Dependence on refining function high
Moderate share in high profitable retail segment
42
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Diversifications in petrochemicals could trouble the company
High burden of subsidy loss on cooking gas and kerosene
OPPORTUNITIES
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
Overseas presence in upstream and downstream will determine growth
THREATS
Rising oil prices could dampen demand
High regulatory risk
Loss of market share to private players
Entrance of private players in pipelines will take away monopoly of company in
north India
COMPANY ANALYSIS
The Annual Report is broken down into the following specific parts
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the AccountsATHE DIRECTORrsquoS REPORTThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship Fundamental AnalysisB THE AUDITORS REPORTThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors
C FINANCIAL STATEMENTSIt comprises of Balance Sheet Profit and Loss account Cash Flows Its analysis would be discussed later
DSCHEDULES
43
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The schedules detail pertinent information about the items of Balance Sheet and Profit amp Loss Account It also details information about sales manufacturing costs administration costs interest and other income and expenses
1 THE MANAGEMENT
HPCL is a public sector undertaking Thus it is a professionally managed company
There are some parameters of management on which a company is analysed
a integrity of management
b past record of management
c how highly is the management rated by its peers in the same industry
d how the management fares in adversity
e the depth of the knowledge of management
f open and innovative management
on all these parameters HPCL scores good
2 COMPANY
Many times a company has made losses in the previous years but that does not mean
that the company is bad to invest Thus many factors are studied while studying a
company
a) perception of competitors
HPCL is the second largest petroleum company after IOCL Thus it is a competitor of
IOCL and it is trying hard to compete with IOCL on every front That is why now it
has decided to diversify itself in the oil exploration sector
b) company policies
As this is a PSU thus the policies are made by the government The oil sector is one
which is highly regulated by government Thus from time to time it is required to
watch out the various policies changed
3 ANNUAL REPORT
The most primary and most important source of information about a company is its
Annual Report This is prepared every year and distributed to its shareholders
44
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Ratio Analysis
Evaluation of Intrinsic Value of the Security
stdev mkt 0011934stdev sec 003831 Average
Retention Ratio 060504
correlation 0485958 ROE 019842Beta 156765 g 0120052Risk Free Rate 650
Mkt Rate 14
45
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
k 1826
Hence we see that here our g is less than k Thus we see that as per Dividend Discount Model our Intrinsic value is div=22(1+012)=240626= 387
Price= Projected EPS + Weighted PE ratioUsing CAGR EPS = 43468Weighted PE Ratio = 75+6652=33625
Price = 43468+33625 = 381
3) HDFC BANK
The Indian banking industry sector overview
With the economic growth picking up pace and the investment cycle on the way to recovery the banking sector has witnessed a transformation in its vital role of intermediating between the demand and supply of funds
Public sector banks have been very proactive in their restructuring initiatives be it in technology implementation or pruning their loss assets Windfall treasury gains made in the falling interest rate regime were used for writing off the doubtful and loss assets
Retail lending (especially mortgage financing) formed a significant portion of the portfolio for most banks and they customized their products to cater to the diverse demands
Apart from streamlining their processes through technology initiatives such as ATMs telephone banking online banking and web based products banks also resorted to cross selling of financial products such as credit cards mutual funds and insurance policies to augment their fee based income
PORTERrsquoS FIVE FORCES MODEL FOR THE BANKING INDUSTRY
1) BARRIERS TO ENTRY a Economies of scale Since the existing players in the market are well
established and already have a customer base they are able to bear the cost of using the advantages of technology to their maximum advantage
46
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Capital requirement for entry i The Banking Regulation Act prescribes the minimum capital
requirements for a bank Moreover banks have to maintain a capital adequacy ratio of 9 under the Basel I norms
ii Government has declared that the foreign banks will be permitted to establish their presence in India by way of setting up a wholly owned banking subsidiary (WOS) with a minimum capital of Rs300 crore
c Access to distribution channels Since banks have to set up their own distribution channels all the cost has to be directly born by them
d Cost advantage independent of size Existing banks have huge databases of customers which they use when they want to sell a new product launched by them
e Legislation or Government action Banks are governed by Banking Regulation Act 1949 which specifies the rules and regulations applicable to banks RBI is the governing body of banks in India
2) BARGAINING POWER OF BUYERS
Due to increased competition the services offered by banks to customers have improved considerably
3) BARGAINING POWER OF THE SUPPLIERS
Suppliers to banks can be both - the customers and RBIa Customers of banks provide money to banks in the form of deposits and in
return earn some interest on that b RBI acts as a supplier to banks by selling govt securities treasury bills
govt bonds etc c Call money market Banks sometimes have to borrow from other banks to
meet CRR and SLR requirements or other capital requirements as provided by RBI
4) THREAT OF SUBSTITUTES
a Product-for-product substitutioni Banks provide interest on deposits made by people Similar
services are offered by post offices which may act as substitutes to the deposit schemes of banks
ii Some banks offer locker services to customers for yearly rates Similar services are provided by many post offices
47
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Generic substitution People who deposit their savings in banks can invest their money in other sources like mutual funds shares and other securities and life insurance schemes
5) COMPETITIVE RIVALRY
a Extent of competitor balance b Market growth ratesc High Exit Barriers
PEST Analysis for Banking Industry
1 Political factors - The major factors affecting the banking sector are the following
Banking sector reforms ndash As per the RBI roadmap for reforms in the first stage from 2005 to 2009 foreign banks will be allowed to set up wholly owned subsidiaries as well as get greater freedom to set up new branches Fulfilling the minimum priority sector credit -The government mandation of fulfilling the minimum priority sector credit (of which 18 per cent is food credit) has forced the domestic banks to cater to this segment despite the low profitability and vulnerability of asset quality
Banks have also been allowed to set up Offshore Banking Units in SEZrsquos
2 Economic factors -
Basell II norms for the risk management in banking sector - The new Basel Accord has its foundation on three mutually reinforcing pillars The first pillar is compatible with the credit risk market risk and operational risk The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bankConcurrently it also casts responsibility on the supervisors to review and validate banksrsquo risk measurement models
Consolidation and merger and acquisitions in the banking sector- HDFC bank also acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Universal Banking has been introduced ICICI Bank HDFCs closest competitor is already into Universal Banking so HDFC is also getting into it as now it is providing retail banking and also depository facilities in the form of demat account
48
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
3 Social factors-
Big and growing middle class in India - This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans car loans education loans auto loans etc Retail loans have grown from 19 in FYrsquo99 to 51 FYrsquo06Consumer credit accounts for a meager 286 per cent of the countrys GDP and the buoyancy in the economy offers sufficient scope for it to grow
Geographical and Cultural diversity- This is leading to a greater demand for financial products and customization by the customers
4 Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999 It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector
Banks (All) No of players = 40
Sector statistics
We see the sector aggregates and make a financial comparison for the major banks
Top PlayersFY2006
Based on Total Income Based on OPBDT Total Income Change OPBDT Change
(Rs Mn) () (Rs Mn) ()ICICI BANK 631619 5450 S B I 763528 -129 PUNJAB NATIONAL B 29218 1491 ICICI BANK 37174 1936
CAN BANK 277095 2378 PUNJAB NATIONAL B 222052 3936
BANK OF INDIA 23317 2543 CAN BANK 168825 1953
H D F C BANK 185508 6024 H D F C BANK 14324 2748 change - indicates the change between current and corresponding quarter
49
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
slower rate than before Products are more standardized and less innovative and there are several competitors
The Decline or Sunset StageFinally the industry declines This occurs when its products are no longer popular This may be on account of several factors such as a change in social habits The film and video industries
1 BARRIER TO ENTRYNew entrants increase the capacity in an industry and the inflow of funds The question that arises is how easy is it to enter an industry There are some barriers to entry
a) Economies of scaleb) Product differentiation c) Capital requirementd) Switching costse) Access to distribution channelsf) Cost disadvantages independent of scaleg) Government policyh) Expected retaliationj) International cartels
2 THE THREAT OF SUBSTITUTIONNew inventions are always taking place and new and better products replace existing ones An industry that can be replaced by substitutes or is threatened by substitutes is normally an industry one must be careful of investing in An industry where this occurs constantly is the packaging industry -bottles replaced by cans cans replaced by plastic bottles and the like To ward off the threat of substitution companies often have to spend large sums of money in advertising and promotion
3 BARGAINING POWER OF THE BUYERSIn an industry where buyers have control ie in a buyers market buyers are constantly forcing prices down demanding better services or higher quality and this often erodes profitability The factors one should check are whether a) A particular buyer buys most of the products (large purchase volumes) If such buyers withdraw their patronage they can destroy an industry They can also force prices downb) Buyers can play one company against another to bring prices down
4 BARGAINING POWER FOR THE SUPPLIERSAn industry unduly controlled by its suppliers is also under threat This occurs whena) The suppliers have a monopoly or if there are few suppliersb) Suppliers control an essential c) Demand for the product exceeds d) The supplier supplies to various industriese) The switching costs are high
21
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
f) The suppliers product does not have a substituteg) The suppliers product is an important input for the buyersh) The buyer is not important to the supplieri) The suppliers product is unique
5 RIVALRY AMONG COMPETITORSRivalry among competitors can cause an industry great harm This occurs mainly by price cuts heavy advertising additional high cost services or offers and the like This rivalry occurs mainly whena) There are many competitors and supply exceeds demand Companies resort to price cuts and advertise heavily in order to attract customers for their goodsb) The industry growth is slow and companies are competing with each other for a greater market sharec) The economy is in a recession and companies cut the price of their products and offer better service to stimulate demandd) There is lack of differentiation between the product of one company and that of another In such cases the buyer makes his choice on the basis of price or servicee) In some industries economies of scale will necessitate large additions to existing capacities in a company The increase in production could result in over capacity amp price cuttingf) Competitors may have very different strategies in selling their goods and in competing they may be continuously trying to stay ahead
III COMPANY ANALYSIS
At the final stage of fundamental analysis the investor analyzes the company This analysis has two thrustsHow has the company performed vis-agrave-vis other similar companies and How has the company performed in comparison to earlier years It is imperative that one completes the politico economic analysis and the industry analysis before a company is analyzed because the companys performance at a period of time is to an extent a reflection of the economy the political situation and the industry What does one look at when analyzing a company The different issues regarding a company that should be examined are The Management The Company The Annual Report Ratios Cash flow
THE MANAGEMENT
The single most important factor one should consider when investing in a company and one often never considered is its management In India management can be broadly
22
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
divided in two types Family Management Professional Management
THE COMPANY
An aspect not necessarily examined during an analysis of fundamentals is the company A company may have made losses consecutively for two years or more and one may not wish to touch its shares - yet it may be a good company and worth purchasing into There are several factors one should look at
1 How a company is perceived by its competitorsOne of the key factors to ascertain is how a company is perceived by its competitors It is held in high regard Its management may be known for its maturity vision competence and aggressiveness The investor must ascertain the reason and then determine whetherthe reason will continue into the foreseeable future
2 Whether the company is the market leader in its products or in its segmentAnother aspect that should be ascertained is whether the company is the market leader in its products or in its segment When you invest in market leaders the risk is less Theshares of market leaders do not fall as quickly as those of other companies There is a magic to their name that would make individuals prefer to buy their products as opposed to others
3 Company PoliciesThe policy a company follows is also important What is its plans for growth What is its vision Every company has a life If it is allowed to live a normal life it will grow upto a point and then begin to level out and eventually die It is at the point of leveling out that it must be given new life This can give it renewed vigour and a new lease of life
4 Labour RelationsLabour relations are extremely important A company that has motivated industrious work force has high productivity and practically no disruption of work On the other hand a company that has bad industrial relations will lose several hundred mandays as a consequence of strikes and go slows
5 Where the company is located and where its factories are One must also consider where the companies Plants and Factories are located
THE ANNUAL REPORT
The primary and most important source of information about a company is its Annual Report By law this is prepared every year and distributed to the shareholders Annual Reports are usually very well presented A tremendous amount of data is given about the performance of a company over a period of time The Annual Report is broken down into the following specific parts
23
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the Accounts
A The Directorrsquos ReportThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship 1 It enunciates the opinion of the directors on the state of the economy and the political situation vis-agrave-vis the company 2 Explains the performance and the financial results of the company in the period under review This is an extremely important part The results and operations of the various separate divisions are usually detailed and investors can determine the reasons for their good or bad performance3 The Directorrsquos Report details the companys plans for modernization expansion and diversification Without these a company will remain static and eventually decline4 Discusses the profit earned in the period under review and the dividend Recommended by the directors This paragraph should normally be read with some skepticism as the directors will always argue that the performance was satisfactory If adverse economic conditions are usually at fault 5 Elaborates on the directors views of the companys prospects in the future6 Discusses plans for new acquisition and investments An investor must intelligently evaluate the issues raised in a Directorrsquos Report Industry conditions and the managements knowledge of the business must be considered
B The Auditors ReportThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors Auditors are required to report whether the financial statements presented do in fact present a true and fair view of the state of the company Investors must remember that the auditors are their representatives and that they are required by law to point out if the financial statements are not true and fair
CFinancial StatementsThe published financial statements of a company in an Annual Report consist of its Balance Sheet as at the end of the accounting period detailing the financing condition of the company at that date and the Profit and Loss Account or Income Statement summarizing the activities of the company for the accounting period
BALANCE SHEETThe Balance Sheet details the financial position of a company on a particular date of the companys assets (that which the company owns) and liabilities (that which the companyowes) grouped logically under specific heads It must however be noted that the Balance Sheet details the financial position on a particular day and that the position can be materially different on the next day or the day after
24
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOURCES OF FUNDSSHAREHOLDERS FUNDSSHARE CAPITAL(i) Private Placement(ii) Public Issueiii) Rights issuesRESERVESi) Capital Reservesii) Revenue ReservesLOAN FUNDSi) Secured loansii) Unsecured loansFIXED ASSETSINVESTMENTSSTOCK OR INVENTORIESi) Raw materialsii) Work in progressiii) Finished goodsCASH AND BANK BALANCESLOANS AND ADVANCES
PROFIT AND LOSS ACCOUNTThe Profit and Loss account summarizes the activities of a company during an accounting period which may be a month a quarter six months a year or longer and the result achieved by the company It details the income earned by the company its cost and the resulting profit or loss It is in effect the performance appraisal not only of the company but also of its management- its competence foresight and ability to lead
RATIOS
Ratios express mathematically the relationship between performance figures andor assetsliabilities in a form that can be easily understood and interpretedNo single ratio tells the complete storyRatios can be broken down into four broad categories
(A) Profit and Loss RatiosThese show the relationship between two items or groups of items in a profit and loss account or income statement The more common of these ratios are1 Sales to cost of goods sold2 Selling expenses to sales3 Net profit to sales and4 Gross profit to sales
(B) Balance Sheet RatiosThese deal with the relationship in the balance sheet such as 1 Shareholders equity to borrowed funds
25
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
2 Current assets to current liabilities3 Liabilities to net worth4 Debt to assets and5 Liabilities to assets
(C) Balance Sheet and Profit and Loss Account RatiosThese relate an item on the balance sheet to another in the profit and loss account such as1 Earnings to shareholders funds2 Net income to assets employed3 Sales to stock4 Sales to debtors and5 Cost of goods sold to creditors
(D) Financial Statements and Market RatiosThese are normally known as market ratios and are arrived at by relative financial figures to market prices1 Market value to earnings and2 Book value to market value(a) Market value(b) Earnings(c) Profitability(d) Liquidity(e) Leverage(f) Debt Service Capacity(g) Asset ManagementEfficiency(h) Margins
The major ratios that are considered(i) Market value(ii) Price- earnings ratio(iii) Market-to-book ratio(iv) Earnings(v) Earning per share(vi) Dividend per share(vii) Dividend payout ratio(viii) Leverage ratios(ix) Return on investmentstotal assets
CASH FLOW A statement of sources and uses begins with the profit for the year to which are added the increases in liability accounts (sources) and from which are reduced the increases in asset accounts (uses) The net result shows whether there has been an excess or deficit of funds and how this was financed Investors must examine a companys cash flow as it reveals exactly where the money came from how it was utilized Investors must be
26
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
concerned if a company is financing either its inventories or paying dividends from borrowings without real growth as that shows deterioration
27
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-4 ANALYSIS
28
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
I FUNDAMENTAL ANALYSIS OF STOCKS
Basically fundamental analysis is covered in 3 parts
1 Market economy analysis
2 Industry Analysis
3 Company Analysis
1) TATA MOTORS
I Market Economy Analysis
It covers the macro economy analysis and the various macro economic factors on the national level like GDP Monetary policies of India Fiscal Policies and Inflation and money supply etc
GDP
Real GDP growth accelerated from 75 per cent during 2004-05 to 84 per cent during
2005-06 on the back of buoyant manufacturing and services activity supported by a
recovery in the agricultural sector Real GDP growth has thus averaged over eight per
cent during the last three years and over seven per cent in the first four years (2002-03 to
2005-06) of the Tenth Five Year Plan
Strengths of India today are
A well diversified industrial base which profits from self-reliance in all core industries A
large amp sophisticated financial architecture - The robust capital Markets today have over
9000 listed companies and boast of a massive Market capitalization
A healthy GDP composition with agriculture contributing 22 Industry 22 and
services which have gone strength to strength accounting For 56 of the GDP an
29
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
acknowledged strength in knowledge driven industries like Information technology
biotechnology entertainment Software etc
India has Over 3 million scientific amp technical manpower Over 06 million SampT post
graduates Over 07 million graduate engineers Over 3500 doctorates in sciences every
year
Assuming trend growth in agriculture under normal monsoon conditions and barring
domestic or external shocks the Reserve Bank in its Annual Policy Statement for 2007-
08 (April 2007) placed real GDP growth for policy purposes in the range of 75-80 per
cent during 2007-08 Growth prospects are however subject to a number of downside
risks The risks emanating from the global economy are potential escalation and
volatility in international crude oil prices firming up of overall inflationary pressures and
expectations and a hardening of international interest rates along with the withdrawal of
monetary accommodation
Indiarsquos demographic advantage ndash In contrast to developed Countries India will have a
younger population for the next 50 years Hence India would be the hub for RampD
Inflation
Inflation was contained to 63 per cent by end-March 2007 within the indicative
trajectory of 50-55 per cent during 2007-08 The actual inflation was considerably lower
than the indicative trajectory and this could be mainly attributed to the deferred pass-
through of even the cognisable permanent component of international crude oil prices
Money Supply
Monetary and liquidity conditions remained largely comfortable during 2006-07reflecting
proactive liquidity management operations by the Reserve Bank under the liquidity
adjustment facility flexible management of issuances under the market stabilisation
scheme and some private placement of Government securities
30
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
In short the Indian economy is exhibiting strong fundamentals and displaying
considerable resilience At the same time there are continuing signs of demand pressures
especially high credit growth that could exert upward pressure on prices when associated
with supply shocks such as from oil These pressures have the potential for impacting
stability and inflation expectations While domestic developments continue to dominate
the economy global factors tend to gain more attention now than before The global
outlook for growth is positive but downside risks in regard to inflation also RBI is
applying new repo and reverse repo for the balance of inflation and monetary policies
The following are macroeconomic policies generally found as part of government-
directed industrial auto policies
(a) Restrictions on domestic and foreign investment
(b) Domestic content requirements
(c) High tariff walls
(d) Auto export requirements
(e) National production to sales ratios
(f) Distribution controls
(g) Quotas and licensing requirements that significantly restrict imports
(h) Government approval for product related decisions including vehicle make
body type engine size etc
(i) Special government categories for auto taxes
II INDUSTRY ANALYSIS
Since 1991 opening of the economy has changed the face of auto industry Today it is
amongst the main drivers of growth of Indian economy with an output multiplier of
224(for every Re1 invested auto sector gives back Rs224 to the economy) In recent
years we have seen increasing number of global players entering Indian market by way of
Joint ventures collaborations or wholly owned subsidiary
The automobile industry is torn between trying to reduce costs on the one hand and on
the other dealing with the high price of performance-enhancing technology and
environmental compliance Key drivers in the automotive industry are
31
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Reducing air pollution
Reduction of weight
Recyclability
Safety
Better performance and engine efficiency
Aesthetics
Longer service Life
INDUSTRY LIFE CYCLE
The automobile market is at the maturity stage of the life cycle locally and globally due
to an increased number of competitors from domestic and foreign markets The
automobile market is characterized by a low potential for market growth but high sales
and profit potential as the products have still not saturated the market as a whole
MAJOR COMPETITORS OF TATA MOTORS ARE
Maruti Udyog Ltd
General Motors India
Ford India Ltd
Eicher Motors
Bajaj Auto
Hero Motors
Hindustan Motors
32
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Hyundai Motor India Ltd
Royal Enfield Motors
Telco
TVS Motors
FINANCIALS
Description 1 Day PriceChange
MarketCap
PEROE
Div Yield
Long-Term Debt toEquity
Price toBook Value
NetProfit Margin (mrq)
Price toFree Cash Flow (mrq)
Sector Consumer Goods 01125178B
2488
1707
222
1171076
706 40842
Industry Auto Manufacturers - Major (More Info)
0613310B
3000
750171
181 155 160 -440
Companies
Daimlerchrysler AG (DCX) 021 539B1072
1119
350
217 116 469 -354
Ford Motor Co (F) 121 157B NA-951
240
1107
115 -060 -8205
General Motors Corporation (GM) -024 165B NA
-6285
340
390 142 -621 014
Honda Motor Co Ltd (HMC) 083 622B1152
1654
100
083 173 552 20748
Tata Motors Ltd (TTM) -038 71B1864
NA150
NA 535 564 NA
Toyota Motor Corp (TM) 0731756B
1394
1505
120
103 197 659 NA
Opportunities and Threats
a) Opportunities
Road Development The ongoing road development program would improve
connectivity to ports cities and villages through a network of highways and
interconnecting roads by 2010-11 Improved road network would help in faster
33
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
movement of goods between various cities and towns The Company launched TATA
Novus range of vehicles in the heavy segment and TATA ACE for last mile distribution
Car penetration in India Car penetration in India is 7 cars per 1000 persons
International In FY 2006-07 the Company increased share of its overseas vehicle sales
from 76 last year to record high of 111 (as of its total sales) and has planned
further increase in this year
b) Threats
Global Competition India is increasingly attracting global players to set up
manufacturing facility for producing cars especially small cars Global automobile
manufacturers are also entering India in commercial vehicle segment to leverage Indiarsquos
low cost production advantage to their favor
Fuel Prices The continuing fuel price increase in the domestic market could
significantly impact demand of commercial and passenger vehicles
Input costs Commodity items particularly steel non-ferrous metals rubber and
engineering plastics have witnessed huge price increases in the past These prices are
expected to increase further affecting the Companyrsquos profitability
Interest rate hardening and other inflationary trends With interest rates hardening and
liquidity crunch in the system growth in sales may be adversely impacted
Government Regulations Stringent emission and safety requirements could bring new
complexities for automotive and component manufacturers impacting the Companyrsquos
business
Risks and Concerns
Interest Rates FY 2007-08 started with increasing interest rate regime and tightening
liquidity position in the economy Increasing interest rates could further affect vehicle
demand which could have an adverse impact on the Companyrsquos revenues and profits
Exchange rates The Company exports vehicles to many countries and exchange rate
fluctuations in the order execution period could impact the Companyrsquos business
34
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Freight rates In FY 2006-07 freight rates in road transport sector moved up mainly
due to surge in construction activity ongoing road development projects and severe
restriction on over-loading Demand for commercial vehicles could be impacted by
further change in freight rates and change in fuel prices
Domestic market The Company plans to reduce the impact of this cyclicality on its
business by strengthening its less cyclical businesses like buses light trucks small
commercial vehicles
Overseas market In overseas markets the Company competes with global players
which have multiple vehicle platforms large financial capability and global branding
Manufacturing The Company manufactures vehicles at multiple locations and given
the geographical dispersion of its suppliers it faces Logistics Problems
New Competition Competitive activity is expected to increase in commercial vehicle
and passenger vehicle domestic market in coming years
New projects The Company currently is in midst of executing many new projects
ranging from launch of new car platforms to development of new Truck models
III Company Analysis
Key Highlights
Symbol TTL
Sector Consumer Goods
Industry Auto Manufacturers Major
Market Cap Rs29232 crores
Data Since 1945
Last close Rs 74290
Brief Summary of the company
35
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Tata Motors is one of the largest companies in the Tata Group with a total income of US$
235 billion More than 3 million Tata vehicles ply on Indian roads making Tata a
dominant force in the Indian automobile industry
Joint Venture with Fiat and Hitachi
Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing
passenger vehicles engines and transmissions for both domestic and international
markets The Company has also entered into a JV with Hitachi to set up a new plant in
Kharagpur
Product Mix
Tata Motors is Indias only fully integrated automobile manufacturer with a portfolio that
covers trucks buses utility vehicles and passenger cars It would be no exaggeration to
say that Tata Motors provides the wheels for Indias growth
Segmental Overview
Commercial Vehicle Segment
The Company registered 696 volume growth in the domestic CV segment during
4QFY06 from 37228 units in Q3FY05 to 63082 units in Q3FY06 The market share in
this segment was 658 in Q4FY06 as compared to 552 in Q1FY06 The MHCV
goods-carrier segment registered a 544 growth YoY with sale of 33515 units and a
market share of 645 up by around 410 bps driven by infrastructure development and
increase in international trade
Passenger Vehicle Segment
The Company reported a growth of 212 YoY to 49907 vehicles in the domestic
passenger vehicle segment and a market share of 162 in the quarter The passenger
vehicle industry registered a volume growth of 204 during Q4FY06
36
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Plants
Tata Motors owes its leading position in the Indian automobile industry to its strong
focus on indigenisation Their manufacturing plants are situated at Jamshedpur in the
East Pune in the West and Lucknow in the North
Charts showing Key Statistics of tata motors
37
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Share holding pattern as on 31-Mar
shareholding pattern
34
1425
17
10
promotors
MF Banks Fis
FIIs
Others
Public
Financial highlights
38
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
39
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
RATIO ANALYSIS
Ratios 2006 2005 2004
Debtequity 056 049 044
Current ratio 108 087 076
Operating profit margin 1211 1151 1238
Gross profit margin 1087 1043 1104
ROCE 3125 3276 3377
total assets turnover ratio 315 353 343
ROE 2761 3009 2257
Dividend-equity 49794 45373 28211
Retention Ratio 6743 6332 6519
DPS (Rs) 1301 125 799
EPS (Rs) 25 34 41
Dividend Payout Ratio 039 042 037
CAGR of EPS 0177
CAGR of Dividend Payout Ratio -0017
Average ROE 2574
average retention 6354
Growth (g = Avg RR times Avg ROE ) 1636
Market return 1454
40
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
PE ratio (on the basis of historical analysis) = 1812
Therefore the Weighted PE ratio =(1812+2424)2 = 21181
Projected EPS = EPS OF 2006 + CAGR of EPSEPS OF 2006
= Rs48271
Value of Share at the end of financial year 06-07
= Projected EPS Weighted PE Ratio
= Rs1022
2) HPCL
Globalization and the Indian Petroleum Industry
Indian petroleum industry in the post independent period (1947-2001) it may be divided
into three distinct phases
(i) early phase (1947 to 1969)- when the government consolidated its control over
the industry with Soviet assistance
(ii) development phase (1970 to 1989)- in this period the US companies played
dominant role replacing the Soviets and
41
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
(iii) the economic liberalisation phase of 1990s
PORTERrsquoS MODEL
SWOT ANALYSIS
STRENGHS
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
WEAKNESSES
Dependence on refining function high
Moderate share in high profitable retail segment
42
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Diversifications in petrochemicals could trouble the company
High burden of subsidy loss on cooking gas and kerosene
OPPORTUNITIES
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
Overseas presence in upstream and downstream will determine growth
THREATS
Rising oil prices could dampen demand
High regulatory risk
Loss of market share to private players
Entrance of private players in pipelines will take away monopoly of company in
north India
COMPANY ANALYSIS
The Annual Report is broken down into the following specific parts
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the AccountsATHE DIRECTORrsquoS REPORTThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship Fundamental AnalysisB THE AUDITORS REPORTThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors
C FINANCIAL STATEMENTSIt comprises of Balance Sheet Profit and Loss account Cash Flows Its analysis would be discussed later
DSCHEDULES
43
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The schedules detail pertinent information about the items of Balance Sheet and Profit amp Loss Account It also details information about sales manufacturing costs administration costs interest and other income and expenses
1 THE MANAGEMENT
HPCL is a public sector undertaking Thus it is a professionally managed company
There are some parameters of management on which a company is analysed
a integrity of management
b past record of management
c how highly is the management rated by its peers in the same industry
d how the management fares in adversity
e the depth of the knowledge of management
f open and innovative management
on all these parameters HPCL scores good
2 COMPANY
Many times a company has made losses in the previous years but that does not mean
that the company is bad to invest Thus many factors are studied while studying a
company
a) perception of competitors
HPCL is the second largest petroleum company after IOCL Thus it is a competitor of
IOCL and it is trying hard to compete with IOCL on every front That is why now it
has decided to diversify itself in the oil exploration sector
b) company policies
As this is a PSU thus the policies are made by the government The oil sector is one
which is highly regulated by government Thus from time to time it is required to
watch out the various policies changed
3 ANNUAL REPORT
The most primary and most important source of information about a company is its
Annual Report This is prepared every year and distributed to its shareholders
44
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Ratio Analysis
Evaluation of Intrinsic Value of the Security
stdev mkt 0011934stdev sec 003831 Average
Retention Ratio 060504
correlation 0485958 ROE 019842Beta 156765 g 0120052Risk Free Rate 650
Mkt Rate 14
45
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
k 1826
Hence we see that here our g is less than k Thus we see that as per Dividend Discount Model our Intrinsic value is div=22(1+012)=240626= 387
Price= Projected EPS + Weighted PE ratioUsing CAGR EPS = 43468Weighted PE Ratio = 75+6652=33625
Price = 43468+33625 = 381
3) HDFC BANK
The Indian banking industry sector overview
With the economic growth picking up pace and the investment cycle on the way to recovery the banking sector has witnessed a transformation in its vital role of intermediating between the demand and supply of funds
Public sector banks have been very proactive in their restructuring initiatives be it in technology implementation or pruning their loss assets Windfall treasury gains made in the falling interest rate regime were used for writing off the doubtful and loss assets
Retail lending (especially mortgage financing) formed a significant portion of the portfolio for most banks and they customized their products to cater to the diverse demands
Apart from streamlining their processes through technology initiatives such as ATMs telephone banking online banking and web based products banks also resorted to cross selling of financial products such as credit cards mutual funds and insurance policies to augment their fee based income
PORTERrsquoS FIVE FORCES MODEL FOR THE BANKING INDUSTRY
1) BARRIERS TO ENTRY a Economies of scale Since the existing players in the market are well
established and already have a customer base they are able to bear the cost of using the advantages of technology to their maximum advantage
46
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Capital requirement for entry i The Banking Regulation Act prescribes the minimum capital
requirements for a bank Moreover banks have to maintain a capital adequacy ratio of 9 under the Basel I norms
ii Government has declared that the foreign banks will be permitted to establish their presence in India by way of setting up a wholly owned banking subsidiary (WOS) with a minimum capital of Rs300 crore
c Access to distribution channels Since banks have to set up their own distribution channels all the cost has to be directly born by them
d Cost advantage independent of size Existing banks have huge databases of customers which they use when they want to sell a new product launched by them
e Legislation or Government action Banks are governed by Banking Regulation Act 1949 which specifies the rules and regulations applicable to banks RBI is the governing body of banks in India
2) BARGAINING POWER OF BUYERS
Due to increased competition the services offered by banks to customers have improved considerably
3) BARGAINING POWER OF THE SUPPLIERS
Suppliers to banks can be both - the customers and RBIa Customers of banks provide money to banks in the form of deposits and in
return earn some interest on that b RBI acts as a supplier to banks by selling govt securities treasury bills
govt bonds etc c Call money market Banks sometimes have to borrow from other banks to
meet CRR and SLR requirements or other capital requirements as provided by RBI
4) THREAT OF SUBSTITUTES
a Product-for-product substitutioni Banks provide interest on deposits made by people Similar
services are offered by post offices which may act as substitutes to the deposit schemes of banks
ii Some banks offer locker services to customers for yearly rates Similar services are provided by many post offices
47
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Generic substitution People who deposit their savings in banks can invest their money in other sources like mutual funds shares and other securities and life insurance schemes
5) COMPETITIVE RIVALRY
a Extent of competitor balance b Market growth ratesc High Exit Barriers
PEST Analysis for Banking Industry
1 Political factors - The major factors affecting the banking sector are the following
Banking sector reforms ndash As per the RBI roadmap for reforms in the first stage from 2005 to 2009 foreign banks will be allowed to set up wholly owned subsidiaries as well as get greater freedom to set up new branches Fulfilling the minimum priority sector credit -The government mandation of fulfilling the minimum priority sector credit (of which 18 per cent is food credit) has forced the domestic banks to cater to this segment despite the low profitability and vulnerability of asset quality
Banks have also been allowed to set up Offshore Banking Units in SEZrsquos
2 Economic factors -
Basell II norms for the risk management in banking sector - The new Basel Accord has its foundation on three mutually reinforcing pillars The first pillar is compatible with the credit risk market risk and operational risk The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bankConcurrently it also casts responsibility on the supervisors to review and validate banksrsquo risk measurement models
Consolidation and merger and acquisitions in the banking sector- HDFC bank also acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Universal Banking has been introduced ICICI Bank HDFCs closest competitor is already into Universal Banking so HDFC is also getting into it as now it is providing retail banking and also depository facilities in the form of demat account
48
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
3 Social factors-
Big and growing middle class in India - This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans car loans education loans auto loans etc Retail loans have grown from 19 in FYrsquo99 to 51 FYrsquo06Consumer credit accounts for a meager 286 per cent of the countrys GDP and the buoyancy in the economy offers sufficient scope for it to grow
Geographical and Cultural diversity- This is leading to a greater demand for financial products and customization by the customers
4 Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999 It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector
Banks (All) No of players = 40
Sector statistics
We see the sector aggregates and make a financial comparison for the major banks
Top PlayersFY2006
Based on Total Income Based on OPBDT Total Income Change OPBDT Change
(Rs Mn) () (Rs Mn) ()ICICI BANK 631619 5450 S B I 763528 -129 PUNJAB NATIONAL B 29218 1491 ICICI BANK 37174 1936
CAN BANK 277095 2378 PUNJAB NATIONAL B 222052 3936
BANK OF INDIA 23317 2543 CAN BANK 168825 1953
H D F C BANK 185508 6024 H D F C BANK 14324 2748 change - indicates the change between current and corresponding quarter
49
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
f) The suppliers product does not have a substituteg) The suppliers product is an important input for the buyersh) The buyer is not important to the supplieri) The suppliers product is unique
5 RIVALRY AMONG COMPETITORSRivalry among competitors can cause an industry great harm This occurs mainly by price cuts heavy advertising additional high cost services or offers and the like This rivalry occurs mainly whena) There are many competitors and supply exceeds demand Companies resort to price cuts and advertise heavily in order to attract customers for their goodsb) The industry growth is slow and companies are competing with each other for a greater market sharec) The economy is in a recession and companies cut the price of their products and offer better service to stimulate demandd) There is lack of differentiation between the product of one company and that of another In such cases the buyer makes his choice on the basis of price or servicee) In some industries economies of scale will necessitate large additions to existing capacities in a company The increase in production could result in over capacity amp price cuttingf) Competitors may have very different strategies in selling their goods and in competing they may be continuously trying to stay ahead
III COMPANY ANALYSIS
At the final stage of fundamental analysis the investor analyzes the company This analysis has two thrustsHow has the company performed vis-agrave-vis other similar companies and How has the company performed in comparison to earlier years It is imperative that one completes the politico economic analysis and the industry analysis before a company is analyzed because the companys performance at a period of time is to an extent a reflection of the economy the political situation and the industry What does one look at when analyzing a company The different issues regarding a company that should be examined are The Management The Company The Annual Report Ratios Cash flow
THE MANAGEMENT
The single most important factor one should consider when investing in a company and one often never considered is its management In India management can be broadly
22
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
divided in two types Family Management Professional Management
THE COMPANY
An aspect not necessarily examined during an analysis of fundamentals is the company A company may have made losses consecutively for two years or more and one may not wish to touch its shares - yet it may be a good company and worth purchasing into There are several factors one should look at
1 How a company is perceived by its competitorsOne of the key factors to ascertain is how a company is perceived by its competitors It is held in high regard Its management may be known for its maturity vision competence and aggressiveness The investor must ascertain the reason and then determine whetherthe reason will continue into the foreseeable future
2 Whether the company is the market leader in its products or in its segmentAnother aspect that should be ascertained is whether the company is the market leader in its products or in its segment When you invest in market leaders the risk is less Theshares of market leaders do not fall as quickly as those of other companies There is a magic to their name that would make individuals prefer to buy their products as opposed to others
3 Company PoliciesThe policy a company follows is also important What is its plans for growth What is its vision Every company has a life If it is allowed to live a normal life it will grow upto a point and then begin to level out and eventually die It is at the point of leveling out that it must be given new life This can give it renewed vigour and a new lease of life
4 Labour RelationsLabour relations are extremely important A company that has motivated industrious work force has high productivity and practically no disruption of work On the other hand a company that has bad industrial relations will lose several hundred mandays as a consequence of strikes and go slows
5 Where the company is located and where its factories are One must also consider where the companies Plants and Factories are located
THE ANNUAL REPORT
The primary and most important source of information about a company is its Annual Report By law this is prepared every year and distributed to the shareholders Annual Reports are usually very well presented A tremendous amount of data is given about the performance of a company over a period of time The Annual Report is broken down into the following specific parts
23
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the Accounts
A The Directorrsquos ReportThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship 1 It enunciates the opinion of the directors on the state of the economy and the political situation vis-agrave-vis the company 2 Explains the performance and the financial results of the company in the period under review This is an extremely important part The results and operations of the various separate divisions are usually detailed and investors can determine the reasons for their good or bad performance3 The Directorrsquos Report details the companys plans for modernization expansion and diversification Without these a company will remain static and eventually decline4 Discusses the profit earned in the period under review and the dividend Recommended by the directors This paragraph should normally be read with some skepticism as the directors will always argue that the performance was satisfactory If adverse economic conditions are usually at fault 5 Elaborates on the directors views of the companys prospects in the future6 Discusses plans for new acquisition and investments An investor must intelligently evaluate the issues raised in a Directorrsquos Report Industry conditions and the managements knowledge of the business must be considered
B The Auditors ReportThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors Auditors are required to report whether the financial statements presented do in fact present a true and fair view of the state of the company Investors must remember that the auditors are their representatives and that they are required by law to point out if the financial statements are not true and fair
CFinancial StatementsThe published financial statements of a company in an Annual Report consist of its Balance Sheet as at the end of the accounting period detailing the financing condition of the company at that date and the Profit and Loss Account or Income Statement summarizing the activities of the company for the accounting period
BALANCE SHEETThe Balance Sheet details the financial position of a company on a particular date of the companys assets (that which the company owns) and liabilities (that which the companyowes) grouped logically under specific heads It must however be noted that the Balance Sheet details the financial position on a particular day and that the position can be materially different on the next day or the day after
24
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOURCES OF FUNDSSHAREHOLDERS FUNDSSHARE CAPITAL(i) Private Placement(ii) Public Issueiii) Rights issuesRESERVESi) Capital Reservesii) Revenue ReservesLOAN FUNDSi) Secured loansii) Unsecured loansFIXED ASSETSINVESTMENTSSTOCK OR INVENTORIESi) Raw materialsii) Work in progressiii) Finished goodsCASH AND BANK BALANCESLOANS AND ADVANCES
PROFIT AND LOSS ACCOUNTThe Profit and Loss account summarizes the activities of a company during an accounting period which may be a month a quarter six months a year or longer and the result achieved by the company It details the income earned by the company its cost and the resulting profit or loss It is in effect the performance appraisal not only of the company but also of its management- its competence foresight and ability to lead
RATIOS
Ratios express mathematically the relationship between performance figures andor assetsliabilities in a form that can be easily understood and interpretedNo single ratio tells the complete storyRatios can be broken down into four broad categories
(A) Profit and Loss RatiosThese show the relationship between two items or groups of items in a profit and loss account or income statement The more common of these ratios are1 Sales to cost of goods sold2 Selling expenses to sales3 Net profit to sales and4 Gross profit to sales
(B) Balance Sheet RatiosThese deal with the relationship in the balance sheet such as 1 Shareholders equity to borrowed funds
25
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
2 Current assets to current liabilities3 Liabilities to net worth4 Debt to assets and5 Liabilities to assets
(C) Balance Sheet and Profit and Loss Account RatiosThese relate an item on the balance sheet to another in the profit and loss account such as1 Earnings to shareholders funds2 Net income to assets employed3 Sales to stock4 Sales to debtors and5 Cost of goods sold to creditors
(D) Financial Statements and Market RatiosThese are normally known as market ratios and are arrived at by relative financial figures to market prices1 Market value to earnings and2 Book value to market value(a) Market value(b) Earnings(c) Profitability(d) Liquidity(e) Leverage(f) Debt Service Capacity(g) Asset ManagementEfficiency(h) Margins
The major ratios that are considered(i) Market value(ii) Price- earnings ratio(iii) Market-to-book ratio(iv) Earnings(v) Earning per share(vi) Dividend per share(vii) Dividend payout ratio(viii) Leverage ratios(ix) Return on investmentstotal assets
CASH FLOW A statement of sources and uses begins with the profit for the year to which are added the increases in liability accounts (sources) and from which are reduced the increases in asset accounts (uses) The net result shows whether there has been an excess or deficit of funds and how this was financed Investors must examine a companys cash flow as it reveals exactly where the money came from how it was utilized Investors must be
26
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
concerned if a company is financing either its inventories or paying dividends from borrowings without real growth as that shows deterioration
27
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-4 ANALYSIS
28
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
I FUNDAMENTAL ANALYSIS OF STOCKS
Basically fundamental analysis is covered in 3 parts
1 Market economy analysis
2 Industry Analysis
3 Company Analysis
1) TATA MOTORS
I Market Economy Analysis
It covers the macro economy analysis and the various macro economic factors on the national level like GDP Monetary policies of India Fiscal Policies and Inflation and money supply etc
GDP
Real GDP growth accelerated from 75 per cent during 2004-05 to 84 per cent during
2005-06 on the back of buoyant manufacturing and services activity supported by a
recovery in the agricultural sector Real GDP growth has thus averaged over eight per
cent during the last three years and over seven per cent in the first four years (2002-03 to
2005-06) of the Tenth Five Year Plan
Strengths of India today are
A well diversified industrial base which profits from self-reliance in all core industries A
large amp sophisticated financial architecture - The robust capital Markets today have over
9000 listed companies and boast of a massive Market capitalization
A healthy GDP composition with agriculture contributing 22 Industry 22 and
services which have gone strength to strength accounting For 56 of the GDP an
29
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
acknowledged strength in knowledge driven industries like Information technology
biotechnology entertainment Software etc
India has Over 3 million scientific amp technical manpower Over 06 million SampT post
graduates Over 07 million graduate engineers Over 3500 doctorates in sciences every
year
Assuming trend growth in agriculture under normal monsoon conditions and barring
domestic or external shocks the Reserve Bank in its Annual Policy Statement for 2007-
08 (April 2007) placed real GDP growth for policy purposes in the range of 75-80 per
cent during 2007-08 Growth prospects are however subject to a number of downside
risks The risks emanating from the global economy are potential escalation and
volatility in international crude oil prices firming up of overall inflationary pressures and
expectations and a hardening of international interest rates along with the withdrawal of
monetary accommodation
Indiarsquos demographic advantage ndash In contrast to developed Countries India will have a
younger population for the next 50 years Hence India would be the hub for RampD
Inflation
Inflation was contained to 63 per cent by end-March 2007 within the indicative
trajectory of 50-55 per cent during 2007-08 The actual inflation was considerably lower
than the indicative trajectory and this could be mainly attributed to the deferred pass-
through of even the cognisable permanent component of international crude oil prices
Money Supply
Monetary and liquidity conditions remained largely comfortable during 2006-07reflecting
proactive liquidity management operations by the Reserve Bank under the liquidity
adjustment facility flexible management of issuances under the market stabilisation
scheme and some private placement of Government securities
30
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
In short the Indian economy is exhibiting strong fundamentals and displaying
considerable resilience At the same time there are continuing signs of demand pressures
especially high credit growth that could exert upward pressure on prices when associated
with supply shocks such as from oil These pressures have the potential for impacting
stability and inflation expectations While domestic developments continue to dominate
the economy global factors tend to gain more attention now than before The global
outlook for growth is positive but downside risks in regard to inflation also RBI is
applying new repo and reverse repo for the balance of inflation and monetary policies
The following are macroeconomic policies generally found as part of government-
directed industrial auto policies
(a) Restrictions on domestic and foreign investment
(b) Domestic content requirements
(c) High tariff walls
(d) Auto export requirements
(e) National production to sales ratios
(f) Distribution controls
(g) Quotas and licensing requirements that significantly restrict imports
(h) Government approval for product related decisions including vehicle make
body type engine size etc
(i) Special government categories for auto taxes
II INDUSTRY ANALYSIS
Since 1991 opening of the economy has changed the face of auto industry Today it is
amongst the main drivers of growth of Indian economy with an output multiplier of
224(for every Re1 invested auto sector gives back Rs224 to the economy) In recent
years we have seen increasing number of global players entering Indian market by way of
Joint ventures collaborations or wholly owned subsidiary
The automobile industry is torn between trying to reduce costs on the one hand and on
the other dealing with the high price of performance-enhancing technology and
environmental compliance Key drivers in the automotive industry are
31
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Reducing air pollution
Reduction of weight
Recyclability
Safety
Better performance and engine efficiency
Aesthetics
Longer service Life
INDUSTRY LIFE CYCLE
The automobile market is at the maturity stage of the life cycle locally and globally due
to an increased number of competitors from domestic and foreign markets The
automobile market is characterized by a low potential for market growth but high sales
and profit potential as the products have still not saturated the market as a whole
MAJOR COMPETITORS OF TATA MOTORS ARE
Maruti Udyog Ltd
General Motors India
Ford India Ltd
Eicher Motors
Bajaj Auto
Hero Motors
Hindustan Motors
32
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Hyundai Motor India Ltd
Royal Enfield Motors
Telco
TVS Motors
FINANCIALS
Description 1 Day PriceChange
MarketCap
PEROE
Div Yield
Long-Term Debt toEquity
Price toBook Value
NetProfit Margin (mrq)
Price toFree Cash Flow (mrq)
Sector Consumer Goods 01125178B
2488
1707
222
1171076
706 40842
Industry Auto Manufacturers - Major (More Info)
0613310B
3000
750171
181 155 160 -440
Companies
Daimlerchrysler AG (DCX) 021 539B1072
1119
350
217 116 469 -354
Ford Motor Co (F) 121 157B NA-951
240
1107
115 -060 -8205
General Motors Corporation (GM) -024 165B NA
-6285
340
390 142 -621 014
Honda Motor Co Ltd (HMC) 083 622B1152
1654
100
083 173 552 20748
Tata Motors Ltd (TTM) -038 71B1864
NA150
NA 535 564 NA
Toyota Motor Corp (TM) 0731756B
1394
1505
120
103 197 659 NA
Opportunities and Threats
a) Opportunities
Road Development The ongoing road development program would improve
connectivity to ports cities and villages through a network of highways and
interconnecting roads by 2010-11 Improved road network would help in faster
33
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
movement of goods between various cities and towns The Company launched TATA
Novus range of vehicles in the heavy segment and TATA ACE for last mile distribution
Car penetration in India Car penetration in India is 7 cars per 1000 persons
International In FY 2006-07 the Company increased share of its overseas vehicle sales
from 76 last year to record high of 111 (as of its total sales) and has planned
further increase in this year
b) Threats
Global Competition India is increasingly attracting global players to set up
manufacturing facility for producing cars especially small cars Global automobile
manufacturers are also entering India in commercial vehicle segment to leverage Indiarsquos
low cost production advantage to their favor
Fuel Prices The continuing fuel price increase in the domestic market could
significantly impact demand of commercial and passenger vehicles
Input costs Commodity items particularly steel non-ferrous metals rubber and
engineering plastics have witnessed huge price increases in the past These prices are
expected to increase further affecting the Companyrsquos profitability
Interest rate hardening and other inflationary trends With interest rates hardening and
liquidity crunch in the system growth in sales may be adversely impacted
Government Regulations Stringent emission and safety requirements could bring new
complexities for automotive and component manufacturers impacting the Companyrsquos
business
Risks and Concerns
Interest Rates FY 2007-08 started with increasing interest rate regime and tightening
liquidity position in the economy Increasing interest rates could further affect vehicle
demand which could have an adverse impact on the Companyrsquos revenues and profits
Exchange rates The Company exports vehicles to many countries and exchange rate
fluctuations in the order execution period could impact the Companyrsquos business
34
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Freight rates In FY 2006-07 freight rates in road transport sector moved up mainly
due to surge in construction activity ongoing road development projects and severe
restriction on over-loading Demand for commercial vehicles could be impacted by
further change in freight rates and change in fuel prices
Domestic market The Company plans to reduce the impact of this cyclicality on its
business by strengthening its less cyclical businesses like buses light trucks small
commercial vehicles
Overseas market In overseas markets the Company competes with global players
which have multiple vehicle platforms large financial capability and global branding
Manufacturing The Company manufactures vehicles at multiple locations and given
the geographical dispersion of its suppliers it faces Logistics Problems
New Competition Competitive activity is expected to increase in commercial vehicle
and passenger vehicle domestic market in coming years
New projects The Company currently is in midst of executing many new projects
ranging from launch of new car platforms to development of new Truck models
III Company Analysis
Key Highlights
Symbol TTL
Sector Consumer Goods
Industry Auto Manufacturers Major
Market Cap Rs29232 crores
Data Since 1945
Last close Rs 74290
Brief Summary of the company
35
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Tata Motors is one of the largest companies in the Tata Group with a total income of US$
235 billion More than 3 million Tata vehicles ply on Indian roads making Tata a
dominant force in the Indian automobile industry
Joint Venture with Fiat and Hitachi
Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing
passenger vehicles engines and transmissions for both domestic and international
markets The Company has also entered into a JV with Hitachi to set up a new plant in
Kharagpur
Product Mix
Tata Motors is Indias only fully integrated automobile manufacturer with a portfolio that
covers trucks buses utility vehicles and passenger cars It would be no exaggeration to
say that Tata Motors provides the wheels for Indias growth
Segmental Overview
Commercial Vehicle Segment
The Company registered 696 volume growth in the domestic CV segment during
4QFY06 from 37228 units in Q3FY05 to 63082 units in Q3FY06 The market share in
this segment was 658 in Q4FY06 as compared to 552 in Q1FY06 The MHCV
goods-carrier segment registered a 544 growth YoY with sale of 33515 units and a
market share of 645 up by around 410 bps driven by infrastructure development and
increase in international trade
Passenger Vehicle Segment
The Company reported a growth of 212 YoY to 49907 vehicles in the domestic
passenger vehicle segment and a market share of 162 in the quarter The passenger
vehicle industry registered a volume growth of 204 during Q4FY06
36
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Plants
Tata Motors owes its leading position in the Indian automobile industry to its strong
focus on indigenisation Their manufacturing plants are situated at Jamshedpur in the
East Pune in the West and Lucknow in the North
Charts showing Key Statistics of tata motors
37
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Share holding pattern as on 31-Mar
shareholding pattern
34
1425
17
10
promotors
MF Banks Fis
FIIs
Others
Public
Financial highlights
38
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
39
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
RATIO ANALYSIS
Ratios 2006 2005 2004
Debtequity 056 049 044
Current ratio 108 087 076
Operating profit margin 1211 1151 1238
Gross profit margin 1087 1043 1104
ROCE 3125 3276 3377
total assets turnover ratio 315 353 343
ROE 2761 3009 2257
Dividend-equity 49794 45373 28211
Retention Ratio 6743 6332 6519
DPS (Rs) 1301 125 799
EPS (Rs) 25 34 41
Dividend Payout Ratio 039 042 037
CAGR of EPS 0177
CAGR of Dividend Payout Ratio -0017
Average ROE 2574
average retention 6354
Growth (g = Avg RR times Avg ROE ) 1636
Market return 1454
40
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
PE ratio (on the basis of historical analysis) = 1812
Therefore the Weighted PE ratio =(1812+2424)2 = 21181
Projected EPS = EPS OF 2006 + CAGR of EPSEPS OF 2006
= Rs48271
Value of Share at the end of financial year 06-07
= Projected EPS Weighted PE Ratio
= Rs1022
2) HPCL
Globalization and the Indian Petroleum Industry
Indian petroleum industry in the post independent period (1947-2001) it may be divided
into three distinct phases
(i) early phase (1947 to 1969)- when the government consolidated its control over
the industry with Soviet assistance
(ii) development phase (1970 to 1989)- in this period the US companies played
dominant role replacing the Soviets and
41
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
(iii) the economic liberalisation phase of 1990s
PORTERrsquoS MODEL
SWOT ANALYSIS
STRENGHS
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
WEAKNESSES
Dependence on refining function high
Moderate share in high profitable retail segment
42
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Diversifications in petrochemicals could trouble the company
High burden of subsidy loss on cooking gas and kerosene
OPPORTUNITIES
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
Overseas presence in upstream and downstream will determine growth
THREATS
Rising oil prices could dampen demand
High regulatory risk
Loss of market share to private players
Entrance of private players in pipelines will take away monopoly of company in
north India
COMPANY ANALYSIS
The Annual Report is broken down into the following specific parts
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the AccountsATHE DIRECTORrsquoS REPORTThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship Fundamental AnalysisB THE AUDITORS REPORTThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors
C FINANCIAL STATEMENTSIt comprises of Balance Sheet Profit and Loss account Cash Flows Its analysis would be discussed later
DSCHEDULES
43
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The schedules detail pertinent information about the items of Balance Sheet and Profit amp Loss Account It also details information about sales manufacturing costs administration costs interest and other income and expenses
1 THE MANAGEMENT
HPCL is a public sector undertaking Thus it is a professionally managed company
There are some parameters of management on which a company is analysed
a integrity of management
b past record of management
c how highly is the management rated by its peers in the same industry
d how the management fares in adversity
e the depth of the knowledge of management
f open and innovative management
on all these parameters HPCL scores good
2 COMPANY
Many times a company has made losses in the previous years but that does not mean
that the company is bad to invest Thus many factors are studied while studying a
company
a) perception of competitors
HPCL is the second largest petroleum company after IOCL Thus it is a competitor of
IOCL and it is trying hard to compete with IOCL on every front That is why now it
has decided to diversify itself in the oil exploration sector
b) company policies
As this is a PSU thus the policies are made by the government The oil sector is one
which is highly regulated by government Thus from time to time it is required to
watch out the various policies changed
3 ANNUAL REPORT
The most primary and most important source of information about a company is its
Annual Report This is prepared every year and distributed to its shareholders
44
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Ratio Analysis
Evaluation of Intrinsic Value of the Security
stdev mkt 0011934stdev sec 003831 Average
Retention Ratio 060504
correlation 0485958 ROE 019842Beta 156765 g 0120052Risk Free Rate 650
Mkt Rate 14
45
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
k 1826
Hence we see that here our g is less than k Thus we see that as per Dividend Discount Model our Intrinsic value is div=22(1+012)=240626= 387
Price= Projected EPS + Weighted PE ratioUsing CAGR EPS = 43468Weighted PE Ratio = 75+6652=33625
Price = 43468+33625 = 381
3) HDFC BANK
The Indian banking industry sector overview
With the economic growth picking up pace and the investment cycle on the way to recovery the banking sector has witnessed a transformation in its vital role of intermediating between the demand and supply of funds
Public sector banks have been very proactive in their restructuring initiatives be it in technology implementation or pruning their loss assets Windfall treasury gains made in the falling interest rate regime were used for writing off the doubtful and loss assets
Retail lending (especially mortgage financing) formed a significant portion of the portfolio for most banks and they customized their products to cater to the diverse demands
Apart from streamlining their processes through technology initiatives such as ATMs telephone banking online banking and web based products banks also resorted to cross selling of financial products such as credit cards mutual funds and insurance policies to augment their fee based income
PORTERrsquoS FIVE FORCES MODEL FOR THE BANKING INDUSTRY
1) BARRIERS TO ENTRY a Economies of scale Since the existing players in the market are well
established and already have a customer base they are able to bear the cost of using the advantages of technology to their maximum advantage
46
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Capital requirement for entry i The Banking Regulation Act prescribes the minimum capital
requirements for a bank Moreover banks have to maintain a capital adequacy ratio of 9 under the Basel I norms
ii Government has declared that the foreign banks will be permitted to establish their presence in India by way of setting up a wholly owned banking subsidiary (WOS) with a minimum capital of Rs300 crore
c Access to distribution channels Since banks have to set up their own distribution channels all the cost has to be directly born by them
d Cost advantage independent of size Existing banks have huge databases of customers which they use when they want to sell a new product launched by them
e Legislation or Government action Banks are governed by Banking Regulation Act 1949 which specifies the rules and regulations applicable to banks RBI is the governing body of banks in India
2) BARGAINING POWER OF BUYERS
Due to increased competition the services offered by banks to customers have improved considerably
3) BARGAINING POWER OF THE SUPPLIERS
Suppliers to banks can be both - the customers and RBIa Customers of banks provide money to banks in the form of deposits and in
return earn some interest on that b RBI acts as a supplier to banks by selling govt securities treasury bills
govt bonds etc c Call money market Banks sometimes have to borrow from other banks to
meet CRR and SLR requirements or other capital requirements as provided by RBI
4) THREAT OF SUBSTITUTES
a Product-for-product substitutioni Banks provide interest on deposits made by people Similar
services are offered by post offices which may act as substitutes to the deposit schemes of banks
ii Some banks offer locker services to customers for yearly rates Similar services are provided by many post offices
47
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Generic substitution People who deposit their savings in banks can invest their money in other sources like mutual funds shares and other securities and life insurance schemes
5) COMPETITIVE RIVALRY
a Extent of competitor balance b Market growth ratesc High Exit Barriers
PEST Analysis for Banking Industry
1 Political factors - The major factors affecting the banking sector are the following
Banking sector reforms ndash As per the RBI roadmap for reforms in the first stage from 2005 to 2009 foreign banks will be allowed to set up wholly owned subsidiaries as well as get greater freedom to set up new branches Fulfilling the minimum priority sector credit -The government mandation of fulfilling the minimum priority sector credit (of which 18 per cent is food credit) has forced the domestic banks to cater to this segment despite the low profitability and vulnerability of asset quality
Banks have also been allowed to set up Offshore Banking Units in SEZrsquos
2 Economic factors -
Basell II norms for the risk management in banking sector - The new Basel Accord has its foundation on three mutually reinforcing pillars The first pillar is compatible with the credit risk market risk and operational risk The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bankConcurrently it also casts responsibility on the supervisors to review and validate banksrsquo risk measurement models
Consolidation and merger and acquisitions in the banking sector- HDFC bank also acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Universal Banking has been introduced ICICI Bank HDFCs closest competitor is already into Universal Banking so HDFC is also getting into it as now it is providing retail banking and also depository facilities in the form of demat account
48
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
3 Social factors-
Big and growing middle class in India - This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans car loans education loans auto loans etc Retail loans have grown from 19 in FYrsquo99 to 51 FYrsquo06Consumer credit accounts for a meager 286 per cent of the countrys GDP and the buoyancy in the economy offers sufficient scope for it to grow
Geographical and Cultural diversity- This is leading to a greater demand for financial products and customization by the customers
4 Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999 It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector
Banks (All) No of players = 40
Sector statistics
We see the sector aggregates and make a financial comparison for the major banks
Top PlayersFY2006
Based on Total Income Based on OPBDT Total Income Change OPBDT Change
(Rs Mn) () (Rs Mn) ()ICICI BANK 631619 5450 S B I 763528 -129 PUNJAB NATIONAL B 29218 1491 ICICI BANK 37174 1936
CAN BANK 277095 2378 PUNJAB NATIONAL B 222052 3936
BANK OF INDIA 23317 2543 CAN BANK 168825 1953
H D F C BANK 185508 6024 H D F C BANK 14324 2748 change - indicates the change between current and corresponding quarter
49
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
divided in two types Family Management Professional Management
THE COMPANY
An aspect not necessarily examined during an analysis of fundamentals is the company A company may have made losses consecutively for two years or more and one may not wish to touch its shares - yet it may be a good company and worth purchasing into There are several factors one should look at
1 How a company is perceived by its competitorsOne of the key factors to ascertain is how a company is perceived by its competitors It is held in high regard Its management may be known for its maturity vision competence and aggressiveness The investor must ascertain the reason and then determine whetherthe reason will continue into the foreseeable future
2 Whether the company is the market leader in its products or in its segmentAnother aspect that should be ascertained is whether the company is the market leader in its products or in its segment When you invest in market leaders the risk is less Theshares of market leaders do not fall as quickly as those of other companies There is a magic to their name that would make individuals prefer to buy their products as opposed to others
3 Company PoliciesThe policy a company follows is also important What is its plans for growth What is its vision Every company has a life If it is allowed to live a normal life it will grow upto a point and then begin to level out and eventually die It is at the point of leveling out that it must be given new life This can give it renewed vigour and a new lease of life
4 Labour RelationsLabour relations are extremely important A company that has motivated industrious work force has high productivity and practically no disruption of work On the other hand a company that has bad industrial relations will lose several hundred mandays as a consequence of strikes and go slows
5 Where the company is located and where its factories are One must also consider where the companies Plants and Factories are located
THE ANNUAL REPORT
The primary and most important source of information about a company is its Annual Report By law this is prepared every year and distributed to the shareholders Annual Reports are usually very well presented A tremendous amount of data is given about the performance of a company over a period of time The Annual Report is broken down into the following specific parts
23
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the Accounts
A The Directorrsquos ReportThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship 1 It enunciates the opinion of the directors on the state of the economy and the political situation vis-agrave-vis the company 2 Explains the performance and the financial results of the company in the period under review This is an extremely important part The results and operations of the various separate divisions are usually detailed and investors can determine the reasons for their good or bad performance3 The Directorrsquos Report details the companys plans for modernization expansion and diversification Without these a company will remain static and eventually decline4 Discusses the profit earned in the period under review and the dividend Recommended by the directors This paragraph should normally be read with some skepticism as the directors will always argue that the performance was satisfactory If adverse economic conditions are usually at fault 5 Elaborates on the directors views of the companys prospects in the future6 Discusses plans for new acquisition and investments An investor must intelligently evaluate the issues raised in a Directorrsquos Report Industry conditions and the managements knowledge of the business must be considered
B The Auditors ReportThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors Auditors are required to report whether the financial statements presented do in fact present a true and fair view of the state of the company Investors must remember that the auditors are their representatives and that they are required by law to point out if the financial statements are not true and fair
CFinancial StatementsThe published financial statements of a company in an Annual Report consist of its Balance Sheet as at the end of the accounting period detailing the financing condition of the company at that date and the Profit and Loss Account or Income Statement summarizing the activities of the company for the accounting period
BALANCE SHEETThe Balance Sheet details the financial position of a company on a particular date of the companys assets (that which the company owns) and liabilities (that which the companyowes) grouped logically under specific heads It must however be noted that the Balance Sheet details the financial position on a particular day and that the position can be materially different on the next day or the day after
24
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOURCES OF FUNDSSHAREHOLDERS FUNDSSHARE CAPITAL(i) Private Placement(ii) Public Issueiii) Rights issuesRESERVESi) Capital Reservesii) Revenue ReservesLOAN FUNDSi) Secured loansii) Unsecured loansFIXED ASSETSINVESTMENTSSTOCK OR INVENTORIESi) Raw materialsii) Work in progressiii) Finished goodsCASH AND BANK BALANCESLOANS AND ADVANCES
PROFIT AND LOSS ACCOUNTThe Profit and Loss account summarizes the activities of a company during an accounting period which may be a month a quarter six months a year or longer and the result achieved by the company It details the income earned by the company its cost and the resulting profit or loss It is in effect the performance appraisal not only of the company but also of its management- its competence foresight and ability to lead
RATIOS
Ratios express mathematically the relationship between performance figures andor assetsliabilities in a form that can be easily understood and interpretedNo single ratio tells the complete storyRatios can be broken down into four broad categories
(A) Profit and Loss RatiosThese show the relationship between two items or groups of items in a profit and loss account or income statement The more common of these ratios are1 Sales to cost of goods sold2 Selling expenses to sales3 Net profit to sales and4 Gross profit to sales
(B) Balance Sheet RatiosThese deal with the relationship in the balance sheet such as 1 Shareholders equity to borrowed funds
25
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
2 Current assets to current liabilities3 Liabilities to net worth4 Debt to assets and5 Liabilities to assets
(C) Balance Sheet and Profit and Loss Account RatiosThese relate an item on the balance sheet to another in the profit and loss account such as1 Earnings to shareholders funds2 Net income to assets employed3 Sales to stock4 Sales to debtors and5 Cost of goods sold to creditors
(D) Financial Statements and Market RatiosThese are normally known as market ratios and are arrived at by relative financial figures to market prices1 Market value to earnings and2 Book value to market value(a) Market value(b) Earnings(c) Profitability(d) Liquidity(e) Leverage(f) Debt Service Capacity(g) Asset ManagementEfficiency(h) Margins
The major ratios that are considered(i) Market value(ii) Price- earnings ratio(iii) Market-to-book ratio(iv) Earnings(v) Earning per share(vi) Dividend per share(vii) Dividend payout ratio(viii) Leverage ratios(ix) Return on investmentstotal assets
CASH FLOW A statement of sources and uses begins with the profit for the year to which are added the increases in liability accounts (sources) and from which are reduced the increases in asset accounts (uses) The net result shows whether there has been an excess or deficit of funds and how this was financed Investors must examine a companys cash flow as it reveals exactly where the money came from how it was utilized Investors must be
26
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
concerned if a company is financing either its inventories or paying dividends from borrowings without real growth as that shows deterioration
27
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-4 ANALYSIS
28
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
I FUNDAMENTAL ANALYSIS OF STOCKS
Basically fundamental analysis is covered in 3 parts
1 Market economy analysis
2 Industry Analysis
3 Company Analysis
1) TATA MOTORS
I Market Economy Analysis
It covers the macro economy analysis and the various macro economic factors on the national level like GDP Monetary policies of India Fiscal Policies and Inflation and money supply etc
GDP
Real GDP growth accelerated from 75 per cent during 2004-05 to 84 per cent during
2005-06 on the back of buoyant manufacturing and services activity supported by a
recovery in the agricultural sector Real GDP growth has thus averaged over eight per
cent during the last three years and over seven per cent in the first four years (2002-03 to
2005-06) of the Tenth Five Year Plan
Strengths of India today are
A well diversified industrial base which profits from self-reliance in all core industries A
large amp sophisticated financial architecture - The robust capital Markets today have over
9000 listed companies and boast of a massive Market capitalization
A healthy GDP composition with agriculture contributing 22 Industry 22 and
services which have gone strength to strength accounting For 56 of the GDP an
29
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
acknowledged strength in knowledge driven industries like Information technology
biotechnology entertainment Software etc
India has Over 3 million scientific amp technical manpower Over 06 million SampT post
graduates Over 07 million graduate engineers Over 3500 doctorates in sciences every
year
Assuming trend growth in agriculture under normal monsoon conditions and barring
domestic or external shocks the Reserve Bank in its Annual Policy Statement for 2007-
08 (April 2007) placed real GDP growth for policy purposes in the range of 75-80 per
cent during 2007-08 Growth prospects are however subject to a number of downside
risks The risks emanating from the global economy are potential escalation and
volatility in international crude oil prices firming up of overall inflationary pressures and
expectations and a hardening of international interest rates along with the withdrawal of
monetary accommodation
Indiarsquos demographic advantage ndash In contrast to developed Countries India will have a
younger population for the next 50 years Hence India would be the hub for RampD
Inflation
Inflation was contained to 63 per cent by end-March 2007 within the indicative
trajectory of 50-55 per cent during 2007-08 The actual inflation was considerably lower
than the indicative trajectory and this could be mainly attributed to the deferred pass-
through of even the cognisable permanent component of international crude oil prices
Money Supply
Monetary and liquidity conditions remained largely comfortable during 2006-07reflecting
proactive liquidity management operations by the Reserve Bank under the liquidity
adjustment facility flexible management of issuances under the market stabilisation
scheme and some private placement of Government securities
30
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
In short the Indian economy is exhibiting strong fundamentals and displaying
considerable resilience At the same time there are continuing signs of demand pressures
especially high credit growth that could exert upward pressure on prices when associated
with supply shocks such as from oil These pressures have the potential for impacting
stability and inflation expectations While domestic developments continue to dominate
the economy global factors tend to gain more attention now than before The global
outlook for growth is positive but downside risks in regard to inflation also RBI is
applying new repo and reverse repo for the balance of inflation and monetary policies
The following are macroeconomic policies generally found as part of government-
directed industrial auto policies
(a) Restrictions on domestic and foreign investment
(b) Domestic content requirements
(c) High tariff walls
(d) Auto export requirements
(e) National production to sales ratios
(f) Distribution controls
(g) Quotas and licensing requirements that significantly restrict imports
(h) Government approval for product related decisions including vehicle make
body type engine size etc
(i) Special government categories for auto taxes
II INDUSTRY ANALYSIS
Since 1991 opening of the economy has changed the face of auto industry Today it is
amongst the main drivers of growth of Indian economy with an output multiplier of
224(for every Re1 invested auto sector gives back Rs224 to the economy) In recent
years we have seen increasing number of global players entering Indian market by way of
Joint ventures collaborations or wholly owned subsidiary
The automobile industry is torn between trying to reduce costs on the one hand and on
the other dealing with the high price of performance-enhancing technology and
environmental compliance Key drivers in the automotive industry are
31
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Reducing air pollution
Reduction of weight
Recyclability
Safety
Better performance and engine efficiency
Aesthetics
Longer service Life
INDUSTRY LIFE CYCLE
The automobile market is at the maturity stage of the life cycle locally and globally due
to an increased number of competitors from domestic and foreign markets The
automobile market is characterized by a low potential for market growth but high sales
and profit potential as the products have still not saturated the market as a whole
MAJOR COMPETITORS OF TATA MOTORS ARE
Maruti Udyog Ltd
General Motors India
Ford India Ltd
Eicher Motors
Bajaj Auto
Hero Motors
Hindustan Motors
32
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Hyundai Motor India Ltd
Royal Enfield Motors
Telco
TVS Motors
FINANCIALS
Description 1 Day PriceChange
MarketCap
PEROE
Div Yield
Long-Term Debt toEquity
Price toBook Value
NetProfit Margin (mrq)
Price toFree Cash Flow (mrq)
Sector Consumer Goods 01125178B
2488
1707
222
1171076
706 40842
Industry Auto Manufacturers - Major (More Info)
0613310B
3000
750171
181 155 160 -440
Companies
Daimlerchrysler AG (DCX) 021 539B1072
1119
350
217 116 469 -354
Ford Motor Co (F) 121 157B NA-951
240
1107
115 -060 -8205
General Motors Corporation (GM) -024 165B NA
-6285
340
390 142 -621 014
Honda Motor Co Ltd (HMC) 083 622B1152
1654
100
083 173 552 20748
Tata Motors Ltd (TTM) -038 71B1864
NA150
NA 535 564 NA
Toyota Motor Corp (TM) 0731756B
1394
1505
120
103 197 659 NA
Opportunities and Threats
a) Opportunities
Road Development The ongoing road development program would improve
connectivity to ports cities and villages through a network of highways and
interconnecting roads by 2010-11 Improved road network would help in faster
33
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
movement of goods between various cities and towns The Company launched TATA
Novus range of vehicles in the heavy segment and TATA ACE for last mile distribution
Car penetration in India Car penetration in India is 7 cars per 1000 persons
International In FY 2006-07 the Company increased share of its overseas vehicle sales
from 76 last year to record high of 111 (as of its total sales) and has planned
further increase in this year
b) Threats
Global Competition India is increasingly attracting global players to set up
manufacturing facility for producing cars especially small cars Global automobile
manufacturers are also entering India in commercial vehicle segment to leverage Indiarsquos
low cost production advantage to their favor
Fuel Prices The continuing fuel price increase in the domestic market could
significantly impact demand of commercial and passenger vehicles
Input costs Commodity items particularly steel non-ferrous metals rubber and
engineering plastics have witnessed huge price increases in the past These prices are
expected to increase further affecting the Companyrsquos profitability
Interest rate hardening and other inflationary trends With interest rates hardening and
liquidity crunch in the system growth in sales may be adversely impacted
Government Regulations Stringent emission and safety requirements could bring new
complexities for automotive and component manufacturers impacting the Companyrsquos
business
Risks and Concerns
Interest Rates FY 2007-08 started with increasing interest rate regime and tightening
liquidity position in the economy Increasing interest rates could further affect vehicle
demand which could have an adverse impact on the Companyrsquos revenues and profits
Exchange rates The Company exports vehicles to many countries and exchange rate
fluctuations in the order execution period could impact the Companyrsquos business
34
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Freight rates In FY 2006-07 freight rates in road transport sector moved up mainly
due to surge in construction activity ongoing road development projects and severe
restriction on over-loading Demand for commercial vehicles could be impacted by
further change in freight rates and change in fuel prices
Domestic market The Company plans to reduce the impact of this cyclicality on its
business by strengthening its less cyclical businesses like buses light trucks small
commercial vehicles
Overseas market In overseas markets the Company competes with global players
which have multiple vehicle platforms large financial capability and global branding
Manufacturing The Company manufactures vehicles at multiple locations and given
the geographical dispersion of its suppliers it faces Logistics Problems
New Competition Competitive activity is expected to increase in commercial vehicle
and passenger vehicle domestic market in coming years
New projects The Company currently is in midst of executing many new projects
ranging from launch of new car platforms to development of new Truck models
III Company Analysis
Key Highlights
Symbol TTL
Sector Consumer Goods
Industry Auto Manufacturers Major
Market Cap Rs29232 crores
Data Since 1945
Last close Rs 74290
Brief Summary of the company
35
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Tata Motors is one of the largest companies in the Tata Group with a total income of US$
235 billion More than 3 million Tata vehicles ply on Indian roads making Tata a
dominant force in the Indian automobile industry
Joint Venture with Fiat and Hitachi
Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing
passenger vehicles engines and transmissions for both domestic and international
markets The Company has also entered into a JV with Hitachi to set up a new plant in
Kharagpur
Product Mix
Tata Motors is Indias only fully integrated automobile manufacturer with a portfolio that
covers trucks buses utility vehicles and passenger cars It would be no exaggeration to
say that Tata Motors provides the wheels for Indias growth
Segmental Overview
Commercial Vehicle Segment
The Company registered 696 volume growth in the domestic CV segment during
4QFY06 from 37228 units in Q3FY05 to 63082 units in Q3FY06 The market share in
this segment was 658 in Q4FY06 as compared to 552 in Q1FY06 The MHCV
goods-carrier segment registered a 544 growth YoY with sale of 33515 units and a
market share of 645 up by around 410 bps driven by infrastructure development and
increase in international trade
Passenger Vehicle Segment
The Company reported a growth of 212 YoY to 49907 vehicles in the domestic
passenger vehicle segment and a market share of 162 in the quarter The passenger
vehicle industry registered a volume growth of 204 during Q4FY06
36
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Plants
Tata Motors owes its leading position in the Indian automobile industry to its strong
focus on indigenisation Their manufacturing plants are situated at Jamshedpur in the
East Pune in the West and Lucknow in the North
Charts showing Key Statistics of tata motors
37
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Share holding pattern as on 31-Mar
shareholding pattern
34
1425
17
10
promotors
MF Banks Fis
FIIs
Others
Public
Financial highlights
38
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
39
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
RATIO ANALYSIS
Ratios 2006 2005 2004
Debtequity 056 049 044
Current ratio 108 087 076
Operating profit margin 1211 1151 1238
Gross profit margin 1087 1043 1104
ROCE 3125 3276 3377
total assets turnover ratio 315 353 343
ROE 2761 3009 2257
Dividend-equity 49794 45373 28211
Retention Ratio 6743 6332 6519
DPS (Rs) 1301 125 799
EPS (Rs) 25 34 41
Dividend Payout Ratio 039 042 037
CAGR of EPS 0177
CAGR of Dividend Payout Ratio -0017
Average ROE 2574
average retention 6354
Growth (g = Avg RR times Avg ROE ) 1636
Market return 1454
40
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
PE ratio (on the basis of historical analysis) = 1812
Therefore the Weighted PE ratio =(1812+2424)2 = 21181
Projected EPS = EPS OF 2006 + CAGR of EPSEPS OF 2006
= Rs48271
Value of Share at the end of financial year 06-07
= Projected EPS Weighted PE Ratio
= Rs1022
2) HPCL
Globalization and the Indian Petroleum Industry
Indian petroleum industry in the post independent period (1947-2001) it may be divided
into three distinct phases
(i) early phase (1947 to 1969)- when the government consolidated its control over
the industry with Soviet assistance
(ii) development phase (1970 to 1989)- in this period the US companies played
dominant role replacing the Soviets and
41
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
(iii) the economic liberalisation phase of 1990s
PORTERrsquoS MODEL
SWOT ANALYSIS
STRENGHS
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
WEAKNESSES
Dependence on refining function high
Moderate share in high profitable retail segment
42
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Diversifications in petrochemicals could trouble the company
High burden of subsidy loss on cooking gas and kerosene
OPPORTUNITIES
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
Overseas presence in upstream and downstream will determine growth
THREATS
Rising oil prices could dampen demand
High regulatory risk
Loss of market share to private players
Entrance of private players in pipelines will take away monopoly of company in
north India
COMPANY ANALYSIS
The Annual Report is broken down into the following specific parts
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the AccountsATHE DIRECTORrsquoS REPORTThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship Fundamental AnalysisB THE AUDITORS REPORTThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors
C FINANCIAL STATEMENTSIt comprises of Balance Sheet Profit and Loss account Cash Flows Its analysis would be discussed later
DSCHEDULES
43
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The schedules detail pertinent information about the items of Balance Sheet and Profit amp Loss Account It also details information about sales manufacturing costs administration costs interest and other income and expenses
1 THE MANAGEMENT
HPCL is a public sector undertaking Thus it is a professionally managed company
There are some parameters of management on which a company is analysed
a integrity of management
b past record of management
c how highly is the management rated by its peers in the same industry
d how the management fares in adversity
e the depth of the knowledge of management
f open and innovative management
on all these parameters HPCL scores good
2 COMPANY
Many times a company has made losses in the previous years but that does not mean
that the company is bad to invest Thus many factors are studied while studying a
company
a) perception of competitors
HPCL is the second largest petroleum company after IOCL Thus it is a competitor of
IOCL and it is trying hard to compete with IOCL on every front That is why now it
has decided to diversify itself in the oil exploration sector
b) company policies
As this is a PSU thus the policies are made by the government The oil sector is one
which is highly regulated by government Thus from time to time it is required to
watch out the various policies changed
3 ANNUAL REPORT
The most primary and most important source of information about a company is its
Annual Report This is prepared every year and distributed to its shareholders
44
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Ratio Analysis
Evaluation of Intrinsic Value of the Security
stdev mkt 0011934stdev sec 003831 Average
Retention Ratio 060504
correlation 0485958 ROE 019842Beta 156765 g 0120052Risk Free Rate 650
Mkt Rate 14
45
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
k 1826
Hence we see that here our g is less than k Thus we see that as per Dividend Discount Model our Intrinsic value is div=22(1+012)=240626= 387
Price= Projected EPS + Weighted PE ratioUsing CAGR EPS = 43468Weighted PE Ratio = 75+6652=33625
Price = 43468+33625 = 381
3) HDFC BANK
The Indian banking industry sector overview
With the economic growth picking up pace and the investment cycle on the way to recovery the banking sector has witnessed a transformation in its vital role of intermediating between the demand and supply of funds
Public sector banks have been very proactive in their restructuring initiatives be it in technology implementation or pruning their loss assets Windfall treasury gains made in the falling interest rate regime were used for writing off the doubtful and loss assets
Retail lending (especially mortgage financing) formed a significant portion of the portfolio for most banks and they customized their products to cater to the diverse demands
Apart from streamlining their processes through technology initiatives such as ATMs telephone banking online banking and web based products banks also resorted to cross selling of financial products such as credit cards mutual funds and insurance policies to augment their fee based income
PORTERrsquoS FIVE FORCES MODEL FOR THE BANKING INDUSTRY
1) BARRIERS TO ENTRY a Economies of scale Since the existing players in the market are well
established and already have a customer base they are able to bear the cost of using the advantages of technology to their maximum advantage
46
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Capital requirement for entry i The Banking Regulation Act prescribes the minimum capital
requirements for a bank Moreover banks have to maintain a capital adequacy ratio of 9 under the Basel I norms
ii Government has declared that the foreign banks will be permitted to establish their presence in India by way of setting up a wholly owned banking subsidiary (WOS) with a minimum capital of Rs300 crore
c Access to distribution channels Since banks have to set up their own distribution channels all the cost has to be directly born by them
d Cost advantage independent of size Existing banks have huge databases of customers which they use when they want to sell a new product launched by them
e Legislation or Government action Banks are governed by Banking Regulation Act 1949 which specifies the rules and regulations applicable to banks RBI is the governing body of banks in India
2) BARGAINING POWER OF BUYERS
Due to increased competition the services offered by banks to customers have improved considerably
3) BARGAINING POWER OF THE SUPPLIERS
Suppliers to banks can be both - the customers and RBIa Customers of banks provide money to banks in the form of deposits and in
return earn some interest on that b RBI acts as a supplier to banks by selling govt securities treasury bills
govt bonds etc c Call money market Banks sometimes have to borrow from other banks to
meet CRR and SLR requirements or other capital requirements as provided by RBI
4) THREAT OF SUBSTITUTES
a Product-for-product substitutioni Banks provide interest on deposits made by people Similar
services are offered by post offices which may act as substitutes to the deposit schemes of banks
ii Some banks offer locker services to customers for yearly rates Similar services are provided by many post offices
47
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Generic substitution People who deposit their savings in banks can invest their money in other sources like mutual funds shares and other securities and life insurance schemes
5) COMPETITIVE RIVALRY
a Extent of competitor balance b Market growth ratesc High Exit Barriers
PEST Analysis for Banking Industry
1 Political factors - The major factors affecting the banking sector are the following
Banking sector reforms ndash As per the RBI roadmap for reforms in the first stage from 2005 to 2009 foreign banks will be allowed to set up wholly owned subsidiaries as well as get greater freedom to set up new branches Fulfilling the minimum priority sector credit -The government mandation of fulfilling the minimum priority sector credit (of which 18 per cent is food credit) has forced the domestic banks to cater to this segment despite the low profitability and vulnerability of asset quality
Banks have also been allowed to set up Offshore Banking Units in SEZrsquos
2 Economic factors -
Basell II norms for the risk management in banking sector - The new Basel Accord has its foundation on three mutually reinforcing pillars The first pillar is compatible with the credit risk market risk and operational risk The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bankConcurrently it also casts responsibility on the supervisors to review and validate banksrsquo risk measurement models
Consolidation and merger and acquisitions in the banking sector- HDFC bank also acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Universal Banking has been introduced ICICI Bank HDFCs closest competitor is already into Universal Banking so HDFC is also getting into it as now it is providing retail banking and also depository facilities in the form of demat account
48
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
3 Social factors-
Big and growing middle class in India - This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans car loans education loans auto loans etc Retail loans have grown from 19 in FYrsquo99 to 51 FYrsquo06Consumer credit accounts for a meager 286 per cent of the countrys GDP and the buoyancy in the economy offers sufficient scope for it to grow
Geographical and Cultural diversity- This is leading to a greater demand for financial products and customization by the customers
4 Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999 It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector
Banks (All) No of players = 40
Sector statistics
We see the sector aggregates and make a financial comparison for the major banks
Top PlayersFY2006
Based on Total Income Based on OPBDT Total Income Change OPBDT Change
(Rs Mn) () (Rs Mn) ()ICICI BANK 631619 5450 S B I 763528 -129 PUNJAB NATIONAL B 29218 1491 ICICI BANK 37174 1936
CAN BANK 277095 2378 PUNJAB NATIONAL B 222052 3936
BANK OF INDIA 23317 2543 CAN BANK 168825 1953
H D F C BANK 185508 6024 H D F C BANK 14324 2748 change - indicates the change between current and corresponding quarter
49
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the Accounts
A The Directorrsquos ReportThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship 1 It enunciates the opinion of the directors on the state of the economy and the political situation vis-agrave-vis the company 2 Explains the performance and the financial results of the company in the period under review This is an extremely important part The results and operations of the various separate divisions are usually detailed and investors can determine the reasons for their good or bad performance3 The Directorrsquos Report details the companys plans for modernization expansion and diversification Without these a company will remain static and eventually decline4 Discusses the profit earned in the period under review and the dividend Recommended by the directors This paragraph should normally be read with some skepticism as the directors will always argue that the performance was satisfactory If adverse economic conditions are usually at fault 5 Elaborates on the directors views of the companys prospects in the future6 Discusses plans for new acquisition and investments An investor must intelligently evaluate the issues raised in a Directorrsquos Report Industry conditions and the managements knowledge of the business must be considered
B The Auditors ReportThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors Auditors are required to report whether the financial statements presented do in fact present a true and fair view of the state of the company Investors must remember that the auditors are their representatives and that they are required by law to point out if the financial statements are not true and fair
CFinancial StatementsThe published financial statements of a company in an Annual Report consist of its Balance Sheet as at the end of the accounting period detailing the financing condition of the company at that date and the Profit and Loss Account or Income Statement summarizing the activities of the company for the accounting period
BALANCE SHEETThe Balance Sheet details the financial position of a company on a particular date of the companys assets (that which the company owns) and liabilities (that which the companyowes) grouped logically under specific heads It must however be noted that the Balance Sheet details the financial position on a particular day and that the position can be materially different on the next day or the day after
24
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOURCES OF FUNDSSHAREHOLDERS FUNDSSHARE CAPITAL(i) Private Placement(ii) Public Issueiii) Rights issuesRESERVESi) Capital Reservesii) Revenue ReservesLOAN FUNDSi) Secured loansii) Unsecured loansFIXED ASSETSINVESTMENTSSTOCK OR INVENTORIESi) Raw materialsii) Work in progressiii) Finished goodsCASH AND BANK BALANCESLOANS AND ADVANCES
PROFIT AND LOSS ACCOUNTThe Profit and Loss account summarizes the activities of a company during an accounting period which may be a month a quarter six months a year or longer and the result achieved by the company It details the income earned by the company its cost and the resulting profit or loss It is in effect the performance appraisal not only of the company but also of its management- its competence foresight and ability to lead
RATIOS
Ratios express mathematically the relationship between performance figures andor assetsliabilities in a form that can be easily understood and interpretedNo single ratio tells the complete storyRatios can be broken down into four broad categories
(A) Profit and Loss RatiosThese show the relationship between two items or groups of items in a profit and loss account or income statement The more common of these ratios are1 Sales to cost of goods sold2 Selling expenses to sales3 Net profit to sales and4 Gross profit to sales
(B) Balance Sheet RatiosThese deal with the relationship in the balance sheet such as 1 Shareholders equity to borrowed funds
25
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
2 Current assets to current liabilities3 Liabilities to net worth4 Debt to assets and5 Liabilities to assets
(C) Balance Sheet and Profit and Loss Account RatiosThese relate an item on the balance sheet to another in the profit and loss account such as1 Earnings to shareholders funds2 Net income to assets employed3 Sales to stock4 Sales to debtors and5 Cost of goods sold to creditors
(D) Financial Statements and Market RatiosThese are normally known as market ratios and are arrived at by relative financial figures to market prices1 Market value to earnings and2 Book value to market value(a) Market value(b) Earnings(c) Profitability(d) Liquidity(e) Leverage(f) Debt Service Capacity(g) Asset ManagementEfficiency(h) Margins
The major ratios that are considered(i) Market value(ii) Price- earnings ratio(iii) Market-to-book ratio(iv) Earnings(v) Earning per share(vi) Dividend per share(vii) Dividend payout ratio(viii) Leverage ratios(ix) Return on investmentstotal assets
CASH FLOW A statement of sources and uses begins with the profit for the year to which are added the increases in liability accounts (sources) and from which are reduced the increases in asset accounts (uses) The net result shows whether there has been an excess or deficit of funds and how this was financed Investors must examine a companys cash flow as it reveals exactly where the money came from how it was utilized Investors must be
26
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
concerned if a company is financing either its inventories or paying dividends from borrowings without real growth as that shows deterioration
27
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-4 ANALYSIS
28
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
I FUNDAMENTAL ANALYSIS OF STOCKS
Basically fundamental analysis is covered in 3 parts
1 Market economy analysis
2 Industry Analysis
3 Company Analysis
1) TATA MOTORS
I Market Economy Analysis
It covers the macro economy analysis and the various macro economic factors on the national level like GDP Monetary policies of India Fiscal Policies and Inflation and money supply etc
GDP
Real GDP growth accelerated from 75 per cent during 2004-05 to 84 per cent during
2005-06 on the back of buoyant manufacturing and services activity supported by a
recovery in the agricultural sector Real GDP growth has thus averaged over eight per
cent during the last three years and over seven per cent in the first four years (2002-03 to
2005-06) of the Tenth Five Year Plan
Strengths of India today are
A well diversified industrial base which profits from self-reliance in all core industries A
large amp sophisticated financial architecture - The robust capital Markets today have over
9000 listed companies and boast of a massive Market capitalization
A healthy GDP composition with agriculture contributing 22 Industry 22 and
services which have gone strength to strength accounting For 56 of the GDP an
29
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
acknowledged strength in knowledge driven industries like Information technology
biotechnology entertainment Software etc
India has Over 3 million scientific amp technical manpower Over 06 million SampT post
graduates Over 07 million graduate engineers Over 3500 doctorates in sciences every
year
Assuming trend growth in agriculture under normal monsoon conditions and barring
domestic or external shocks the Reserve Bank in its Annual Policy Statement for 2007-
08 (April 2007) placed real GDP growth for policy purposes in the range of 75-80 per
cent during 2007-08 Growth prospects are however subject to a number of downside
risks The risks emanating from the global economy are potential escalation and
volatility in international crude oil prices firming up of overall inflationary pressures and
expectations and a hardening of international interest rates along with the withdrawal of
monetary accommodation
Indiarsquos demographic advantage ndash In contrast to developed Countries India will have a
younger population for the next 50 years Hence India would be the hub for RampD
Inflation
Inflation was contained to 63 per cent by end-March 2007 within the indicative
trajectory of 50-55 per cent during 2007-08 The actual inflation was considerably lower
than the indicative trajectory and this could be mainly attributed to the deferred pass-
through of even the cognisable permanent component of international crude oil prices
Money Supply
Monetary and liquidity conditions remained largely comfortable during 2006-07reflecting
proactive liquidity management operations by the Reserve Bank under the liquidity
adjustment facility flexible management of issuances under the market stabilisation
scheme and some private placement of Government securities
30
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
In short the Indian economy is exhibiting strong fundamentals and displaying
considerable resilience At the same time there are continuing signs of demand pressures
especially high credit growth that could exert upward pressure on prices when associated
with supply shocks such as from oil These pressures have the potential for impacting
stability and inflation expectations While domestic developments continue to dominate
the economy global factors tend to gain more attention now than before The global
outlook for growth is positive but downside risks in regard to inflation also RBI is
applying new repo and reverse repo for the balance of inflation and monetary policies
The following are macroeconomic policies generally found as part of government-
directed industrial auto policies
(a) Restrictions on domestic and foreign investment
(b) Domestic content requirements
(c) High tariff walls
(d) Auto export requirements
(e) National production to sales ratios
(f) Distribution controls
(g) Quotas and licensing requirements that significantly restrict imports
(h) Government approval for product related decisions including vehicle make
body type engine size etc
(i) Special government categories for auto taxes
II INDUSTRY ANALYSIS
Since 1991 opening of the economy has changed the face of auto industry Today it is
amongst the main drivers of growth of Indian economy with an output multiplier of
224(for every Re1 invested auto sector gives back Rs224 to the economy) In recent
years we have seen increasing number of global players entering Indian market by way of
Joint ventures collaborations or wholly owned subsidiary
The automobile industry is torn between trying to reduce costs on the one hand and on
the other dealing with the high price of performance-enhancing technology and
environmental compliance Key drivers in the automotive industry are
31
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Reducing air pollution
Reduction of weight
Recyclability
Safety
Better performance and engine efficiency
Aesthetics
Longer service Life
INDUSTRY LIFE CYCLE
The automobile market is at the maturity stage of the life cycle locally and globally due
to an increased number of competitors from domestic and foreign markets The
automobile market is characterized by a low potential for market growth but high sales
and profit potential as the products have still not saturated the market as a whole
MAJOR COMPETITORS OF TATA MOTORS ARE
Maruti Udyog Ltd
General Motors India
Ford India Ltd
Eicher Motors
Bajaj Auto
Hero Motors
Hindustan Motors
32
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Hyundai Motor India Ltd
Royal Enfield Motors
Telco
TVS Motors
FINANCIALS
Description 1 Day PriceChange
MarketCap
PEROE
Div Yield
Long-Term Debt toEquity
Price toBook Value
NetProfit Margin (mrq)
Price toFree Cash Flow (mrq)
Sector Consumer Goods 01125178B
2488
1707
222
1171076
706 40842
Industry Auto Manufacturers - Major (More Info)
0613310B
3000
750171
181 155 160 -440
Companies
Daimlerchrysler AG (DCX) 021 539B1072
1119
350
217 116 469 -354
Ford Motor Co (F) 121 157B NA-951
240
1107
115 -060 -8205
General Motors Corporation (GM) -024 165B NA
-6285
340
390 142 -621 014
Honda Motor Co Ltd (HMC) 083 622B1152
1654
100
083 173 552 20748
Tata Motors Ltd (TTM) -038 71B1864
NA150
NA 535 564 NA
Toyota Motor Corp (TM) 0731756B
1394
1505
120
103 197 659 NA
Opportunities and Threats
a) Opportunities
Road Development The ongoing road development program would improve
connectivity to ports cities and villages through a network of highways and
interconnecting roads by 2010-11 Improved road network would help in faster
33
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
movement of goods between various cities and towns The Company launched TATA
Novus range of vehicles in the heavy segment and TATA ACE for last mile distribution
Car penetration in India Car penetration in India is 7 cars per 1000 persons
International In FY 2006-07 the Company increased share of its overseas vehicle sales
from 76 last year to record high of 111 (as of its total sales) and has planned
further increase in this year
b) Threats
Global Competition India is increasingly attracting global players to set up
manufacturing facility for producing cars especially small cars Global automobile
manufacturers are also entering India in commercial vehicle segment to leverage Indiarsquos
low cost production advantage to their favor
Fuel Prices The continuing fuel price increase in the domestic market could
significantly impact demand of commercial and passenger vehicles
Input costs Commodity items particularly steel non-ferrous metals rubber and
engineering plastics have witnessed huge price increases in the past These prices are
expected to increase further affecting the Companyrsquos profitability
Interest rate hardening and other inflationary trends With interest rates hardening and
liquidity crunch in the system growth in sales may be adversely impacted
Government Regulations Stringent emission and safety requirements could bring new
complexities for automotive and component manufacturers impacting the Companyrsquos
business
Risks and Concerns
Interest Rates FY 2007-08 started with increasing interest rate regime and tightening
liquidity position in the economy Increasing interest rates could further affect vehicle
demand which could have an adverse impact on the Companyrsquos revenues and profits
Exchange rates The Company exports vehicles to many countries and exchange rate
fluctuations in the order execution period could impact the Companyrsquos business
34
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Freight rates In FY 2006-07 freight rates in road transport sector moved up mainly
due to surge in construction activity ongoing road development projects and severe
restriction on over-loading Demand for commercial vehicles could be impacted by
further change in freight rates and change in fuel prices
Domestic market The Company plans to reduce the impact of this cyclicality on its
business by strengthening its less cyclical businesses like buses light trucks small
commercial vehicles
Overseas market In overseas markets the Company competes with global players
which have multiple vehicle platforms large financial capability and global branding
Manufacturing The Company manufactures vehicles at multiple locations and given
the geographical dispersion of its suppliers it faces Logistics Problems
New Competition Competitive activity is expected to increase in commercial vehicle
and passenger vehicle domestic market in coming years
New projects The Company currently is in midst of executing many new projects
ranging from launch of new car platforms to development of new Truck models
III Company Analysis
Key Highlights
Symbol TTL
Sector Consumer Goods
Industry Auto Manufacturers Major
Market Cap Rs29232 crores
Data Since 1945
Last close Rs 74290
Brief Summary of the company
35
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Tata Motors is one of the largest companies in the Tata Group with a total income of US$
235 billion More than 3 million Tata vehicles ply on Indian roads making Tata a
dominant force in the Indian automobile industry
Joint Venture with Fiat and Hitachi
Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing
passenger vehicles engines and transmissions for both domestic and international
markets The Company has also entered into a JV with Hitachi to set up a new plant in
Kharagpur
Product Mix
Tata Motors is Indias only fully integrated automobile manufacturer with a portfolio that
covers trucks buses utility vehicles and passenger cars It would be no exaggeration to
say that Tata Motors provides the wheels for Indias growth
Segmental Overview
Commercial Vehicle Segment
The Company registered 696 volume growth in the domestic CV segment during
4QFY06 from 37228 units in Q3FY05 to 63082 units in Q3FY06 The market share in
this segment was 658 in Q4FY06 as compared to 552 in Q1FY06 The MHCV
goods-carrier segment registered a 544 growth YoY with sale of 33515 units and a
market share of 645 up by around 410 bps driven by infrastructure development and
increase in international trade
Passenger Vehicle Segment
The Company reported a growth of 212 YoY to 49907 vehicles in the domestic
passenger vehicle segment and a market share of 162 in the quarter The passenger
vehicle industry registered a volume growth of 204 during Q4FY06
36
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Plants
Tata Motors owes its leading position in the Indian automobile industry to its strong
focus on indigenisation Their manufacturing plants are situated at Jamshedpur in the
East Pune in the West and Lucknow in the North
Charts showing Key Statistics of tata motors
37
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Share holding pattern as on 31-Mar
shareholding pattern
34
1425
17
10
promotors
MF Banks Fis
FIIs
Others
Public
Financial highlights
38
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
39
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
RATIO ANALYSIS
Ratios 2006 2005 2004
Debtequity 056 049 044
Current ratio 108 087 076
Operating profit margin 1211 1151 1238
Gross profit margin 1087 1043 1104
ROCE 3125 3276 3377
total assets turnover ratio 315 353 343
ROE 2761 3009 2257
Dividend-equity 49794 45373 28211
Retention Ratio 6743 6332 6519
DPS (Rs) 1301 125 799
EPS (Rs) 25 34 41
Dividend Payout Ratio 039 042 037
CAGR of EPS 0177
CAGR of Dividend Payout Ratio -0017
Average ROE 2574
average retention 6354
Growth (g = Avg RR times Avg ROE ) 1636
Market return 1454
40
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
PE ratio (on the basis of historical analysis) = 1812
Therefore the Weighted PE ratio =(1812+2424)2 = 21181
Projected EPS = EPS OF 2006 + CAGR of EPSEPS OF 2006
= Rs48271
Value of Share at the end of financial year 06-07
= Projected EPS Weighted PE Ratio
= Rs1022
2) HPCL
Globalization and the Indian Petroleum Industry
Indian petroleum industry in the post independent period (1947-2001) it may be divided
into three distinct phases
(i) early phase (1947 to 1969)- when the government consolidated its control over
the industry with Soviet assistance
(ii) development phase (1970 to 1989)- in this period the US companies played
dominant role replacing the Soviets and
41
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
(iii) the economic liberalisation phase of 1990s
PORTERrsquoS MODEL
SWOT ANALYSIS
STRENGHS
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
WEAKNESSES
Dependence on refining function high
Moderate share in high profitable retail segment
42
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Diversifications in petrochemicals could trouble the company
High burden of subsidy loss on cooking gas and kerosene
OPPORTUNITIES
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
Overseas presence in upstream and downstream will determine growth
THREATS
Rising oil prices could dampen demand
High regulatory risk
Loss of market share to private players
Entrance of private players in pipelines will take away monopoly of company in
north India
COMPANY ANALYSIS
The Annual Report is broken down into the following specific parts
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the AccountsATHE DIRECTORrsquoS REPORTThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship Fundamental AnalysisB THE AUDITORS REPORTThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors
C FINANCIAL STATEMENTSIt comprises of Balance Sheet Profit and Loss account Cash Flows Its analysis would be discussed later
DSCHEDULES
43
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The schedules detail pertinent information about the items of Balance Sheet and Profit amp Loss Account It also details information about sales manufacturing costs administration costs interest and other income and expenses
1 THE MANAGEMENT
HPCL is a public sector undertaking Thus it is a professionally managed company
There are some parameters of management on which a company is analysed
a integrity of management
b past record of management
c how highly is the management rated by its peers in the same industry
d how the management fares in adversity
e the depth of the knowledge of management
f open and innovative management
on all these parameters HPCL scores good
2 COMPANY
Many times a company has made losses in the previous years but that does not mean
that the company is bad to invest Thus many factors are studied while studying a
company
a) perception of competitors
HPCL is the second largest petroleum company after IOCL Thus it is a competitor of
IOCL and it is trying hard to compete with IOCL on every front That is why now it
has decided to diversify itself in the oil exploration sector
b) company policies
As this is a PSU thus the policies are made by the government The oil sector is one
which is highly regulated by government Thus from time to time it is required to
watch out the various policies changed
3 ANNUAL REPORT
The most primary and most important source of information about a company is its
Annual Report This is prepared every year and distributed to its shareholders
44
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Ratio Analysis
Evaluation of Intrinsic Value of the Security
stdev mkt 0011934stdev sec 003831 Average
Retention Ratio 060504
correlation 0485958 ROE 019842Beta 156765 g 0120052Risk Free Rate 650
Mkt Rate 14
45
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
k 1826
Hence we see that here our g is less than k Thus we see that as per Dividend Discount Model our Intrinsic value is div=22(1+012)=240626= 387
Price= Projected EPS + Weighted PE ratioUsing CAGR EPS = 43468Weighted PE Ratio = 75+6652=33625
Price = 43468+33625 = 381
3) HDFC BANK
The Indian banking industry sector overview
With the economic growth picking up pace and the investment cycle on the way to recovery the banking sector has witnessed a transformation in its vital role of intermediating between the demand and supply of funds
Public sector banks have been very proactive in their restructuring initiatives be it in technology implementation or pruning their loss assets Windfall treasury gains made in the falling interest rate regime were used for writing off the doubtful and loss assets
Retail lending (especially mortgage financing) formed a significant portion of the portfolio for most banks and they customized their products to cater to the diverse demands
Apart from streamlining their processes through technology initiatives such as ATMs telephone banking online banking and web based products banks also resorted to cross selling of financial products such as credit cards mutual funds and insurance policies to augment their fee based income
PORTERrsquoS FIVE FORCES MODEL FOR THE BANKING INDUSTRY
1) BARRIERS TO ENTRY a Economies of scale Since the existing players in the market are well
established and already have a customer base they are able to bear the cost of using the advantages of technology to their maximum advantage
46
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Capital requirement for entry i The Banking Regulation Act prescribes the minimum capital
requirements for a bank Moreover banks have to maintain a capital adequacy ratio of 9 under the Basel I norms
ii Government has declared that the foreign banks will be permitted to establish their presence in India by way of setting up a wholly owned banking subsidiary (WOS) with a minimum capital of Rs300 crore
c Access to distribution channels Since banks have to set up their own distribution channels all the cost has to be directly born by them
d Cost advantage independent of size Existing banks have huge databases of customers which they use when they want to sell a new product launched by them
e Legislation or Government action Banks are governed by Banking Regulation Act 1949 which specifies the rules and regulations applicable to banks RBI is the governing body of banks in India
2) BARGAINING POWER OF BUYERS
Due to increased competition the services offered by banks to customers have improved considerably
3) BARGAINING POWER OF THE SUPPLIERS
Suppliers to banks can be both - the customers and RBIa Customers of banks provide money to banks in the form of deposits and in
return earn some interest on that b RBI acts as a supplier to banks by selling govt securities treasury bills
govt bonds etc c Call money market Banks sometimes have to borrow from other banks to
meet CRR and SLR requirements or other capital requirements as provided by RBI
4) THREAT OF SUBSTITUTES
a Product-for-product substitutioni Banks provide interest on deposits made by people Similar
services are offered by post offices which may act as substitutes to the deposit schemes of banks
ii Some banks offer locker services to customers for yearly rates Similar services are provided by many post offices
47
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Generic substitution People who deposit their savings in banks can invest their money in other sources like mutual funds shares and other securities and life insurance schemes
5) COMPETITIVE RIVALRY
a Extent of competitor balance b Market growth ratesc High Exit Barriers
PEST Analysis for Banking Industry
1 Political factors - The major factors affecting the banking sector are the following
Banking sector reforms ndash As per the RBI roadmap for reforms in the first stage from 2005 to 2009 foreign banks will be allowed to set up wholly owned subsidiaries as well as get greater freedom to set up new branches Fulfilling the minimum priority sector credit -The government mandation of fulfilling the minimum priority sector credit (of which 18 per cent is food credit) has forced the domestic banks to cater to this segment despite the low profitability and vulnerability of asset quality
Banks have also been allowed to set up Offshore Banking Units in SEZrsquos
2 Economic factors -
Basell II norms for the risk management in banking sector - The new Basel Accord has its foundation on three mutually reinforcing pillars The first pillar is compatible with the credit risk market risk and operational risk The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bankConcurrently it also casts responsibility on the supervisors to review and validate banksrsquo risk measurement models
Consolidation and merger and acquisitions in the banking sector- HDFC bank also acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Universal Banking has been introduced ICICI Bank HDFCs closest competitor is already into Universal Banking so HDFC is also getting into it as now it is providing retail banking and also depository facilities in the form of demat account
48
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
3 Social factors-
Big and growing middle class in India - This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans car loans education loans auto loans etc Retail loans have grown from 19 in FYrsquo99 to 51 FYrsquo06Consumer credit accounts for a meager 286 per cent of the countrys GDP and the buoyancy in the economy offers sufficient scope for it to grow
Geographical and Cultural diversity- This is leading to a greater demand for financial products and customization by the customers
4 Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999 It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector
Banks (All) No of players = 40
Sector statistics
We see the sector aggregates and make a financial comparison for the major banks
Top PlayersFY2006
Based on Total Income Based on OPBDT Total Income Change OPBDT Change
(Rs Mn) () (Rs Mn) ()ICICI BANK 631619 5450 S B I 763528 -129 PUNJAB NATIONAL B 29218 1491 ICICI BANK 37174 1936
CAN BANK 277095 2378 PUNJAB NATIONAL B 222052 3936
BANK OF INDIA 23317 2543 CAN BANK 168825 1953
H D F C BANK 185508 6024 H D F C BANK 14324 2748 change - indicates the change between current and corresponding quarter
49
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOURCES OF FUNDSSHAREHOLDERS FUNDSSHARE CAPITAL(i) Private Placement(ii) Public Issueiii) Rights issuesRESERVESi) Capital Reservesii) Revenue ReservesLOAN FUNDSi) Secured loansii) Unsecured loansFIXED ASSETSINVESTMENTSSTOCK OR INVENTORIESi) Raw materialsii) Work in progressiii) Finished goodsCASH AND BANK BALANCESLOANS AND ADVANCES
PROFIT AND LOSS ACCOUNTThe Profit and Loss account summarizes the activities of a company during an accounting period which may be a month a quarter six months a year or longer and the result achieved by the company It details the income earned by the company its cost and the resulting profit or loss It is in effect the performance appraisal not only of the company but also of its management- its competence foresight and ability to lead
RATIOS
Ratios express mathematically the relationship between performance figures andor assetsliabilities in a form that can be easily understood and interpretedNo single ratio tells the complete storyRatios can be broken down into four broad categories
(A) Profit and Loss RatiosThese show the relationship between two items or groups of items in a profit and loss account or income statement The more common of these ratios are1 Sales to cost of goods sold2 Selling expenses to sales3 Net profit to sales and4 Gross profit to sales
(B) Balance Sheet RatiosThese deal with the relationship in the balance sheet such as 1 Shareholders equity to borrowed funds
25
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
2 Current assets to current liabilities3 Liabilities to net worth4 Debt to assets and5 Liabilities to assets
(C) Balance Sheet and Profit and Loss Account RatiosThese relate an item on the balance sheet to another in the profit and loss account such as1 Earnings to shareholders funds2 Net income to assets employed3 Sales to stock4 Sales to debtors and5 Cost of goods sold to creditors
(D) Financial Statements and Market RatiosThese are normally known as market ratios and are arrived at by relative financial figures to market prices1 Market value to earnings and2 Book value to market value(a) Market value(b) Earnings(c) Profitability(d) Liquidity(e) Leverage(f) Debt Service Capacity(g) Asset ManagementEfficiency(h) Margins
The major ratios that are considered(i) Market value(ii) Price- earnings ratio(iii) Market-to-book ratio(iv) Earnings(v) Earning per share(vi) Dividend per share(vii) Dividend payout ratio(viii) Leverage ratios(ix) Return on investmentstotal assets
CASH FLOW A statement of sources and uses begins with the profit for the year to which are added the increases in liability accounts (sources) and from which are reduced the increases in asset accounts (uses) The net result shows whether there has been an excess or deficit of funds and how this was financed Investors must examine a companys cash flow as it reveals exactly where the money came from how it was utilized Investors must be
26
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
concerned if a company is financing either its inventories or paying dividends from borrowings without real growth as that shows deterioration
27
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-4 ANALYSIS
28
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
I FUNDAMENTAL ANALYSIS OF STOCKS
Basically fundamental analysis is covered in 3 parts
1 Market economy analysis
2 Industry Analysis
3 Company Analysis
1) TATA MOTORS
I Market Economy Analysis
It covers the macro economy analysis and the various macro economic factors on the national level like GDP Monetary policies of India Fiscal Policies and Inflation and money supply etc
GDP
Real GDP growth accelerated from 75 per cent during 2004-05 to 84 per cent during
2005-06 on the back of buoyant manufacturing and services activity supported by a
recovery in the agricultural sector Real GDP growth has thus averaged over eight per
cent during the last three years and over seven per cent in the first four years (2002-03 to
2005-06) of the Tenth Five Year Plan
Strengths of India today are
A well diversified industrial base which profits from self-reliance in all core industries A
large amp sophisticated financial architecture - The robust capital Markets today have over
9000 listed companies and boast of a massive Market capitalization
A healthy GDP composition with agriculture contributing 22 Industry 22 and
services which have gone strength to strength accounting For 56 of the GDP an
29
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
acknowledged strength in knowledge driven industries like Information technology
biotechnology entertainment Software etc
India has Over 3 million scientific amp technical manpower Over 06 million SampT post
graduates Over 07 million graduate engineers Over 3500 doctorates in sciences every
year
Assuming trend growth in agriculture under normal monsoon conditions and barring
domestic or external shocks the Reserve Bank in its Annual Policy Statement for 2007-
08 (April 2007) placed real GDP growth for policy purposes in the range of 75-80 per
cent during 2007-08 Growth prospects are however subject to a number of downside
risks The risks emanating from the global economy are potential escalation and
volatility in international crude oil prices firming up of overall inflationary pressures and
expectations and a hardening of international interest rates along with the withdrawal of
monetary accommodation
Indiarsquos demographic advantage ndash In contrast to developed Countries India will have a
younger population for the next 50 years Hence India would be the hub for RampD
Inflation
Inflation was contained to 63 per cent by end-March 2007 within the indicative
trajectory of 50-55 per cent during 2007-08 The actual inflation was considerably lower
than the indicative trajectory and this could be mainly attributed to the deferred pass-
through of even the cognisable permanent component of international crude oil prices
Money Supply
Monetary and liquidity conditions remained largely comfortable during 2006-07reflecting
proactive liquidity management operations by the Reserve Bank under the liquidity
adjustment facility flexible management of issuances under the market stabilisation
scheme and some private placement of Government securities
30
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
In short the Indian economy is exhibiting strong fundamentals and displaying
considerable resilience At the same time there are continuing signs of demand pressures
especially high credit growth that could exert upward pressure on prices when associated
with supply shocks such as from oil These pressures have the potential for impacting
stability and inflation expectations While domestic developments continue to dominate
the economy global factors tend to gain more attention now than before The global
outlook for growth is positive but downside risks in regard to inflation also RBI is
applying new repo and reverse repo for the balance of inflation and monetary policies
The following are macroeconomic policies generally found as part of government-
directed industrial auto policies
(a) Restrictions on domestic and foreign investment
(b) Domestic content requirements
(c) High tariff walls
(d) Auto export requirements
(e) National production to sales ratios
(f) Distribution controls
(g) Quotas and licensing requirements that significantly restrict imports
(h) Government approval for product related decisions including vehicle make
body type engine size etc
(i) Special government categories for auto taxes
II INDUSTRY ANALYSIS
Since 1991 opening of the economy has changed the face of auto industry Today it is
amongst the main drivers of growth of Indian economy with an output multiplier of
224(for every Re1 invested auto sector gives back Rs224 to the economy) In recent
years we have seen increasing number of global players entering Indian market by way of
Joint ventures collaborations or wholly owned subsidiary
The automobile industry is torn between trying to reduce costs on the one hand and on
the other dealing with the high price of performance-enhancing technology and
environmental compliance Key drivers in the automotive industry are
31
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Reducing air pollution
Reduction of weight
Recyclability
Safety
Better performance and engine efficiency
Aesthetics
Longer service Life
INDUSTRY LIFE CYCLE
The automobile market is at the maturity stage of the life cycle locally and globally due
to an increased number of competitors from domestic and foreign markets The
automobile market is characterized by a low potential for market growth but high sales
and profit potential as the products have still not saturated the market as a whole
MAJOR COMPETITORS OF TATA MOTORS ARE
Maruti Udyog Ltd
General Motors India
Ford India Ltd
Eicher Motors
Bajaj Auto
Hero Motors
Hindustan Motors
32
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Hyundai Motor India Ltd
Royal Enfield Motors
Telco
TVS Motors
FINANCIALS
Description 1 Day PriceChange
MarketCap
PEROE
Div Yield
Long-Term Debt toEquity
Price toBook Value
NetProfit Margin (mrq)
Price toFree Cash Flow (mrq)
Sector Consumer Goods 01125178B
2488
1707
222
1171076
706 40842
Industry Auto Manufacturers - Major (More Info)
0613310B
3000
750171
181 155 160 -440
Companies
Daimlerchrysler AG (DCX) 021 539B1072
1119
350
217 116 469 -354
Ford Motor Co (F) 121 157B NA-951
240
1107
115 -060 -8205
General Motors Corporation (GM) -024 165B NA
-6285
340
390 142 -621 014
Honda Motor Co Ltd (HMC) 083 622B1152
1654
100
083 173 552 20748
Tata Motors Ltd (TTM) -038 71B1864
NA150
NA 535 564 NA
Toyota Motor Corp (TM) 0731756B
1394
1505
120
103 197 659 NA
Opportunities and Threats
a) Opportunities
Road Development The ongoing road development program would improve
connectivity to ports cities and villages through a network of highways and
interconnecting roads by 2010-11 Improved road network would help in faster
33
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
movement of goods between various cities and towns The Company launched TATA
Novus range of vehicles in the heavy segment and TATA ACE for last mile distribution
Car penetration in India Car penetration in India is 7 cars per 1000 persons
International In FY 2006-07 the Company increased share of its overseas vehicle sales
from 76 last year to record high of 111 (as of its total sales) and has planned
further increase in this year
b) Threats
Global Competition India is increasingly attracting global players to set up
manufacturing facility for producing cars especially small cars Global automobile
manufacturers are also entering India in commercial vehicle segment to leverage Indiarsquos
low cost production advantage to their favor
Fuel Prices The continuing fuel price increase in the domestic market could
significantly impact demand of commercial and passenger vehicles
Input costs Commodity items particularly steel non-ferrous metals rubber and
engineering plastics have witnessed huge price increases in the past These prices are
expected to increase further affecting the Companyrsquos profitability
Interest rate hardening and other inflationary trends With interest rates hardening and
liquidity crunch in the system growth in sales may be adversely impacted
Government Regulations Stringent emission and safety requirements could bring new
complexities for automotive and component manufacturers impacting the Companyrsquos
business
Risks and Concerns
Interest Rates FY 2007-08 started with increasing interest rate regime and tightening
liquidity position in the economy Increasing interest rates could further affect vehicle
demand which could have an adverse impact on the Companyrsquos revenues and profits
Exchange rates The Company exports vehicles to many countries and exchange rate
fluctuations in the order execution period could impact the Companyrsquos business
34
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Freight rates In FY 2006-07 freight rates in road transport sector moved up mainly
due to surge in construction activity ongoing road development projects and severe
restriction on over-loading Demand for commercial vehicles could be impacted by
further change in freight rates and change in fuel prices
Domestic market The Company plans to reduce the impact of this cyclicality on its
business by strengthening its less cyclical businesses like buses light trucks small
commercial vehicles
Overseas market In overseas markets the Company competes with global players
which have multiple vehicle platforms large financial capability and global branding
Manufacturing The Company manufactures vehicles at multiple locations and given
the geographical dispersion of its suppliers it faces Logistics Problems
New Competition Competitive activity is expected to increase in commercial vehicle
and passenger vehicle domestic market in coming years
New projects The Company currently is in midst of executing many new projects
ranging from launch of new car platforms to development of new Truck models
III Company Analysis
Key Highlights
Symbol TTL
Sector Consumer Goods
Industry Auto Manufacturers Major
Market Cap Rs29232 crores
Data Since 1945
Last close Rs 74290
Brief Summary of the company
35
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Tata Motors is one of the largest companies in the Tata Group with a total income of US$
235 billion More than 3 million Tata vehicles ply on Indian roads making Tata a
dominant force in the Indian automobile industry
Joint Venture with Fiat and Hitachi
Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing
passenger vehicles engines and transmissions for both domestic and international
markets The Company has also entered into a JV with Hitachi to set up a new plant in
Kharagpur
Product Mix
Tata Motors is Indias only fully integrated automobile manufacturer with a portfolio that
covers trucks buses utility vehicles and passenger cars It would be no exaggeration to
say that Tata Motors provides the wheels for Indias growth
Segmental Overview
Commercial Vehicle Segment
The Company registered 696 volume growth in the domestic CV segment during
4QFY06 from 37228 units in Q3FY05 to 63082 units in Q3FY06 The market share in
this segment was 658 in Q4FY06 as compared to 552 in Q1FY06 The MHCV
goods-carrier segment registered a 544 growth YoY with sale of 33515 units and a
market share of 645 up by around 410 bps driven by infrastructure development and
increase in international trade
Passenger Vehicle Segment
The Company reported a growth of 212 YoY to 49907 vehicles in the domestic
passenger vehicle segment and a market share of 162 in the quarter The passenger
vehicle industry registered a volume growth of 204 during Q4FY06
36
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Plants
Tata Motors owes its leading position in the Indian automobile industry to its strong
focus on indigenisation Their manufacturing plants are situated at Jamshedpur in the
East Pune in the West and Lucknow in the North
Charts showing Key Statistics of tata motors
37
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Share holding pattern as on 31-Mar
shareholding pattern
34
1425
17
10
promotors
MF Banks Fis
FIIs
Others
Public
Financial highlights
38
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
39
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
RATIO ANALYSIS
Ratios 2006 2005 2004
Debtequity 056 049 044
Current ratio 108 087 076
Operating profit margin 1211 1151 1238
Gross profit margin 1087 1043 1104
ROCE 3125 3276 3377
total assets turnover ratio 315 353 343
ROE 2761 3009 2257
Dividend-equity 49794 45373 28211
Retention Ratio 6743 6332 6519
DPS (Rs) 1301 125 799
EPS (Rs) 25 34 41
Dividend Payout Ratio 039 042 037
CAGR of EPS 0177
CAGR of Dividend Payout Ratio -0017
Average ROE 2574
average retention 6354
Growth (g = Avg RR times Avg ROE ) 1636
Market return 1454
40
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
PE ratio (on the basis of historical analysis) = 1812
Therefore the Weighted PE ratio =(1812+2424)2 = 21181
Projected EPS = EPS OF 2006 + CAGR of EPSEPS OF 2006
= Rs48271
Value of Share at the end of financial year 06-07
= Projected EPS Weighted PE Ratio
= Rs1022
2) HPCL
Globalization and the Indian Petroleum Industry
Indian petroleum industry in the post independent period (1947-2001) it may be divided
into three distinct phases
(i) early phase (1947 to 1969)- when the government consolidated its control over
the industry with Soviet assistance
(ii) development phase (1970 to 1989)- in this period the US companies played
dominant role replacing the Soviets and
41
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
(iii) the economic liberalisation phase of 1990s
PORTERrsquoS MODEL
SWOT ANALYSIS
STRENGHS
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
WEAKNESSES
Dependence on refining function high
Moderate share in high profitable retail segment
42
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Diversifications in petrochemicals could trouble the company
High burden of subsidy loss on cooking gas and kerosene
OPPORTUNITIES
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
Overseas presence in upstream and downstream will determine growth
THREATS
Rising oil prices could dampen demand
High regulatory risk
Loss of market share to private players
Entrance of private players in pipelines will take away monopoly of company in
north India
COMPANY ANALYSIS
The Annual Report is broken down into the following specific parts
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the AccountsATHE DIRECTORrsquoS REPORTThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship Fundamental AnalysisB THE AUDITORS REPORTThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors
C FINANCIAL STATEMENTSIt comprises of Balance Sheet Profit and Loss account Cash Flows Its analysis would be discussed later
DSCHEDULES
43
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The schedules detail pertinent information about the items of Balance Sheet and Profit amp Loss Account It also details information about sales manufacturing costs administration costs interest and other income and expenses
1 THE MANAGEMENT
HPCL is a public sector undertaking Thus it is a professionally managed company
There are some parameters of management on which a company is analysed
a integrity of management
b past record of management
c how highly is the management rated by its peers in the same industry
d how the management fares in adversity
e the depth of the knowledge of management
f open and innovative management
on all these parameters HPCL scores good
2 COMPANY
Many times a company has made losses in the previous years but that does not mean
that the company is bad to invest Thus many factors are studied while studying a
company
a) perception of competitors
HPCL is the second largest petroleum company after IOCL Thus it is a competitor of
IOCL and it is trying hard to compete with IOCL on every front That is why now it
has decided to diversify itself in the oil exploration sector
b) company policies
As this is a PSU thus the policies are made by the government The oil sector is one
which is highly regulated by government Thus from time to time it is required to
watch out the various policies changed
3 ANNUAL REPORT
The most primary and most important source of information about a company is its
Annual Report This is prepared every year and distributed to its shareholders
44
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Ratio Analysis
Evaluation of Intrinsic Value of the Security
stdev mkt 0011934stdev sec 003831 Average
Retention Ratio 060504
correlation 0485958 ROE 019842Beta 156765 g 0120052Risk Free Rate 650
Mkt Rate 14
45
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
k 1826
Hence we see that here our g is less than k Thus we see that as per Dividend Discount Model our Intrinsic value is div=22(1+012)=240626= 387
Price= Projected EPS + Weighted PE ratioUsing CAGR EPS = 43468Weighted PE Ratio = 75+6652=33625
Price = 43468+33625 = 381
3) HDFC BANK
The Indian banking industry sector overview
With the economic growth picking up pace and the investment cycle on the way to recovery the banking sector has witnessed a transformation in its vital role of intermediating between the demand and supply of funds
Public sector banks have been very proactive in their restructuring initiatives be it in technology implementation or pruning their loss assets Windfall treasury gains made in the falling interest rate regime were used for writing off the doubtful and loss assets
Retail lending (especially mortgage financing) formed a significant portion of the portfolio for most banks and they customized their products to cater to the diverse demands
Apart from streamlining their processes through technology initiatives such as ATMs telephone banking online banking and web based products banks also resorted to cross selling of financial products such as credit cards mutual funds and insurance policies to augment their fee based income
PORTERrsquoS FIVE FORCES MODEL FOR THE BANKING INDUSTRY
1) BARRIERS TO ENTRY a Economies of scale Since the existing players in the market are well
established and already have a customer base they are able to bear the cost of using the advantages of technology to their maximum advantage
46
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Capital requirement for entry i The Banking Regulation Act prescribes the minimum capital
requirements for a bank Moreover banks have to maintain a capital adequacy ratio of 9 under the Basel I norms
ii Government has declared that the foreign banks will be permitted to establish their presence in India by way of setting up a wholly owned banking subsidiary (WOS) with a minimum capital of Rs300 crore
c Access to distribution channels Since banks have to set up their own distribution channels all the cost has to be directly born by them
d Cost advantage independent of size Existing banks have huge databases of customers which they use when they want to sell a new product launched by them
e Legislation or Government action Banks are governed by Banking Regulation Act 1949 which specifies the rules and regulations applicable to banks RBI is the governing body of banks in India
2) BARGAINING POWER OF BUYERS
Due to increased competition the services offered by banks to customers have improved considerably
3) BARGAINING POWER OF THE SUPPLIERS
Suppliers to banks can be both - the customers and RBIa Customers of banks provide money to banks in the form of deposits and in
return earn some interest on that b RBI acts as a supplier to banks by selling govt securities treasury bills
govt bonds etc c Call money market Banks sometimes have to borrow from other banks to
meet CRR and SLR requirements or other capital requirements as provided by RBI
4) THREAT OF SUBSTITUTES
a Product-for-product substitutioni Banks provide interest on deposits made by people Similar
services are offered by post offices which may act as substitutes to the deposit schemes of banks
ii Some banks offer locker services to customers for yearly rates Similar services are provided by many post offices
47
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Generic substitution People who deposit their savings in banks can invest their money in other sources like mutual funds shares and other securities and life insurance schemes
5) COMPETITIVE RIVALRY
a Extent of competitor balance b Market growth ratesc High Exit Barriers
PEST Analysis for Banking Industry
1 Political factors - The major factors affecting the banking sector are the following
Banking sector reforms ndash As per the RBI roadmap for reforms in the first stage from 2005 to 2009 foreign banks will be allowed to set up wholly owned subsidiaries as well as get greater freedom to set up new branches Fulfilling the minimum priority sector credit -The government mandation of fulfilling the minimum priority sector credit (of which 18 per cent is food credit) has forced the domestic banks to cater to this segment despite the low profitability and vulnerability of asset quality
Banks have also been allowed to set up Offshore Banking Units in SEZrsquos
2 Economic factors -
Basell II norms for the risk management in banking sector - The new Basel Accord has its foundation on three mutually reinforcing pillars The first pillar is compatible with the credit risk market risk and operational risk The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bankConcurrently it also casts responsibility on the supervisors to review and validate banksrsquo risk measurement models
Consolidation and merger and acquisitions in the banking sector- HDFC bank also acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Universal Banking has been introduced ICICI Bank HDFCs closest competitor is already into Universal Banking so HDFC is also getting into it as now it is providing retail banking and also depository facilities in the form of demat account
48
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
3 Social factors-
Big and growing middle class in India - This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans car loans education loans auto loans etc Retail loans have grown from 19 in FYrsquo99 to 51 FYrsquo06Consumer credit accounts for a meager 286 per cent of the countrys GDP and the buoyancy in the economy offers sufficient scope for it to grow
Geographical and Cultural diversity- This is leading to a greater demand for financial products and customization by the customers
4 Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999 It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector
Banks (All) No of players = 40
Sector statistics
We see the sector aggregates and make a financial comparison for the major banks
Top PlayersFY2006
Based on Total Income Based on OPBDT Total Income Change OPBDT Change
(Rs Mn) () (Rs Mn) ()ICICI BANK 631619 5450 S B I 763528 -129 PUNJAB NATIONAL B 29218 1491 ICICI BANK 37174 1936
CAN BANK 277095 2378 PUNJAB NATIONAL B 222052 3936
BANK OF INDIA 23317 2543 CAN BANK 168825 1953
H D F C BANK 185508 6024 H D F C BANK 14324 2748 change - indicates the change between current and corresponding quarter
49
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
2 Current assets to current liabilities3 Liabilities to net worth4 Debt to assets and5 Liabilities to assets
(C) Balance Sheet and Profit and Loss Account RatiosThese relate an item on the balance sheet to another in the profit and loss account such as1 Earnings to shareholders funds2 Net income to assets employed3 Sales to stock4 Sales to debtors and5 Cost of goods sold to creditors
(D) Financial Statements and Market RatiosThese are normally known as market ratios and are arrived at by relative financial figures to market prices1 Market value to earnings and2 Book value to market value(a) Market value(b) Earnings(c) Profitability(d) Liquidity(e) Leverage(f) Debt Service Capacity(g) Asset ManagementEfficiency(h) Margins
The major ratios that are considered(i) Market value(ii) Price- earnings ratio(iii) Market-to-book ratio(iv) Earnings(v) Earning per share(vi) Dividend per share(vii) Dividend payout ratio(viii) Leverage ratios(ix) Return on investmentstotal assets
CASH FLOW A statement of sources and uses begins with the profit for the year to which are added the increases in liability accounts (sources) and from which are reduced the increases in asset accounts (uses) The net result shows whether there has been an excess or deficit of funds and how this was financed Investors must examine a companys cash flow as it reveals exactly where the money came from how it was utilized Investors must be
26
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
concerned if a company is financing either its inventories or paying dividends from borrowings without real growth as that shows deterioration
27
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-4 ANALYSIS
28
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
I FUNDAMENTAL ANALYSIS OF STOCKS
Basically fundamental analysis is covered in 3 parts
1 Market economy analysis
2 Industry Analysis
3 Company Analysis
1) TATA MOTORS
I Market Economy Analysis
It covers the macro economy analysis and the various macro economic factors on the national level like GDP Monetary policies of India Fiscal Policies and Inflation and money supply etc
GDP
Real GDP growth accelerated from 75 per cent during 2004-05 to 84 per cent during
2005-06 on the back of buoyant manufacturing and services activity supported by a
recovery in the agricultural sector Real GDP growth has thus averaged over eight per
cent during the last three years and over seven per cent in the first four years (2002-03 to
2005-06) of the Tenth Five Year Plan
Strengths of India today are
A well diversified industrial base which profits from self-reliance in all core industries A
large amp sophisticated financial architecture - The robust capital Markets today have over
9000 listed companies and boast of a massive Market capitalization
A healthy GDP composition with agriculture contributing 22 Industry 22 and
services which have gone strength to strength accounting For 56 of the GDP an
29
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
acknowledged strength in knowledge driven industries like Information technology
biotechnology entertainment Software etc
India has Over 3 million scientific amp technical manpower Over 06 million SampT post
graduates Over 07 million graduate engineers Over 3500 doctorates in sciences every
year
Assuming trend growth in agriculture under normal monsoon conditions and barring
domestic or external shocks the Reserve Bank in its Annual Policy Statement for 2007-
08 (April 2007) placed real GDP growth for policy purposes in the range of 75-80 per
cent during 2007-08 Growth prospects are however subject to a number of downside
risks The risks emanating from the global economy are potential escalation and
volatility in international crude oil prices firming up of overall inflationary pressures and
expectations and a hardening of international interest rates along with the withdrawal of
monetary accommodation
Indiarsquos demographic advantage ndash In contrast to developed Countries India will have a
younger population for the next 50 years Hence India would be the hub for RampD
Inflation
Inflation was contained to 63 per cent by end-March 2007 within the indicative
trajectory of 50-55 per cent during 2007-08 The actual inflation was considerably lower
than the indicative trajectory and this could be mainly attributed to the deferred pass-
through of even the cognisable permanent component of international crude oil prices
Money Supply
Monetary and liquidity conditions remained largely comfortable during 2006-07reflecting
proactive liquidity management operations by the Reserve Bank under the liquidity
adjustment facility flexible management of issuances under the market stabilisation
scheme and some private placement of Government securities
30
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
In short the Indian economy is exhibiting strong fundamentals and displaying
considerable resilience At the same time there are continuing signs of demand pressures
especially high credit growth that could exert upward pressure on prices when associated
with supply shocks such as from oil These pressures have the potential for impacting
stability and inflation expectations While domestic developments continue to dominate
the economy global factors tend to gain more attention now than before The global
outlook for growth is positive but downside risks in regard to inflation also RBI is
applying new repo and reverse repo for the balance of inflation and monetary policies
The following are macroeconomic policies generally found as part of government-
directed industrial auto policies
(a) Restrictions on domestic and foreign investment
(b) Domestic content requirements
(c) High tariff walls
(d) Auto export requirements
(e) National production to sales ratios
(f) Distribution controls
(g) Quotas and licensing requirements that significantly restrict imports
(h) Government approval for product related decisions including vehicle make
body type engine size etc
(i) Special government categories for auto taxes
II INDUSTRY ANALYSIS
Since 1991 opening of the economy has changed the face of auto industry Today it is
amongst the main drivers of growth of Indian economy with an output multiplier of
224(for every Re1 invested auto sector gives back Rs224 to the economy) In recent
years we have seen increasing number of global players entering Indian market by way of
Joint ventures collaborations or wholly owned subsidiary
The automobile industry is torn between trying to reduce costs on the one hand and on
the other dealing with the high price of performance-enhancing technology and
environmental compliance Key drivers in the automotive industry are
31
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Reducing air pollution
Reduction of weight
Recyclability
Safety
Better performance and engine efficiency
Aesthetics
Longer service Life
INDUSTRY LIFE CYCLE
The automobile market is at the maturity stage of the life cycle locally and globally due
to an increased number of competitors from domestic and foreign markets The
automobile market is characterized by a low potential for market growth but high sales
and profit potential as the products have still not saturated the market as a whole
MAJOR COMPETITORS OF TATA MOTORS ARE
Maruti Udyog Ltd
General Motors India
Ford India Ltd
Eicher Motors
Bajaj Auto
Hero Motors
Hindustan Motors
32
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Hyundai Motor India Ltd
Royal Enfield Motors
Telco
TVS Motors
FINANCIALS
Description 1 Day PriceChange
MarketCap
PEROE
Div Yield
Long-Term Debt toEquity
Price toBook Value
NetProfit Margin (mrq)
Price toFree Cash Flow (mrq)
Sector Consumer Goods 01125178B
2488
1707
222
1171076
706 40842
Industry Auto Manufacturers - Major (More Info)
0613310B
3000
750171
181 155 160 -440
Companies
Daimlerchrysler AG (DCX) 021 539B1072
1119
350
217 116 469 -354
Ford Motor Co (F) 121 157B NA-951
240
1107
115 -060 -8205
General Motors Corporation (GM) -024 165B NA
-6285
340
390 142 -621 014
Honda Motor Co Ltd (HMC) 083 622B1152
1654
100
083 173 552 20748
Tata Motors Ltd (TTM) -038 71B1864
NA150
NA 535 564 NA
Toyota Motor Corp (TM) 0731756B
1394
1505
120
103 197 659 NA
Opportunities and Threats
a) Opportunities
Road Development The ongoing road development program would improve
connectivity to ports cities and villages through a network of highways and
interconnecting roads by 2010-11 Improved road network would help in faster
33
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
movement of goods between various cities and towns The Company launched TATA
Novus range of vehicles in the heavy segment and TATA ACE for last mile distribution
Car penetration in India Car penetration in India is 7 cars per 1000 persons
International In FY 2006-07 the Company increased share of its overseas vehicle sales
from 76 last year to record high of 111 (as of its total sales) and has planned
further increase in this year
b) Threats
Global Competition India is increasingly attracting global players to set up
manufacturing facility for producing cars especially small cars Global automobile
manufacturers are also entering India in commercial vehicle segment to leverage Indiarsquos
low cost production advantage to their favor
Fuel Prices The continuing fuel price increase in the domestic market could
significantly impact demand of commercial and passenger vehicles
Input costs Commodity items particularly steel non-ferrous metals rubber and
engineering plastics have witnessed huge price increases in the past These prices are
expected to increase further affecting the Companyrsquos profitability
Interest rate hardening and other inflationary trends With interest rates hardening and
liquidity crunch in the system growth in sales may be adversely impacted
Government Regulations Stringent emission and safety requirements could bring new
complexities for automotive and component manufacturers impacting the Companyrsquos
business
Risks and Concerns
Interest Rates FY 2007-08 started with increasing interest rate regime and tightening
liquidity position in the economy Increasing interest rates could further affect vehicle
demand which could have an adverse impact on the Companyrsquos revenues and profits
Exchange rates The Company exports vehicles to many countries and exchange rate
fluctuations in the order execution period could impact the Companyrsquos business
34
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Freight rates In FY 2006-07 freight rates in road transport sector moved up mainly
due to surge in construction activity ongoing road development projects and severe
restriction on over-loading Demand for commercial vehicles could be impacted by
further change in freight rates and change in fuel prices
Domestic market The Company plans to reduce the impact of this cyclicality on its
business by strengthening its less cyclical businesses like buses light trucks small
commercial vehicles
Overseas market In overseas markets the Company competes with global players
which have multiple vehicle platforms large financial capability and global branding
Manufacturing The Company manufactures vehicles at multiple locations and given
the geographical dispersion of its suppliers it faces Logistics Problems
New Competition Competitive activity is expected to increase in commercial vehicle
and passenger vehicle domestic market in coming years
New projects The Company currently is in midst of executing many new projects
ranging from launch of new car platforms to development of new Truck models
III Company Analysis
Key Highlights
Symbol TTL
Sector Consumer Goods
Industry Auto Manufacturers Major
Market Cap Rs29232 crores
Data Since 1945
Last close Rs 74290
Brief Summary of the company
35
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Tata Motors is one of the largest companies in the Tata Group with a total income of US$
235 billion More than 3 million Tata vehicles ply on Indian roads making Tata a
dominant force in the Indian automobile industry
Joint Venture with Fiat and Hitachi
Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing
passenger vehicles engines and transmissions for both domestic and international
markets The Company has also entered into a JV with Hitachi to set up a new plant in
Kharagpur
Product Mix
Tata Motors is Indias only fully integrated automobile manufacturer with a portfolio that
covers trucks buses utility vehicles and passenger cars It would be no exaggeration to
say that Tata Motors provides the wheels for Indias growth
Segmental Overview
Commercial Vehicle Segment
The Company registered 696 volume growth in the domestic CV segment during
4QFY06 from 37228 units in Q3FY05 to 63082 units in Q3FY06 The market share in
this segment was 658 in Q4FY06 as compared to 552 in Q1FY06 The MHCV
goods-carrier segment registered a 544 growth YoY with sale of 33515 units and a
market share of 645 up by around 410 bps driven by infrastructure development and
increase in international trade
Passenger Vehicle Segment
The Company reported a growth of 212 YoY to 49907 vehicles in the domestic
passenger vehicle segment and a market share of 162 in the quarter The passenger
vehicle industry registered a volume growth of 204 during Q4FY06
36
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Plants
Tata Motors owes its leading position in the Indian automobile industry to its strong
focus on indigenisation Their manufacturing plants are situated at Jamshedpur in the
East Pune in the West and Lucknow in the North
Charts showing Key Statistics of tata motors
37
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Share holding pattern as on 31-Mar
shareholding pattern
34
1425
17
10
promotors
MF Banks Fis
FIIs
Others
Public
Financial highlights
38
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
39
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
RATIO ANALYSIS
Ratios 2006 2005 2004
Debtequity 056 049 044
Current ratio 108 087 076
Operating profit margin 1211 1151 1238
Gross profit margin 1087 1043 1104
ROCE 3125 3276 3377
total assets turnover ratio 315 353 343
ROE 2761 3009 2257
Dividend-equity 49794 45373 28211
Retention Ratio 6743 6332 6519
DPS (Rs) 1301 125 799
EPS (Rs) 25 34 41
Dividend Payout Ratio 039 042 037
CAGR of EPS 0177
CAGR of Dividend Payout Ratio -0017
Average ROE 2574
average retention 6354
Growth (g = Avg RR times Avg ROE ) 1636
Market return 1454
40
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
PE ratio (on the basis of historical analysis) = 1812
Therefore the Weighted PE ratio =(1812+2424)2 = 21181
Projected EPS = EPS OF 2006 + CAGR of EPSEPS OF 2006
= Rs48271
Value of Share at the end of financial year 06-07
= Projected EPS Weighted PE Ratio
= Rs1022
2) HPCL
Globalization and the Indian Petroleum Industry
Indian petroleum industry in the post independent period (1947-2001) it may be divided
into three distinct phases
(i) early phase (1947 to 1969)- when the government consolidated its control over
the industry with Soviet assistance
(ii) development phase (1970 to 1989)- in this period the US companies played
dominant role replacing the Soviets and
41
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
(iii) the economic liberalisation phase of 1990s
PORTERrsquoS MODEL
SWOT ANALYSIS
STRENGHS
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
WEAKNESSES
Dependence on refining function high
Moderate share in high profitable retail segment
42
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Diversifications in petrochemicals could trouble the company
High burden of subsidy loss on cooking gas and kerosene
OPPORTUNITIES
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
Overseas presence in upstream and downstream will determine growth
THREATS
Rising oil prices could dampen demand
High regulatory risk
Loss of market share to private players
Entrance of private players in pipelines will take away monopoly of company in
north India
COMPANY ANALYSIS
The Annual Report is broken down into the following specific parts
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the AccountsATHE DIRECTORrsquoS REPORTThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship Fundamental AnalysisB THE AUDITORS REPORTThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors
C FINANCIAL STATEMENTSIt comprises of Balance Sheet Profit and Loss account Cash Flows Its analysis would be discussed later
DSCHEDULES
43
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The schedules detail pertinent information about the items of Balance Sheet and Profit amp Loss Account It also details information about sales manufacturing costs administration costs interest and other income and expenses
1 THE MANAGEMENT
HPCL is a public sector undertaking Thus it is a professionally managed company
There are some parameters of management on which a company is analysed
a integrity of management
b past record of management
c how highly is the management rated by its peers in the same industry
d how the management fares in adversity
e the depth of the knowledge of management
f open and innovative management
on all these parameters HPCL scores good
2 COMPANY
Many times a company has made losses in the previous years but that does not mean
that the company is bad to invest Thus many factors are studied while studying a
company
a) perception of competitors
HPCL is the second largest petroleum company after IOCL Thus it is a competitor of
IOCL and it is trying hard to compete with IOCL on every front That is why now it
has decided to diversify itself in the oil exploration sector
b) company policies
As this is a PSU thus the policies are made by the government The oil sector is one
which is highly regulated by government Thus from time to time it is required to
watch out the various policies changed
3 ANNUAL REPORT
The most primary and most important source of information about a company is its
Annual Report This is prepared every year and distributed to its shareholders
44
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Ratio Analysis
Evaluation of Intrinsic Value of the Security
stdev mkt 0011934stdev sec 003831 Average
Retention Ratio 060504
correlation 0485958 ROE 019842Beta 156765 g 0120052Risk Free Rate 650
Mkt Rate 14
45
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
k 1826
Hence we see that here our g is less than k Thus we see that as per Dividend Discount Model our Intrinsic value is div=22(1+012)=240626= 387
Price= Projected EPS + Weighted PE ratioUsing CAGR EPS = 43468Weighted PE Ratio = 75+6652=33625
Price = 43468+33625 = 381
3) HDFC BANK
The Indian banking industry sector overview
With the economic growth picking up pace and the investment cycle on the way to recovery the banking sector has witnessed a transformation in its vital role of intermediating between the demand and supply of funds
Public sector banks have been very proactive in their restructuring initiatives be it in technology implementation or pruning their loss assets Windfall treasury gains made in the falling interest rate regime were used for writing off the doubtful and loss assets
Retail lending (especially mortgage financing) formed a significant portion of the portfolio for most banks and they customized their products to cater to the diverse demands
Apart from streamlining their processes through technology initiatives such as ATMs telephone banking online banking and web based products banks also resorted to cross selling of financial products such as credit cards mutual funds and insurance policies to augment their fee based income
PORTERrsquoS FIVE FORCES MODEL FOR THE BANKING INDUSTRY
1) BARRIERS TO ENTRY a Economies of scale Since the existing players in the market are well
established and already have a customer base they are able to bear the cost of using the advantages of technology to their maximum advantage
46
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Capital requirement for entry i The Banking Regulation Act prescribes the minimum capital
requirements for a bank Moreover banks have to maintain a capital adequacy ratio of 9 under the Basel I norms
ii Government has declared that the foreign banks will be permitted to establish their presence in India by way of setting up a wholly owned banking subsidiary (WOS) with a minimum capital of Rs300 crore
c Access to distribution channels Since banks have to set up their own distribution channels all the cost has to be directly born by them
d Cost advantage independent of size Existing banks have huge databases of customers which they use when they want to sell a new product launched by them
e Legislation or Government action Banks are governed by Banking Regulation Act 1949 which specifies the rules and regulations applicable to banks RBI is the governing body of banks in India
2) BARGAINING POWER OF BUYERS
Due to increased competition the services offered by banks to customers have improved considerably
3) BARGAINING POWER OF THE SUPPLIERS
Suppliers to banks can be both - the customers and RBIa Customers of banks provide money to banks in the form of deposits and in
return earn some interest on that b RBI acts as a supplier to banks by selling govt securities treasury bills
govt bonds etc c Call money market Banks sometimes have to borrow from other banks to
meet CRR and SLR requirements or other capital requirements as provided by RBI
4) THREAT OF SUBSTITUTES
a Product-for-product substitutioni Banks provide interest on deposits made by people Similar
services are offered by post offices which may act as substitutes to the deposit schemes of banks
ii Some banks offer locker services to customers for yearly rates Similar services are provided by many post offices
47
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Generic substitution People who deposit their savings in banks can invest their money in other sources like mutual funds shares and other securities and life insurance schemes
5) COMPETITIVE RIVALRY
a Extent of competitor balance b Market growth ratesc High Exit Barriers
PEST Analysis for Banking Industry
1 Political factors - The major factors affecting the banking sector are the following
Banking sector reforms ndash As per the RBI roadmap for reforms in the first stage from 2005 to 2009 foreign banks will be allowed to set up wholly owned subsidiaries as well as get greater freedom to set up new branches Fulfilling the minimum priority sector credit -The government mandation of fulfilling the minimum priority sector credit (of which 18 per cent is food credit) has forced the domestic banks to cater to this segment despite the low profitability and vulnerability of asset quality
Banks have also been allowed to set up Offshore Banking Units in SEZrsquos
2 Economic factors -
Basell II norms for the risk management in banking sector - The new Basel Accord has its foundation on three mutually reinforcing pillars The first pillar is compatible with the credit risk market risk and operational risk The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bankConcurrently it also casts responsibility on the supervisors to review and validate banksrsquo risk measurement models
Consolidation and merger and acquisitions in the banking sector- HDFC bank also acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Universal Banking has been introduced ICICI Bank HDFCs closest competitor is already into Universal Banking so HDFC is also getting into it as now it is providing retail banking and also depository facilities in the form of demat account
48
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
3 Social factors-
Big and growing middle class in India - This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans car loans education loans auto loans etc Retail loans have grown from 19 in FYrsquo99 to 51 FYrsquo06Consumer credit accounts for a meager 286 per cent of the countrys GDP and the buoyancy in the economy offers sufficient scope for it to grow
Geographical and Cultural diversity- This is leading to a greater demand for financial products and customization by the customers
4 Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999 It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector
Banks (All) No of players = 40
Sector statistics
We see the sector aggregates and make a financial comparison for the major banks
Top PlayersFY2006
Based on Total Income Based on OPBDT Total Income Change OPBDT Change
(Rs Mn) () (Rs Mn) ()ICICI BANK 631619 5450 S B I 763528 -129 PUNJAB NATIONAL B 29218 1491 ICICI BANK 37174 1936
CAN BANK 277095 2378 PUNJAB NATIONAL B 222052 3936
BANK OF INDIA 23317 2543 CAN BANK 168825 1953
H D F C BANK 185508 6024 H D F C BANK 14324 2748 change - indicates the change between current and corresponding quarter
49
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
concerned if a company is financing either its inventories or paying dividends from borrowings without real growth as that shows deterioration
27
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-4 ANALYSIS
28
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
I FUNDAMENTAL ANALYSIS OF STOCKS
Basically fundamental analysis is covered in 3 parts
1 Market economy analysis
2 Industry Analysis
3 Company Analysis
1) TATA MOTORS
I Market Economy Analysis
It covers the macro economy analysis and the various macro economic factors on the national level like GDP Monetary policies of India Fiscal Policies and Inflation and money supply etc
GDP
Real GDP growth accelerated from 75 per cent during 2004-05 to 84 per cent during
2005-06 on the back of buoyant manufacturing and services activity supported by a
recovery in the agricultural sector Real GDP growth has thus averaged over eight per
cent during the last three years and over seven per cent in the first four years (2002-03 to
2005-06) of the Tenth Five Year Plan
Strengths of India today are
A well diversified industrial base which profits from self-reliance in all core industries A
large amp sophisticated financial architecture - The robust capital Markets today have over
9000 listed companies and boast of a massive Market capitalization
A healthy GDP composition with agriculture contributing 22 Industry 22 and
services which have gone strength to strength accounting For 56 of the GDP an
29
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
acknowledged strength in knowledge driven industries like Information technology
biotechnology entertainment Software etc
India has Over 3 million scientific amp technical manpower Over 06 million SampT post
graduates Over 07 million graduate engineers Over 3500 doctorates in sciences every
year
Assuming trend growth in agriculture under normal monsoon conditions and barring
domestic or external shocks the Reserve Bank in its Annual Policy Statement for 2007-
08 (April 2007) placed real GDP growth for policy purposes in the range of 75-80 per
cent during 2007-08 Growth prospects are however subject to a number of downside
risks The risks emanating from the global economy are potential escalation and
volatility in international crude oil prices firming up of overall inflationary pressures and
expectations and a hardening of international interest rates along with the withdrawal of
monetary accommodation
Indiarsquos demographic advantage ndash In contrast to developed Countries India will have a
younger population for the next 50 years Hence India would be the hub for RampD
Inflation
Inflation was contained to 63 per cent by end-March 2007 within the indicative
trajectory of 50-55 per cent during 2007-08 The actual inflation was considerably lower
than the indicative trajectory and this could be mainly attributed to the deferred pass-
through of even the cognisable permanent component of international crude oil prices
Money Supply
Monetary and liquidity conditions remained largely comfortable during 2006-07reflecting
proactive liquidity management operations by the Reserve Bank under the liquidity
adjustment facility flexible management of issuances under the market stabilisation
scheme and some private placement of Government securities
30
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
In short the Indian economy is exhibiting strong fundamentals and displaying
considerable resilience At the same time there are continuing signs of demand pressures
especially high credit growth that could exert upward pressure on prices when associated
with supply shocks such as from oil These pressures have the potential for impacting
stability and inflation expectations While domestic developments continue to dominate
the economy global factors tend to gain more attention now than before The global
outlook for growth is positive but downside risks in regard to inflation also RBI is
applying new repo and reverse repo for the balance of inflation and monetary policies
The following are macroeconomic policies generally found as part of government-
directed industrial auto policies
(a) Restrictions on domestic and foreign investment
(b) Domestic content requirements
(c) High tariff walls
(d) Auto export requirements
(e) National production to sales ratios
(f) Distribution controls
(g) Quotas and licensing requirements that significantly restrict imports
(h) Government approval for product related decisions including vehicle make
body type engine size etc
(i) Special government categories for auto taxes
II INDUSTRY ANALYSIS
Since 1991 opening of the economy has changed the face of auto industry Today it is
amongst the main drivers of growth of Indian economy with an output multiplier of
224(for every Re1 invested auto sector gives back Rs224 to the economy) In recent
years we have seen increasing number of global players entering Indian market by way of
Joint ventures collaborations or wholly owned subsidiary
The automobile industry is torn between trying to reduce costs on the one hand and on
the other dealing with the high price of performance-enhancing technology and
environmental compliance Key drivers in the automotive industry are
31
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Reducing air pollution
Reduction of weight
Recyclability
Safety
Better performance and engine efficiency
Aesthetics
Longer service Life
INDUSTRY LIFE CYCLE
The automobile market is at the maturity stage of the life cycle locally and globally due
to an increased number of competitors from domestic and foreign markets The
automobile market is characterized by a low potential for market growth but high sales
and profit potential as the products have still not saturated the market as a whole
MAJOR COMPETITORS OF TATA MOTORS ARE
Maruti Udyog Ltd
General Motors India
Ford India Ltd
Eicher Motors
Bajaj Auto
Hero Motors
Hindustan Motors
32
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Hyundai Motor India Ltd
Royal Enfield Motors
Telco
TVS Motors
FINANCIALS
Description 1 Day PriceChange
MarketCap
PEROE
Div Yield
Long-Term Debt toEquity
Price toBook Value
NetProfit Margin (mrq)
Price toFree Cash Flow (mrq)
Sector Consumer Goods 01125178B
2488
1707
222
1171076
706 40842
Industry Auto Manufacturers - Major (More Info)
0613310B
3000
750171
181 155 160 -440
Companies
Daimlerchrysler AG (DCX) 021 539B1072
1119
350
217 116 469 -354
Ford Motor Co (F) 121 157B NA-951
240
1107
115 -060 -8205
General Motors Corporation (GM) -024 165B NA
-6285
340
390 142 -621 014
Honda Motor Co Ltd (HMC) 083 622B1152
1654
100
083 173 552 20748
Tata Motors Ltd (TTM) -038 71B1864
NA150
NA 535 564 NA
Toyota Motor Corp (TM) 0731756B
1394
1505
120
103 197 659 NA
Opportunities and Threats
a) Opportunities
Road Development The ongoing road development program would improve
connectivity to ports cities and villages through a network of highways and
interconnecting roads by 2010-11 Improved road network would help in faster
33
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
movement of goods between various cities and towns The Company launched TATA
Novus range of vehicles in the heavy segment and TATA ACE for last mile distribution
Car penetration in India Car penetration in India is 7 cars per 1000 persons
International In FY 2006-07 the Company increased share of its overseas vehicle sales
from 76 last year to record high of 111 (as of its total sales) and has planned
further increase in this year
b) Threats
Global Competition India is increasingly attracting global players to set up
manufacturing facility for producing cars especially small cars Global automobile
manufacturers are also entering India in commercial vehicle segment to leverage Indiarsquos
low cost production advantage to their favor
Fuel Prices The continuing fuel price increase in the domestic market could
significantly impact demand of commercial and passenger vehicles
Input costs Commodity items particularly steel non-ferrous metals rubber and
engineering plastics have witnessed huge price increases in the past These prices are
expected to increase further affecting the Companyrsquos profitability
Interest rate hardening and other inflationary trends With interest rates hardening and
liquidity crunch in the system growth in sales may be adversely impacted
Government Regulations Stringent emission and safety requirements could bring new
complexities for automotive and component manufacturers impacting the Companyrsquos
business
Risks and Concerns
Interest Rates FY 2007-08 started with increasing interest rate regime and tightening
liquidity position in the economy Increasing interest rates could further affect vehicle
demand which could have an adverse impact on the Companyrsquos revenues and profits
Exchange rates The Company exports vehicles to many countries and exchange rate
fluctuations in the order execution period could impact the Companyrsquos business
34
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Freight rates In FY 2006-07 freight rates in road transport sector moved up mainly
due to surge in construction activity ongoing road development projects and severe
restriction on over-loading Demand for commercial vehicles could be impacted by
further change in freight rates and change in fuel prices
Domestic market The Company plans to reduce the impact of this cyclicality on its
business by strengthening its less cyclical businesses like buses light trucks small
commercial vehicles
Overseas market In overseas markets the Company competes with global players
which have multiple vehicle platforms large financial capability and global branding
Manufacturing The Company manufactures vehicles at multiple locations and given
the geographical dispersion of its suppliers it faces Logistics Problems
New Competition Competitive activity is expected to increase in commercial vehicle
and passenger vehicle domestic market in coming years
New projects The Company currently is in midst of executing many new projects
ranging from launch of new car platforms to development of new Truck models
III Company Analysis
Key Highlights
Symbol TTL
Sector Consumer Goods
Industry Auto Manufacturers Major
Market Cap Rs29232 crores
Data Since 1945
Last close Rs 74290
Brief Summary of the company
35
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Tata Motors is one of the largest companies in the Tata Group with a total income of US$
235 billion More than 3 million Tata vehicles ply on Indian roads making Tata a
dominant force in the Indian automobile industry
Joint Venture with Fiat and Hitachi
Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing
passenger vehicles engines and transmissions for both domestic and international
markets The Company has also entered into a JV with Hitachi to set up a new plant in
Kharagpur
Product Mix
Tata Motors is Indias only fully integrated automobile manufacturer with a portfolio that
covers trucks buses utility vehicles and passenger cars It would be no exaggeration to
say that Tata Motors provides the wheels for Indias growth
Segmental Overview
Commercial Vehicle Segment
The Company registered 696 volume growth in the domestic CV segment during
4QFY06 from 37228 units in Q3FY05 to 63082 units in Q3FY06 The market share in
this segment was 658 in Q4FY06 as compared to 552 in Q1FY06 The MHCV
goods-carrier segment registered a 544 growth YoY with sale of 33515 units and a
market share of 645 up by around 410 bps driven by infrastructure development and
increase in international trade
Passenger Vehicle Segment
The Company reported a growth of 212 YoY to 49907 vehicles in the domestic
passenger vehicle segment and a market share of 162 in the quarter The passenger
vehicle industry registered a volume growth of 204 during Q4FY06
36
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Plants
Tata Motors owes its leading position in the Indian automobile industry to its strong
focus on indigenisation Their manufacturing plants are situated at Jamshedpur in the
East Pune in the West and Lucknow in the North
Charts showing Key Statistics of tata motors
37
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Share holding pattern as on 31-Mar
shareholding pattern
34
1425
17
10
promotors
MF Banks Fis
FIIs
Others
Public
Financial highlights
38
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
39
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
RATIO ANALYSIS
Ratios 2006 2005 2004
Debtequity 056 049 044
Current ratio 108 087 076
Operating profit margin 1211 1151 1238
Gross profit margin 1087 1043 1104
ROCE 3125 3276 3377
total assets turnover ratio 315 353 343
ROE 2761 3009 2257
Dividend-equity 49794 45373 28211
Retention Ratio 6743 6332 6519
DPS (Rs) 1301 125 799
EPS (Rs) 25 34 41
Dividend Payout Ratio 039 042 037
CAGR of EPS 0177
CAGR of Dividend Payout Ratio -0017
Average ROE 2574
average retention 6354
Growth (g = Avg RR times Avg ROE ) 1636
Market return 1454
40
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
PE ratio (on the basis of historical analysis) = 1812
Therefore the Weighted PE ratio =(1812+2424)2 = 21181
Projected EPS = EPS OF 2006 + CAGR of EPSEPS OF 2006
= Rs48271
Value of Share at the end of financial year 06-07
= Projected EPS Weighted PE Ratio
= Rs1022
2) HPCL
Globalization and the Indian Petroleum Industry
Indian petroleum industry in the post independent period (1947-2001) it may be divided
into three distinct phases
(i) early phase (1947 to 1969)- when the government consolidated its control over
the industry with Soviet assistance
(ii) development phase (1970 to 1989)- in this period the US companies played
dominant role replacing the Soviets and
41
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
(iii) the economic liberalisation phase of 1990s
PORTERrsquoS MODEL
SWOT ANALYSIS
STRENGHS
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
WEAKNESSES
Dependence on refining function high
Moderate share in high profitable retail segment
42
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Diversifications in petrochemicals could trouble the company
High burden of subsidy loss on cooking gas and kerosene
OPPORTUNITIES
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
Overseas presence in upstream and downstream will determine growth
THREATS
Rising oil prices could dampen demand
High regulatory risk
Loss of market share to private players
Entrance of private players in pipelines will take away monopoly of company in
north India
COMPANY ANALYSIS
The Annual Report is broken down into the following specific parts
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the AccountsATHE DIRECTORrsquoS REPORTThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship Fundamental AnalysisB THE AUDITORS REPORTThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors
C FINANCIAL STATEMENTSIt comprises of Balance Sheet Profit and Loss account Cash Flows Its analysis would be discussed later
DSCHEDULES
43
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The schedules detail pertinent information about the items of Balance Sheet and Profit amp Loss Account It also details information about sales manufacturing costs administration costs interest and other income and expenses
1 THE MANAGEMENT
HPCL is a public sector undertaking Thus it is a professionally managed company
There are some parameters of management on which a company is analysed
a integrity of management
b past record of management
c how highly is the management rated by its peers in the same industry
d how the management fares in adversity
e the depth of the knowledge of management
f open and innovative management
on all these parameters HPCL scores good
2 COMPANY
Many times a company has made losses in the previous years but that does not mean
that the company is bad to invest Thus many factors are studied while studying a
company
a) perception of competitors
HPCL is the second largest petroleum company after IOCL Thus it is a competitor of
IOCL and it is trying hard to compete with IOCL on every front That is why now it
has decided to diversify itself in the oil exploration sector
b) company policies
As this is a PSU thus the policies are made by the government The oil sector is one
which is highly regulated by government Thus from time to time it is required to
watch out the various policies changed
3 ANNUAL REPORT
The most primary and most important source of information about a company is its
Annual Report This is prepared every year and distributed to its shareholders
44
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Ratio Analysis
Evaluation of Intrinsic Value of the Security
stdev mkt 0011934stdev sec 003831 Average
Retention Ratio 060504
correlation 0485958 ROE 019842Beta 156765 g 0120052Risk Free Rate 650
Mkt Rate 14
45
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
k 1826
Hence we see that here our g is less than k Thus we see that as per Dividend Discount Model our Intrinsic value is div=22(1+012)=240626= 387
Price= Projected EPS + Weighted PE ratioUsing CAGR EPS = 43468Weighted PE Ratio = 75+6652=33625
Price = 43468+33625 = 381
3) HDFC BANK
The Indian banking industry sector overview
With the economic growth picking up pace and the investment cycle on the way to recovery the banking sector has witnessed a transformation in its vital role of intermediating between the demand and supply of funds
Public sector banks have been very proactive in their restructuring initiatives be it in technology implementation or pruning their loss assets Windfall treasury gains made in the falling interest rate regime were used for writing off the doubtful and loss assets
Retail lending (especially mortgage financing) formed a significant portion of the portfolio for most banks and they customized their products to cater to the diverse demands
Apart from streamlining their processes through technology initiatives such as ATMs telephone banking online banking and web based products banks also resorted to cross selling of financial products such as credit cards mutual funds and insurance policies to augment their fee based income
PORTERrsquoS FIVE FORCES MODEL FOR THE BANKING INDUSTRY
1) BARRIERS TO ENTRY a Economies of scale Since the existing players in the market are well
established and already have a customer base they are able to bear the cost of using the advantages of technology to their maximum advantage
46
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Capital requirement for entry i The Banking Regulation Act prescribes the minimum capital
requirements for a bank Moreover banks have to maintain a capital adequacy ratio of 9 under the Basel I norms
ii Government has declared that the foreign banks will be permitted to establish their presence in India by way of setting up a wholly owned banking subsidiary (WOS) with a minimum capital of Rs300 crore
c Access to distribution channels Since banks have to set up their own distribution channels all the cost has to be directly born by them
d Cost advantage independent of size Existing banks have huge databases of customers which they use when they want to sell a new product launched by them
e Legislation or Government action Banks are governed by Banking Regulation Act 1949 which specifies the rules and regulations applicable to banks RBI is the governing body of banks in India
2) BARGAINING POWER OF BUYERS
Due to increased competition the services offered by banks to customers have improved considerably
3) BARGAINING POWER OF THE SUPPLIERS
Suppliers to banks can be both - the customers and RBIa Customers of banks provide money to banks in the form of deposits and in
return earn some interest on that b RBI acts as a supplier to banks by selling govt securities treasury bills
govt bonds etc c Call money market Banks sometimes have to borrow from other banks to
meet CRR and SLR requirements or other capital requirements as provided by RBI
4) THREAT OF SUBSTITUTES
a Product-for-product substitutioni Banks provide interest on deposits made by people Similar
services are offered by post offices which may act as substitutes to the deposit schemes of banks
ii Some banks offer locker services to customers for yearly rates Similar services are provided by many post offices
47
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Generic substitution People who deposit their savings in banks can invest their money in other sources like mutual funds shares and other securities and life insurance schemes
5) COMPETITIVE RIVALRY
a Extent of competitor balance b Market growth ratesc High Exit Barriers
PEST Analysis for Banking Industry
1 Political factors - The major factors affecting the banking sector are the following
Banking sector reforms ndash As per the RBI roadmap for reforms in the first stage from 2005 to 2009 foreign banks will be allowed to set up wholly owned subsidiaries as well as get greater freedom to set up new branches Fulfilling the minimum priority sector credit -The government mandation of fulfilling the minimum priority sector credit (of which 18 per cent is food credit) has forced the domestic banks to cater to this segment despite the low profitability and vulnerability of asset quality
Banks have also been allowed to set up Offshore Banking Units in SEZrsquos
2 Economic factors -
Basell II norms for the risk management in banking sector - The new Basel Accord has its foundation on three mutually reinforcing pillars The first pillar is compatible with the credit risk market risk and operational risk The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bankConcurrently it also casts responsibility on the supervisors to review and validate banksrsquo risk measurement models
Consolidation and merger and acquisitions in the banking sector- HDFC bank also acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Universal Banking has been introduced ICICI Bank HDFCs closest competitor is already into Universal Banking so HDFC is also getting into it as now it is providing retail banking and also depository facilities in the form of demat account
48
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
3 Social factors-
Big and growing middle class in India - This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans car loans education loans auto loans etc Retail loans have grown from 19 in FYrsquo99 to 51 FYrsquo06Consumer credit accounts for a meager 286 per cent of the countrys GDP and the buoyancy in the economy offers sufficient scope for it to grow
Geographical and Cultural diversity- This is leading to a greater demand for financial products and customization by the customers
4 Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999 It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector
Banks (All) No of players = 40
Sector statistics
We see the sector aggregates and make a financial comparison for the major banks
Top PlayersFY2006
Based on Total Income Based on OPBDT Total Income Change OPBDT Change
(Rs Mn) () (Rs Mn) ()ICICI BANK 631619 5450 S B I 763528 -129 PUNJAB NATIONAL B 29218 1491 ICICI BANK 37174 1936
CAN BANK 277095 2378 PUNJAB NATIONAL B 222052 3936
BANK OF INDIA 23317 2543 CAN BANK 168825 1953
H D F C BANK 185508 6024 H D F C BANK 14324 2748 change - indicates the change between current and corresponding quarter
49
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-4 ANALYSIS
28
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
I FUNDAMENTAL ANALYSIS OF STOCKS
Basically fundamental analysis is covered in 3 parts
1 Market economy analysis
2 Industry Analysis
3 Company Analysis
1) TATA MOTORS
I Market Economy Analysis
It covers the macro economy analysis and the various macro economic factors on the national level like GDP Monetary policies of India Fiscal Policies and Inflation and money supply etc
GDP
Real GDP growth accelerated from 75 per cent during 2004-05 to 84 per cent during
2005-06 on the back of buoyant manufacturing and services activity supported by a
recovery in the agricultural sector Real GDP growth has thus averaged over eight per
cent during the last three years and over seven per cent in the first four years (2002-03 to
2005-06) of the Tenth Five Year Plan
Strengths of India today are
A well diversified industrial base which profits from self-reliance in all core industries A
large amp sophisticated financial architecture - The robust capital Markets today have over
9000 listed companies and boast of a massive Market capitalization
A healthy GDP composition with agriculture contributing 22 Industry 22 and
services which have gone strength to strength accounting For 56 of the GDP an
29
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
acknowledged strength in knowledge driven industries like Information technology
biotechnology entertainment Software etc
India has Over 3 million scientific amp technical manpower Over 06 million SampT post
graduates Over 07 million graduate engineers Over 3500 doctorates in sciences every
year
Assuming trend growth in agriculture under normal monsoon conditions and barring
domestic or external shocks the Reserve Bank in its Annual Policy Statement for 2007-
08 (April 2007) placed real GDP growth for policy purposes in the range of 75-80 per
cent during 2007-08 Growth prospects are however subject to a number of downside
risks The risks emanating from the global economy are potential escalation and
volatility in international crude oil prices firming up of overall inflationary pressures and
expectations and a hardening of international interest rates along with the withdrawal of
monetary accommodation
Indiarsquos demographic advantage ndash In contrast to developed Countries India will have a
younger population for the next 50 years Hence India would be the hub for RampD
Inflation
Inflation was contained to 63 per cent by end-March 2007 within the indicative
trajectory of 50-55 per cent during 2007-08 The actual inflation was considerably lower
than the indicative trajectory and this could be mainly attributed to the deferred pass-
through of even the cognisable permanent component of international crude oil prices
Money Supply
Monetary and liquidity conditions remained largely comfortable during 2006-07reflecting
proactive liquidity management operations by the Reserve Bank under the liquidity
adjustment facility flexible management of issuances under the market stabilisation
scheme and some private placement of Government securities
30
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
In short the Indian economy is exhibiting strong fundamentals and displaying
considerable resilience At the same time there are continuing signs of demand pressures
especially high credit growth that could exert upward pressure on prices when associated
with supply shocks such as from oil These pressures have the potential for impacting
stability and inflation expectations While domestic developments continue to dominate
the economy global factors tend to gain more attention now than before The global
outlook for growth is positive but downside risks in regard to inflation also RBI is
applying new repo and reverse repo for the balance of inflation and monetary policies
The following are macroeconomic policies generally found as part of government-
directed industrial auto policies
(a) Restrictions on domestic and foreign investment
(b) Domestic content requirements
(c) High tariff walls
(d) Auto export requirements
(e) National production to sales ratios
(f) Distribution controls
(g) Quotas and licensing requirements that significantly restrict imports
(h) Government approval for product related decisions including vehicle make
body type engine size etc
(i) Special government categories for auto taxes
II INDUSTRY ANALYSIS
Since 1991 opening of the economy has changed the face of auto industry Today it is
amongst the main drivers of growth of Indian economy with an output multiplier of
224(for every Re1 invested auto sector gives back Rs224 to the economy) In recent
years we have seen increasing number of global players entering Indian market by way of
Joint ventures collaborations or wholly owned subsidiary
The automobile industry is torn between trying to reduce costs on the one hand and on
the other dealing with the high price of performance-enhancing technology and
environmental compliance Key drivers in the automotive industry are
31
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Reducing air pollution
Reduction of weight
Recyclability
Safety
Better performance and engine efficiency
Aesthetics
Longer service Life
INDUSTRY LIFE CYCLE
The automobile market is at the maturity stage of the life cycle locally and globally due
to an increased number of competitors from domestic and foreign markets The
automobile market is characterized by a low potential for market growth but high sales
and profit potential as the products have still not saturated the market as a whole
MAJOR COMPETITORS OF TATA MOTORS ARE
Maruti Udyog Ltd
General Motors India
Ford India Ltd
Eicher Motors
Bajaj Auto
Hero Motors
Hindustan Motors
32
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Hyundai Motor India Ltd
Royal Enfield Motors
Telco
TVS Motors
FINANCIALS
Description 1 Day PriceChange
MarketCap
PEROE
Div Yield
Long-Term Debt toEquity
Price toBook Value
NetProfit Margin (mrq)
Price toFree Cash Flow (mrq)
Sector Consumer Goods 01125178B
2488
1707
222
1171076
706 40842
Industry Auto Manufacturers - Major (More Info)
0613310B
3000
750171
181 155 160 -440
Companies
Daimlerchrysler AG (DCX) 021 539B1072
1119
350
217 116 469 -354
Ford Motor Co (F) 121 157B NA-951
240
1107
115 -060 -8205
General Motors Corporation (GM) -024 165B NA
-6285
340
390 142 -621 014
Honda Motor Co Ltd (HMC) 083 622B1152
1654
100
083 173 552 20748
Tata Motors Ltd (TTM) -038 71B1864
NA150
NA 535 564 NA
Toyota Motor Corp (TM) 0731756B
1394
1505
120
103 197 659 NA
Opportunities and Threats
a) Opportunities
Road Development The ongoing road development program would improve
connectivity to ports cities and villages through a network of highways and
interconnecting roads by 2010-11 Improved road network would help in faster
33
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
movement of goods between various cities and towns The Company launched TATA
Novus range of vehicles in the heavy segment and TATA ACE for last mile distribution
Car penetration in India Car penetration in India is 7 cars per 1000 persons
International In FY 2006-07 the Company increased share of its overseas vehicle sales
from 76 last year to record high of 111 (as of its total sales) and has planned
further increase in this year
b) Threats
Global Competition India is increasingly attracting global players to set up
manufacturing facility for producing cars especially small cars Global automobile
manufacturers are also entering India in commercial vehicle segment to leverage Indiarsquos
low cost production advantage to their favor
Fuel Prices The continuing fuel price increase in the domestic market could
significantly impact demand of commercial and passenger vehicles
Input costs Commodity items particularly steel non-ferrous metals rubber and
engineering plastics have witnessed huge price increases in the past These prices are
expected to increase further affecting the Companyrsquos profitability
Interest rate hardening and other inflationary trends With interest rates hardening and
liquidity crunch in the system growth in sales may be adversely impacted
Government Regulations Stringent emission and safety requirements could bring new
complexities for automotive and component manufacturers impacting the Companyrsquos
business
Risks and Concerns
Interest Rates FY 2007-08 started with increasing interest rate regime and tightening
liquidity position in the economy Increasing interest rates could further affect vehicle
demand which could have an adverse impact on the Companyrsquos revenues and profits
Exchange rates The Company exports vehicles to many countries and exchange rate
fluctuations in the order execution period could impact the Companyrsquos business
34
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Freight rates In FY 2006-07 freight rates in road transport sector moved up mainly
due to surge in construction activity ongoing road development projects and severe
restriction on over-loading Demand for commercial vehicles could be impacted by
further change in freight rates and change in fuel prices
Domestic market The Company plans to reduce the impact of this cyclicality on its
business by strengthening its less cyclical businesses like buses light trucks small
commercial vehicles
Overseas market In overseas markets the Company competes with global players
which have multiple vehicle platforms large financial capability and global branding
Manufacturing The Company manufactures vehicles at multiple locations and given
the geographical dispersion of its suppliers it faces Logistics Problems
New Competition Competitive activity is expected to increase in commercial vehicle
and passenger vehicle domestic market in coming years
New projects The Company currently is in midst of executing many new projects
ranging from launch of new car platforms to development of new Truck models
III Company Analysis
Key Highlights
Symbol TTL
Sector Consumer Goods
Industry Auto Manufacturers Major
Market Cap Rs29232 crores
Data Since 1945
Last close Rs 74290
Brief Summary of the company
35
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Tata Motors is one of the largest companies in the Tata Group with a total income of US$
235 billion More than 3 million Tata vehicles ply on Indian roads making Tata a
dominant force in the Indian automobile industry
Joint Venture with Fiat and Hitachi
Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing
passenger vehicles engines and transmissions for both domestic and international
markets The Company has also entered into a JV with Hitachi to set up a new plant in
Kharagpur
Product Mix
Tata Motors is Indias only fully integrated automobile manufacturer with a portfolio that
covers trucks buses utility vehicles and passenger cars It would be no exaggeration to
say that Tata Motors provides the wheels for Indias growth
Segmental Overview
Commercial Vehicle Segment
The Company registered 696 volume growth in the domestic CV segment during
4QFY06 from 37228 units in Q3FY05 to 63082 units in Q3FY06 The market share in
this segment was 658 in Q4FY06 as compared to 552 in Q1FY06 The MHCV
goods-carrier segment registered a 544 growth YoY with sale of 33515 units and a
market share of 645 up by around 410 bps driven by infrastructure development and
increase in international trade
Passenger Vehicle Segment
The Company reported a growth of 212 YoY to 49907 vehicles in the domestic
passenger vehicle segment and a market share of 162 in the quarter The passenger
vehicle industry registered a volume growth of 204 during Q4FY06
36
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Plants
Tata Motors owes its leading position in the Indian automobile industry to its strong
focus on indigenisation Their manufacturing plants are situated at Jamshedpur in the
East Pune in the West and Lucknow in the North
Charts showing Key Statistics of tata motors
37
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Share holding pattern as on 31-Mar
shareholding pattern
34
1425
17
10
promotors
MF Banks Fis
FIIs
Others
Public
Financial highlights
38
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
39
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
RATIO ANALYSIS
Ratios 2006 2005 2004
Debtequity 056 049 044
Current ratio 108 087 076
Operating profit margin 1211 1151 1238
Gross profit margin 1087 1043 1104
ROCE 3125 3276 3377
total assets turnover ratio 315 353 343
ROE 2761 3009 2257
Dividend-equity 49794 45373 28211
Retention Ratio 6743 6332 6519
DPS (Rs) 1301 125 799
EPS (Rs) 25 34 41
Dividend Payout Ratio 039 042 037
CAGR of EPS 0177
CAGR of Dividend Payout Ratio -0017
Average ROE 2574
average retention 6354
Growth (g = Avg RR times Avg ROE ) 1636
Market return 1454
40
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
PE ratio (on the basis of historical analysis) = 1812
Therefore the Weighted PE ratio =(1812+2424)2 = 21181
Projected EPS = EPS OF 2006 + CAGR of EPSEPS OF 2006
= Rs48271
Value of Share at the end of financial year 06-07
= Projected EPS Weighted PE Ratio
= Rs1022
2) HPCL
Globalization and the Indian Petroleum Industry
Indian petroleum industry in the post independent period (1947-2001) it may be divided
into three distinct phases
(i) early phase (1947 to 1969)- when the government consolidated its control over
the industry with Soviet assistance
(ii) development phase (1970 to 1989)- in this period the US companies played
dominant role replacing the Soviets and
41
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
(iii) the economic liberalisation phase of 1990s
PORTERrsquoS MODEL
SWOT ANALYSIS
STRENGHS
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
WEAKNESSES
Dependence on refining function high
Moderate share in high profitable retail segment
42
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Diversifications in petrochemicals could trouble the company
High burden of subsidy loss on cooking gas and kerosene
OPPORTUNITIES
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
Overseas presence in upstream and downstream will determine growth
THREATS
Rising oil prices could dampen demand
High regulatory risk
Loss of market share to private players
Entrance of private players in pipelines will take away monopoly of company in
north India
COMPANY ANALYSIS
The Annual Report is broken down into the following specific parts
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the AccountsATHE DIRECTORrsquoS REPORTThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship Fundamental AnalysisB THE AUDITORS REPORTThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors
C FINANCIAL STATEMENTSIt comprises of Balance Sheet Profit and Loss account Cash Flows Its analysis would be discussed later
DSCHEDULES
43
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The schedules detail pertinent information about the items of Balance Sheet and Profit amp Loss Account It also details information about sales manufacturing costs administration costs interest and other income and expenses
1 THE MANAGEMENT
HPCL is a public sector undertaking Thus it is a professionally managed company
There are some parameters of management on which a company is analysed
a integrity of management
b past record of management
c how highly is the management rated by its peers in the same industry
d how the management fares in adversity
e the depth of the knowledge of management
f open and innovative management
on all these parameters HPCL scores good
2 COMPANY
Many times a company has made losses in the previous years but that does not mean
that the company is bad to invest Thus many factors are studied while studying a
company
a) perception of competitors
HPCL is the second largest petroleum company after IOCL Thus it is a competitor of
IOCL and it is trying hard to compete with IOCL on every front That is why now it
has decided to diversify itself in the oil exploration sector
b) company policies
As this is a PSU thus the policies are made by the government The oil sector is one
which is highly regulated by government Thus from time to time it is required to
watch out the various policies changed
3 ANNUAL REPORT
The most primary and most important source of information about a company is its
Annual Report This is prepared every year and distributed to its shareholders
44
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Ratio Analysis
Evaluation of Intrinsic Value of the Security
stdev mkt 0011934stdev sec 003831 Average
Retention Ratio 060504
correlation 0485958 ROE 019842Beta 156765 g 0120052Risk Free Rate 650
Mkt Rate 14
45
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
k 1826
Hence we see that here our g is less than k Thus we see that as per Dividend Discount Model our Intrinsic value is div=22(1+012)=240626= 387
Price= Projected EPS + Weighted PE ratioUsing CAGR EPS = 43468Weighted PE Ratio = 75+6652=33625
Price = 43468+33625 = 381
3) HDFC BANK
The Indian banking industry sector overview
With the economic growth picking up pace and the investment cycle on the way to recovery the banking sector has witnessed a transformation in its vital role of intermediating between the demand and supply of funds
Public sector banks have been very proactive in their restructuring initiatives be it in technology implementation or pruning their loss assets Windfall treasury gains made in the falling interest rate regime were used for writing off the doubtful and loss assets
Retail lending (especially mortgage financing) formed a significant portion of the portfolio for most banks and they customized their products to cater to the diverse demands
Apart from streamlining their processes through technology initiatives such as ATMs telephone banking online banking and web based products banks also resorted to cross selling of financial products such as credit cards mutual funds and insurance policies to augment their fee based income
PORTERrsquoS FIVE FORCES MODEL FOR THE BANKING INDUSTRY
1) BARRIERS TO ENTRY a Economies of scale Since the existing players in the market are well
established and already have a customer base they are able to bear the cost of using the advantages of technology to their maximum advantage
46
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Capital requirement for entry i The Banking Regulation Act prescribes the minimum capital
requirements for a bank Moreover banks have to maintain a capital adequacy ratio of 9 under the Basel I norms
ii Government has declared that the foreign banks will be permitted to establish their presence in India by way of setting up a wholly owned banking subsidiary (WOS) with a minimum capital of Rs300 crore
c Access to distribution channels Since banks have to set up their own distribution channels all the cost has to be directly born by them
d Cost advantage independent of size Existing banks have huge databases of customers which they use when they want to sell a new product launched by them
e Legislation or Government action Banks are governed by Banking Regulation Act 1949 which specifies the rules and regulations applicable to banks RBI is the governing body of banks in India
2) BARGAINING POWER OF BUYERS
Due to increased competition the services offered by banks to customers have improved considerably
3) BARGAINING POWER OF THE SUPPLIERS
Suppliers to banks can be both - the customers and RBIa Customers of banks provide money to banks in the form of deposits and in
return earn some interest on that b RBI acts as a supplier to banks by selling govt securities treasury bills
govt bonds etc c Call money market Banks sometimes have to borrow from other banks to
meet CRR and SLR requirements or other capital requirements as provided by RBI
4) THREAT OF SUBSTITUTES
a Product-for-product substitutioni Banks provide interest on deposits made by people Similar
services are offered by post offices which may act as substitutes to the deposit schemes of banks
ii Some banks offer locker services to customers for yearly rates Similar services are provided by many post offices
47
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Generic substitution People who deposit their savings in banks can invest their money in other sources like mutual funds shares and other securities and life insurance schemes
5) COMPETITIVE RIVALRY
a Extent of competitor balance b Market growth ratesc High Exit Barriers
PEST Analysis for Banking Industry
1 Political factors - The major factors affecting the banking sector are the following
Banking sector reforms ndash As per the RBI roadmap for reforms in the first stage from 2005 to 2009 foreign banks will be allowed to set up wholly owned subsidiaries as well as get greater freedom to set up new branches Fulfilling the minimum priority sector credit -The government mandation of fulfilling the minimum priority sector credit (of which 18 per cent is food credit) has forced the domestic banks to cater to this segment despite the low profitability and vulnerability of asset quality
Banks have also been allowed to set up Offshore Banking Units in SEZrsquos
2 Economic factors -
Basell II norms for the risk management in banking sector - The new Basel Accord has its foundation on three mutually reinforcing pillars The first pillar is compatible with the credit risk market risk and operational risk The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bankConcurrently it also casts responsibility on the supervisors to review and validate banksrsquo risk measurement models
Consolidation and merger and acquisitions in the banking sector- HDFC bank also acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Universal Banking has been introduced ICICI Bank HDFCs closest competitor is already into Universal Banking so HDFC is also getting into it as now it is providing retail banking and also depository facilities in the form of demat account
48
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
3 Social factors-
Big and growing middle class in India - This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans car loans education loans auto loans etc Retail loans have grown from 19 in FYrsquo99 to 51 FYrsquo06Consumer credit accounts for a meager 286 per cent of the countrys GDP and the buoyancy in the economy offers sufficient scope for it to grow
Geographical and Cultural diversity- This is leading to a greater demand for financial products and customization by the customers
4 Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999 It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector
Banks (All) No of players = 40
Sector statistics
We see the sector aggregates and make a financial comparison for the major banks
Top PlayersFY2006
Based on Total Income Based on OPBDT Total Income Change OPBDT Change
(Rs Mn) () (Rs Mn) ()ICICI BANK 631619 5450 S B I 763528 -129 PUNJAB NATIONAL B 29218 1491 ICICI BANK 37174 1936
CAN BANK 277095 2378 PUNJAB NATIONAL B 222052 3936
BANK OF INDIA 23317 2543 CAN BANK 168825 1953
H D F C BANK 185508 6024 H D F C BANK 14324 2748 change - indicates the change between current and corresponding quarter
49
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
I FUNDAMENTAL ANALYSIS OF STOCKS
Basically fundamental analysis is covered in 3 parts
1 Market economy analysis
2 Industry Analysis
3 Company Analysis
1) TATA MOTORS
I Market Economy Analysis
It covers the macro economy analysis and the various macro economic factors on the national level like GDP Monetary policies of India Fiscal Policies and Inflation and money supply etc
GDP
Real GDP growth accelerated from 75 per cent during 2004-05 to 84 per cent during
2005-06 on the back of buoyant manufacturing and services activity supported by a
recovery in the agricultural sector Real GDP growth has thus averaged over eight per
cent during the last three years and over seven per cent in the first four years (2002-03 to
2005-06) of the Tenth Five Year Plan
Strengths of India today are
A well diversified industrial base which profits from self-reliance in all core industries A
large amp sophisticated financial architecture - The robust capital Markets today have over
9000 listed companies and boast of a massive Market capitalization
A healthy GDP composition with agriculture contributing 22 Industry 22 and
services which have gone strength to strength accounting For 56 of the GDP an
29
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
acknowledged strength in knowledge driven industries like Information technology
biotechnology entertainment Software etc
India has Over 3 million scientific amp technical manpower Over 06 million SampT post
graduates Over 07 million graduate engineers Over 3500 doctorates in sciences every
year
Assuming trend growth in agriculture under normal monsoon conditions and barring
domestic or external shocks the Reserve Bank in its Annual Policy Statement for 2007-
08 (April 2007) placed real GDP growth for policy purposes in the range of 75-80 per
cent during 2007-08 Growth prospects are however subject to a number of downside
risks The risks emanating from the global economy are potential escalation and
volatility in international crude oil prices firming up of overall inflationary pressures and
expectations and a hardening of international interest rates along with the withdrawal of
monetary accommodation
Indiarsquos demographic advantage ndash In contrast to developed Countries India will have a
younger population for the next 50 years Hence India would be the hub for RampD
Inflation
Inflation was contained to 63 per cent by end-March 2007 within the indicative
trajectory of 50-55 per cent during 2007-08 The actual inflation was considerably lower
than the indicative trajectory and this could be mainly attributed to the deferred pass-
through of even the cognisable permanent component of international crude oil prices
Money Supply
Monetary and liquidity conditions remained largely comfortable during 2006-07reflecting
proactive liquidity management operations by the Reserve Bank under the liquidity
adjustment facility flexible management of issuances under the market stabilisation
scheme and some private placement of Government securities
30
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
In short the Indian economy is exhibiting strong fundamentals and displaying
considerable resilience At the same time there are continuing signs of demand pressures
especially high credit growth that could exert upward pressure on prices when associated
with supply shocks such as from oil These pressures have the potential for impacting
stability and inflation expectations While domestic developments continue to dominate
the economy global factors tend to gain more attention now than before The global
outlook for growth is positive but downside risks in regard to inflation also RBI is
applying new repo and reverse repo for the balance of inflation and monetary policies
The following are macroeconomic policies generally found as part of government-
directed industrial auto policies
(a) Restrictions on domestic and foreign investment
(b) Domestic content requirements
(c) High tariff walls
(d) Auto export requirements
(e) National production to sales ratios
(f) Distribution controls
(g) Quotas and licensing requirements that significantly restrict imports
(h) Government approval for product related decisions including vehicle make
body type engine size etc
(i) Special government categories for auto taxes
II INDUSTRY ANALYSIS
Since 1991 opening of the economy has changed the face of auto industry Today it is
amongst the main drivers of growth of Indian economy with an output multiplier of
224(for every Re1 invested auto sector gives back Rs224 to the economy) In recent
years we have seen increasing number of global players entering Indian market by way of
Joint ventures collaborations or wholly owned subsidiary
The automobile industry is torn between trying to reduce costs on the one hand and on
the other dealing with the high price of performance-enhancing technology and
environmental compliance Key drivers in the automotive industry are
31
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Reducing air pollution
Reduction of weight
Recyclability
Safety
Better performance and engine efficiency
Aesthetics
Longer service Life
INDUSTRY LIFE CYCLE
The automobile market is at the maturity stage of the life cycle locally and globally due
to an increased number of competitors from domestic and foreign markets The
automobile market is characterized by a low potential for market growth but high sales
and profit potential as the products have still not saturated the market as a whole
MAJOR COMPETITORS OF TATA MOTORS ARE
Maruti Udyog Ltd
General Motors India
Ford India Ltd
Eicher Motors
Bajaj Auto
Hero Motors
Hindustan Motors
32
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Hyundai Motor India Ltd
Royal Enfield Motors
Telco
TVS Motors
FINANCIALS
Description 1 Day PriceChange
MarketCap
PEROE
Div Yield
Long-Term Debt toEquity
Price toBook Value
NetProfit Margin (mrq)
Price toFree Cash Flow (mrq)
Sector Consumer Goods 01125178B
2488
1707
222
1171076
706 40842
Industry Auto Manufacturers - Major (More Info)
0613310B
3000
750171
181 155 160 -440
Companies
Daimlerchrysler AG (DCX) 021 539B1072
1119
350
217 116 469 -354
Ford Motor Co (F) 121 157B NA-951
240
1107
115 -060 -8205
General Motors Corporation (GM) -024 165B NA
-6285
340
390 142 -621 014
Honda Motor Co Ltd (HMC) 083 622B1152
1654
100
083 173 552 20748
Tata Motors Ltd (TTM) -038 71B1864
NA150
NA 535 564 NA
Toyota Motor Corp (TM) 0731756B
1394
1505
120
103 197 659 NA
Opportunities and Threats
a) Opportunities
Road Development The ongoing road development program would improve
connectivity to ports cities and villages through a network of highways and
interconnecting roads by 2010-11 Improved road network would help in faster
33
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
movement of goods between various cities and towns The Company launched TATA
Novus range of vehicles in the heavy segment and TATA ACE for last mile distribution
Car penetration in India Car penetration in India is 7 cars per 1000 persons
International In FY 2006-07 the Company increased share of its overseas vehicle sales
from 76 last year to record high of 111 (as of its total sales) and has planned
further increase in this year
b) Threats
Global Competition India is increasingly attracting global players to set up
manufacturing facility for producing cars especially small cars Global automobile
manufacturers are also entering India in commercial vehicle segment to leverage Indiarsquos
low cost production advantage to their favor
Fuel Prices The continuing fuel price increase in the domestic market could
significantly impact demand of commercial and passenger vehicles
Input costs Commodity items particularly steel non-ferrous metals rubber and
engineering plastics have witnessed huge price increases in the past These prices are
expected to increase further affecting the Companyrsquos profitability
Interest rate hardening and other inflationary trends With interest rates hardening and
liquidity crunch in the system growth in sales may be adversely impacted
Government Regulations Stringent emission and safety requirements could bring new
complexities for automotive and component manufacturers impacting the Companyrsquos
business
Risks and Concerns
Interest Rates FY 2007-08 started with increasing interest rate regime and tightening
liquidity position in the economy Increasing interest rates could further affect vehicle
demand which could have an adverse impact on the Companyrsquos revenues and profits
Exchange rates The Company exports vehicles to many countries and exchange rate
fluctuations in the order execution period could impact the Companyrsquos business
34
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Freight rates In FY 2006-07 freight rates in road transport sector moved up mainly
due to surge in construction activity ongoing road development projects and severe
restriction on over-loading Demand for commercial vehicles could be impacted by
further change in freight rates and change in fuel prices
Domestic market The Company plans to reduce the impact of this cyclicality on its
business by strengthening its less cyclical businesses like buses light trucks small
commercial vehicles
Overseas market In overseas markets the Company competes with global players
which have multiple vehicle platforms large financial capability and global branding
Manufacturing The Company manufactures vehicles at multiple locations and given
the geographical dispersion of its suppliers it faces Logistics Problems
New Competition Competitive activity is expected to increase in commercial vehicle
and passenger vehicle domestic market in coming years
New projects The Company currently is in midst of executing many new projects
ranging from launch of new car platforms to development of new Truck models
III Company Analysis
Key Highlights
Symbol TTL
Sector Consumer Goods
Industry Auto Manufacturers Major
Market Cap Rs29232 crores
Data Since 1945
Last close Rs 74290
Brief Summary of the company
35
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Tata Motors is one of the largest companies in the Tata Group with a total income of US$
235 billion More than 3 million Tata vehicles ply on Indian roads making Tata a
dominant force in the Indian automobile industry
Joint Venture with Fiat and Hitachi
Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing
passenger vehicles engines and transmissions for both domestic and international
markets The Company has also entered into a JV with Hitachi to set up a new plant in
Kharagpur
Product Mix
Tata Motors is Indias only fully integrated automobile manufacturer with a portfolio that
covers trucks buses utility vehicles and passenger cars It would be no exaggeration to
say that Tata Motors provides the wheels for Indias growth
Segmental Overview
Commercial Vehicle Segment
The Company registered 696 volume growth in the domestic CV segment during
4QFY06 from 37228 units in Q3FY05 to 63082 units in Q3FY06 The market share in
this segment was 658 in Q4FY06 as compared to 552 in Q1FY06 The MHCV
goods-carrier segment registered a 544 growth YoY with sale of 33515 units and a
market share of 645 up by around 410 bps driven by infrastructure development and
increase in international trade
Passenger Vehicle Segment
The Company reported a growth of 212 YoY to 49907 vehicles in the domestic
passenger vehicle segment and a market share of 162 in the quarter The passenger
vehicle industry registered a volume growth of 204 during Q4FY06
36
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Plants
Tata Motors owes its leading position in the Indian automobile industry to its strong
focus on indigenisation Their manufacturing plants are situated at Jamshedpur in the
East Pune in the West and Lucknow in the North
Charts showing Key Statistics of tata motors
37
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Share holding pattern as on 31-Mar
shareholding pattern
34
1425
17
10
promotors
MF Banks Fis
FIIs
Others
Public
Financial highlights
38
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
39
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
RATIO ANALYSIS
Ratios 2006 2005 2004
Debtequity 056 049 044
Current ratio 108 087 076
Operating profit margin 1211 1151 1238
Gross profit margin 1087 1043 1104
ROCE 3125 3276 3377
total assets turnover ratio 315 353 343
ROE 2761 3009 2257
Dividend-equity 49794 45373 28211
Retention Ratio 6743 6332 6519
DPS (Rs) 1301 125 799
EPS (Rs) 25 34 41
Dividend Payout Ratio 039 042 037
CAGR of EPS 0177
CAGR of Dividend Payout Ratio -0017
Average ROE 2574
average retention 6354
Growth (g = Avg RR times Avg ROE ) 1636
Market return 1454
40
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
PE ratio (on the basis of historical analysis) = 1812
Therefore the Weighted PE ratio =(1812+2424)2 = 21181
Projected EPS = EPS OF 2006 + CAGR of EPSEPS OF 2006
= Rs48271
Value of Share at the end of financial year 06-07
= Projected EPS Weighted PE Ratio
= Rs1022
2) HPCL
Globalization and the Indian Petroleum Industry
Indian petroleum industry in the post independent period (1947-2001) it may be divided
into three distinct phases
(i) early phase (1947 to 1969)- when the government consolidated its control over
the industry with Soviet assistance
(ii) development phase (1970 to 1989)- in this period the US companies played
dominant role replacing the Soviets and
41
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
(iii) the economic liberalisation phase of 1990s
PORTERrsquoS MODEL
SWOT ANALYSIS
STRENGHS
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
WEAKNESSES
Dependence on refining function high
Moderate share in high profitable retail segment
42
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Diversifications in petrochemicals could trouble the company
High burden of subsidy loss on cooking gas and kerosene
OPPORTUNITIES
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
Overseas presence in upstream and downstream will determine growth
THREATS
Rising oil prices could dampen demand
High regulatory risk
Loss of market share to private players
Entrance of private players in pipelines will take away monopoly of company in
north India
COMPANY ANALYSIS
The Annual Report is broken down into the following specific parts
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the AccountsATHE DIRECTORrsquoS REPORTThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship Fundamental AnalysisB THE AUDITORS REPORTThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors
C FINANCIAL STATEMENTSIt comprises of Balance Sheet Profit and Loss account Cash Flows Its analysis would be discussed later
DSCHEDULES
43
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The schedules detail pertinent information about the items of Balance Sheet and Profit amp Loss Account It also details information about sales manufacturing costs administration costs interest and other income and expenses
1 THE MANAGEMENT
HPCL is a public sector undertaking Thus it is a professionally managed company
There are some parameters of management on which a company is analysed
a integrity of management
b past record of management
c how highly is the management rated by its peers in the same industry
d how the management fares in adversity
e the depth of the knowledge of management
f open and innovative management
on all these parameters HPCL scores good
2 COMPANY
Many times a company has made losses in the previous years but that does not mean
that the company is bad to invest Thus many factors are studied while studying a
company
a) perception of competitors
HPCL is the second largest petroleum company after IOCL Thus it is a competitor of
IOCL and it is trying hard to compete with IOCL on every front That is why now it
has decided to diversify itself in the oil exploration sector
b) company policies
As this is a PSU thus the policies are made by the government The oil sector is one
which is highly regulated by government Thus from time to time it is required to
watch out the various policies changed
3 ANNUAL REPORT
The most primary and most important source of information about a company is its
Annual Report This is prepared every year and distributed to its shareholders
44
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Ratio Analysis
Evaluation of Intrinsic Value of the Security
stdev mkt 0011934stdev sec 003831 Average
Retention Ratio 060504
correlation 0485958 ROE 019842Beta 156765 g 0120052Risk Free Rate 650
Mkt Rate 14
45
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
k 1826
Hence we see that here our g is less than k Thus we see that as per Dividend Discount Model our Intrinsic value is div=22(1+012)=240626= 387
Price= Projected EPS + Weighted PE ratioUsing CAGR EPS = 43468Weighted PE Ratio = 75+6652=33625
Price = 43468+33625 = 381
3) HDFC BANK
The Indian banking industry sector overview
With the economic growth picking up pace and the investment cycle on the way to recovery the banking sector has witnessed a transformation in its vital role of intermediating between the demand and supply of funds
Public sector banks have been very proactive in their restructuring initiatives be it in technology implementation or pruning their loss assets Windfall treasury gains made in the falling interest rate regime were used for writing off the doubtful and loss assets
Retail lending (especially mortgage financing) formed a significant portion of the portfolio for most banks and they customized their products to cater to the diverse demands
Apart from streamlining their processes through technology initiatives such as ATMs telephone banking online banking and web based products banks also resorted to cross selling of financial products such as credit cards mutual funds and insurance policies to augment their fee based income
PORTERrsquoS FIVE FORCES MODEL FOR THE BANKING INDUSTRY
1) BARRIERS TO ENTRY a Economies of scale Since the existing players in the market are well
established and already have a customer base they are able to bear the cost of using the advantages of technology to their maximum advantage
46
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Capital requirement for entry i The Banking Regulation Act prescribes the minimum capital
requirements for a bank Moreover banks have to maintain a capital adequacy ratio of 9 under the Basel I norms
ii Government has declared that the foreign banks will be permitted to establish their presence in India by way of setting up a wholly owned banking subsidiary (WOS) with a minimum capital of Rs300 crore
c Access to distribution channels Since banks have to set up their own distribution channels all the cost has to be directly born by them
d Cost advantage independent of size Existing banks have huge databases of customers which they use when they want to sell a new product launched by them
e Legislation or Government action Banks are governed by Banking Regulation Act 1949 which specifies the rules and regulations applicable to banks RBI is the governing body of banks in India
2) BARGAINING POWER OF BUYERS
Due to increased competition the services offered by banks to customers have improved considerably
3) BARGAINING POWER OF THE SUPPLIERS
Suppliers to banks can be both - the customers and RBIa Customers of banks provide money to banks in the form of deposits and in
return earn some interest on that b RBI acts as a supplier to banks by selling govt securities treasury bills
govt bonds etc c Call money market Banks sometimes have to borrow from other banks to
meet CRR and SLR requirements or other capital requirements as provided by RBI
4) THREAT OF SUBSTITUTES
a Product-for-product substitutioni Banks provide interest on deposits made by people Similar
services are offered by post offices which may act as substitutes to the deposit schemes of banks
ii Some banks offer locker services to customers for yearly rates Similar services are provided by many post offices
47
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Generic substitution People who deposit their savings in banks can invest their money in other sources like mutual funds shares and other securities and life insurance schemes
5) COMPETITIVE RIVALRY
a Extent of competitor balance b Market growth ratesc High Exit Barriers
PEST Analysis for Banking Industry
1 Political factors - The major factors affecting the banking sector are the following
Banking sector reforms ndash As per the RBI roadmap for reforms in the first stage from 2005 to 2009 foreign banks will be allowed to set up wholly owned subsidiaries as well as get greater freedom to set up new branches Fulfilling the minimum priority sector credit -The government mandation of fulfilling the minimum priority sector credit (of which 18 per cent is food credit) has forced the domestic banks to cater to this segment despite the low profitability and vulnerability of asset quality
Banks have also been allowed to set up Offshore Banking Units in SEZrsquos
2 Economic factors -
Basell II norms for the risk management in banking sector - The new Basel Accord has its foundation on three mutually reinforcing pillars The first pillar is compatible with the credit risk market risk and operational risk The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bankConcurrently it also casts responsibility on the supervisors to review and validate banksrsquo risk measurement models
Consolidation and merger and acquisitions in the banking sector- HDFC bank also acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Universal Banking has been introduced ICICI Bank HDFCs closest competitor is already into Universal Banking so HDFC is also getting into it as now it is providing retail banking and also depository facilities in the form of demat account
48
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
3 Social factors-
Big and growing middle class in India - This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans car loans education loans auto loans etc Retail loans have grown from 19 in FYrsquo99 to 51 FYrsquo06Consumer credit accounts for a meager 286 per cent of the countrys GDP and the buoyancy in the economy offers sufficient scope for it to grow
Geographical and Cultural diversity- This is leading to a greater demand for financial products and customization by the customers
4 Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999 It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector
Banks (All) No of players = 40
Sector statistics
We see the sector aggregates and make a financial comparison for the major banks
Top PlayersFY2006
Based on Total Income Based on OPBDT Total Income Change OPBDT Change
(Rs Mn) () (Rs Mn) ()ICICI BANK 631619 5450 S B I 763528 -129 PUNJAB NATIONAL B 29218 1491 ICICI BANK 37174 1936
CAN BANK 277095 2378 PUNJAB NATIONAL B 222052 3936
BANK OF INDIA 23317 2543 CAN BANK 168825 1953
H D F C BANK 185508 6024 H D F C BANK 14324 2748 change - indicates the change between current and corresponding quarter
49
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
acknowledged strength in knowledge driven industries like Information technology
biotechnology entertainment Software etc
India has Over 3 million scientific amp technical manpower Over 06 million SampT post
graduates Over 07 million graduate engineers Over 3500 doctorates in sciences every
year
Assuming trend growth in agriculture under normal monsoon conditions and barring
domestic or external shocks the Reserve Bank in its Annual Policy Statement for 2007-
08 (April 2007) placed real GDP growth for policy purposes in the range of 75-80 per
cent during 2007-08 Growth prospects are however subject to a number of downside
risks The risks emanating from the global economy are potential escalation and
volatility in international crude oil prices firming up of overall inflationary pressures and
expectations and a hardening of international interest rates along with the withdrawal of
monetary accommodation
Indiarsquos demographic advantage ndash In contrast to developed Countries India will have a
younger population for the next 50 years Hence India would be the hub for RampD
Inflation
Inflation was contained to 63 per cent by end-March 2007 within the indicative
trajectory of 50-55 per cent during 2007-08 The actual inflation was considerably lower
than the indicative trajectory and this could be mainly attributed to the deferred pass-
through of even the cognisable permanent component of international crude oil prices
Money Supply
Monetary and liquidity conditions remained largely comfortable during 2006-07reflecting
proactive liquidity management operations by the Reserve Bank under the liquidity
adjustment facility flexible management of issuances under the market stabilisation
scheme and some private placement of Government securities
30
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
In short the Indian economy is exhibiting strong fundamentals and displaying
considerable resilience At the same time there are continuing signs of demand pressures
especially high credit growth that could exert upward pressure on prices when associated
with supply shocks such as from oil These pressures have the potential for impacting
stability and inflation expectations While domestic developments continue to dominate
the economy global factors tend to gain more attention now than before The global
outlook for growth is positive but downside risks in regard to inflation also RBI is
applying new repo and reverse repo for the balance of inflation and monetary policies
The following are macroeconomic policies generally found as part of government-
directed industrial auto policies
(a) Restrictions on domestic and foreign investment
(b) Domestic content requirements
(c) High tariff walls
(d) Auto export requirements
(e) National production to sales ratios
(f) Distribution controls
(g) Quotas and licensing requirements that significantly restrict imports
(h) Government approval for product related decisions including vehicle make
body type engine size etc
(i) Special government categories for auto taxes
II INDUSTRY ANALYSIS
Since 1991 opening of the economy has changed the face of auto industry Today it is
amongst the main drivers of growth of Indian economy with an output multiplier of
224(for every Re1 invested auto sector gives back Rs224 to the economy) In recent
years we have seen increasing number of global players entering Indian market by way of
Joint ventures collaborations or wholly owned subsidiary
The automobile industry is torn between trying to reduce costs on the one hand and on
the other dealing with the high price of performance-enhancing technology and
environmental compliance Key drivers in the automotive industry are
31
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Reducing air pollution
Reduction of weight
Recyclability
Safety
Better performance and engine efficiency
Aesthetics
Longer service Life
INDUSTRY LIFE CYCLE
The automobile market is at the maturity stage of the life cycle locally and globally due
to an increased number of competitors from domestic and foreign markets The
automobile market is characterized by a low potential for market growth but high sales
and profit potential as the products have still not saturated the market as a whole
MAJOR COMPETITORS OF TATA MOTORS ARE
Maruti Udyog Ltd
General Motors India
Ford India Ltd
Eicher Motors
Bajaj Auto
Hero Motors
Hindustan Motors
32
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Hyundai Motor India Ltd
Royal Enfield Motors
Telco
TVS Motors
FINANCIALS
Description 1 Day PriceChange
MarketCap
PEROE
Div Yield
Long-Term Debt toEquity
Price toBook Value
NetProfit Margin (mrq)
Price toFree Cash Flow (mrq)
Sector Consumer Goods 01125178B
2488
1707
222
1171076
706 40842
Industry Auto Manufacturers - Major (More Info)
0613310B
3000
750171
181 155 160 -440
Companies
Daimlerchrysler AG (DCX) 021 539B1072
1119
350
217 116 469 -354
Ford Motor Co (F) 121 157B NA-951
240
1107
115 -060 -8205
General Motors Corporation (GM) -024 165B NA
-6285
340
390 142 -621 014
Honda Motor Co Ltd (HMC) 083 622B1152
1654
100
083 173 552 20748
Tata Motors Ltd (TTM) -038 71B1864
NA150
NA 535 564 NA
Toyota Motor Corp (TM) 0731756B
1394
1505
120
103 197 659 NA
Opportunities and Threats
a) Opportunities
Road Development The ongoing road development program would improve
connectivity to ports cities and villages through a network of highways and
interconnecting roads by 2010-11 Improved road network would help in faster
33
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
movement of goods between various cities and towns The Company launched TATA
Novus range of vehicles in the heavy segment and TATA ACE for last mile distribution
Car penetration in India Car penetration in India is 7 cars per 1000 persons
International In FY 2006-07 the Company increased share of its overseas vehicle sales
from 76 last year to record high of 111 (as of its total sales) and has planned
further increase in this year
b) Threats
Global Competition India is increasingly attracting global players to set up
manufacturing facility for producing cars especially small cars Global automobile
manufacturers are also entering India in commercial vehicle segment to leverage Indiarsquos
low cost production advantage to their favor
Fuel Prices The continuing fuel price increase in the domestic market could
significantly impact demand of commercial and passenger vehicles
Input costs Commodity items particularly steel non-ferrous metals rubber and
engineering plastics have witnessed huge price increases in the past These prices are
expected to increase further affecting the Companyrsquos profitability
Interest rate hardening and other inflationary trends With interest rates hardening and
liquidity crunch in the system growth in sales may be adversely impacted
Government Regulations Stringent emission and safety requirements could bring new
complexities for automotive and component manufacturers impacting the Companyrsquos
business
Risks and Concerns
Interest Rates FY 2007-08 started with increasing interest rate regime and tightening
liquidity position in the economy Increasing interest rates could further affect vehicle
demand which could have an adverse impact on the Companyrsquos revenues and profits
Exchange rates The Company exports vehicles to many countries and exchange rate
fluctuations in the order execution period could impact the Companyrsquos business
34
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Freight rates In FY 2006-07 freight rates in road transport sector moved up mainly
due to surge in construction activity ongoing road development projects and severe
restriction on over-loading Demand for commercial vehicles could be impacted by
further change in freight rates and change in fuel prices
Domestic market The Company plans to reduce the impact of this cyclicality on its
business by strengthening its less cyclical businesses like buses light trucks small
commercial vehicles
Overseas market In overseas markets the Company competes with global players
which have multiple vehicle platforms large financial capability and global branding
Manufacturing The Company manufactures vehicles at multiple locations and given
the geographical dispersion of its suppliers it faces Logistics Problems
New Competition Competitive activity is expected to increase in commercial vehicle
and passenger vehicle domestic market in coming years
New projects The Company currently is in midst of executing many new projects
ranging from launch of new car platforms to development of new Truck models
III Company Analysis
Key Highlights
Symbol TTL
Sector Consumer Goods
Industry Auto Manufacturers Major
Market Cap Rs29232 crores
Data Since 1945
Last close Rs 74290
Brief Summary of the company
35
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Tata Motors is one of the largest companies in the Tata Group with a total income of US$
235 billion More than 3 million Tata vehicles ply on Indian roads making Tata a
dominant force in the Indian automobile industry
Joint Venture with Fiat and Hitachi
Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing
passenger vehicles engines and transmissions for both domestic and international
markets The Company has also entered into a JV with Hitachi to set up a new plant in
Kharagpur
Product Mix
Tata Motors is Indias only fully integrated automobile manufacturer with a portfolio that
covers trucks buses utility vehicles and passenger cars It would be no exaggeration to
say that Tata Motors provides the wheels for Indias growth
Segmental Overview
Commercial Vehicle Segment
The Company registered 696 volume growth in the domestic CV segment during
4QFY06 from 37228 units in Q3FY05 to 63082 units in Q3FY06 The market share in
this segment was 658 in Q4FY06 as compared to 552 in Q1FY06 The MHCV
goods-carrier segment registered a 544 growth YoY with sale of 33515 units and a
market share of 645 up by around 410 bps driven by infrastructure development and
increase in international trade
Passenger Vehicle Segment
The Company reported a growth of 212 YoY to 49907 vehicles in the domestic
passenger vehicle segment and a market share of 162 in the quarter The passenger
vehicle industry registered a volume growth of 204 during Q4FY06
36
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Plants
Tata Motors owes its leading position in the Indian automobile industry to its strong
focus on indigenisation Their manufacturing plants are situated at Jamshedpur in the
East Pune in the West and Lucknow in the North
Charts showing Key Statistics of tata motors
37
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Share holding pattern as on 31-Mar
shareholding pattern
34
1425
17
10
promotors
MF Banks Fis
FIIs
Others
Public
Financial highlights
38
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
39
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
RATIO ANALYSIS
Ratios 2006 2005 2004
Debtequity 056 049 044
Current ratio 108 087 076
Operating profit margin 1211 1151 1238
Gross profit margin 1087 1043 1104
ROCE 3125 3276 3377
total assets turnover ratio 315 353 343
ROE 2761 3009 2257
Dividend-equity 49794 45373 28211
Retention Ratio 6743 6332 6519
DPS (Rs) 1301 125 799
EPS (Rs) 25 34 41
Dividend Payout Ratio 039 042 037
CAGR of EPS 0177
CAGR of Dividend Payout Ratio -0017
Average ROE 2574
average retention 6354
Growth (g = Avg RR times Avg ROE ) 1636
Market return 1454
40
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
PE ratio (on the basis of historical analysis) = 1812
Therefore the Weighted PE ratio =(1812+2424)2 = 21181
Projected EPS = EPS OF 2006 + CAGR of EPSEPS OF 2006
= Rs48271
Value of Share at the end of financial year 06-07
= Projected EPS Weighted PE Ratio
= Rs1022
2) HPCL
Globalization and the Indian Petroleum Industry
Indian petroleum industry in the post independent period (1947-2001) it may be divided
into three distinct phases
(i) early phase (1947 to 1969)- when the government consolidated its control over
the industry with Soviet assistance
(ii) development phase (1970 to 1989)- in this period the US companies played
dominant role replacing the Soviets and
41
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
(iii) the economic liberalisation phase of 1990s
PORTERrsquoS MODEL
SWOT ANALYSIS
STRENGHS
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
WEAKNESSES
Dependence on refining function high
Moderate share in high profitable retail segment
42
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Diversifications in petrochemicals could trouble the company
High burden of subsidy loss on cooking gas and kerosene
OPPORTUNITIES
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
Overseas presence in upstream and downstream will determine growth
THREATS
Rising oil prices could dampen demand
High regulatory risk
Loss of market share to private players
Entrance of private players in pipelines will take away monopoly of company in
north India
COMPANY ANALYSIS
The Annual Report is broken down into the following specific parts
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the AccountsATHE DIRECTORrsquoS REPORTThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship Fundamental AnalysisB THE AUDITORS REPORTThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors
C FINANCIAL STATEMENTSIt comprises of Balance Sheet Profit and Loss account Cash Flows Its analysis would be discussed later
DSCHEDULES
43
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The schedules detail pertinent information about the items of Balance Sheet and Profit amp Loss Account It also details information about sales manufacturing costs administration costs interest and other income and expenses
1 THE MANAGEMENT
HPCL is a public sector undertaking Thus it is a professionally managed company
There are some parameters of management on which a company is analysed
a integrity of management
b past record of management
c how highly is the management rated by its peers in the same industry
d how the management fares in adversity
e the depth of the knowledge of management
f open and innovative management
on all these parameters HPCL scores good
2 COMPANY
Many times a company has made losses in the previous years but that does not mean
that the company is bad to invest Thus many factors are studied while studying a
company
a) perception of competitors
HPCL is the second largest petroleum company after IOCL Thus it is a competitor of
IOCL and it is trying hard to compete with IOCL on every front That is why now it
has decided to diversify itself in the oil exploration sector
b) company policies
As this is a PSU thus the policies are made by the government The oil sector is one
which is highly regulated by government Thus from time to time it is required to
watch out the various policies changed
3 ANNUAL REPORT
The most primary and most important source of information about a company is its
Annual Report This is prepared every year and distributed to its shareholders
44
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Ratio Analysis
Evaluation of Intrinsic Value of the Security
stdev mkt 0011934stdev sec 003831 Average
Retention Ratio 060504
correlation 0485958 ROE 019842Beta 156765 g 0120052Risk Free Rate 650
Mkt Rate 14
45
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
k 1826
Hence we see that here our g is less than k Thus we see that as per Dividend Discount Model our Intrinsic value is div=22(1+012)=240626= 387
Price= Projected EPS + Weighted PE ratioUsing CAGR EPS = 43468Weighted PE Ratio = 75+6652=33625
Price = 43468+33625 = 381
3) HDFC BANK
The Indian banking industry sector overview
With the economic growth picking up pace and the investment cycle on the way to recovery the banking sector has witnessed a transformation in its vital role of intermediating between the demand and supply of funds
Public sector banks have been very proactive in their restructuring initiatives be it in technology implementation or pruning their loss assets Windfall treasury gains made in the falling interest rate regime were used for writing off the doubtful and loss assets
Retail lending (especially mortgage financing) formed a significant portion of the portfolio for most banks and they customized their products to cater to the diverse demands
Apart from streamlining their processes through technology initiatives such as ATMs telephone banking online banking and web based products banks also resorted to cross selling of financial products such as credit cards mutual funds and insurance policies to augment their fee based income
PORTERrsquoS FIVE FORCES MODEL FOR THE BANKING INDUSTRY
1) BARRIERS TO ENTRY a Economies of scale Since the existing players in the market are well
established and already have a customer base they are able to bear the cost of using the advantages of technology to their maximum advantage
46
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Capital requirement for entry i The Banking Regulation Act prescribes the minimum capital
requirements for a bank Moreover banks have to maintain a capital adequacy ratio of 9 under the Basel I norms
ii Government has declared that the foreign banks will be permitted to establish their presence in India by way of setting up a wholly owned banking subsidiary (WOS) with a minimum capital of Rs300 crore
c Access to distribution channels Since banks have to set up their own distribution channels all the cost has to be directly born by them
d Cost advantage independent of size Existing banks have huge databases of customers which they use when they want to sell a new product launched by them
e Legislation or Government action Banks are governed by Banking Regulation Act 1949 which specifies the rules and regulations applicable to banks RBI is the governing body of banks in India
2) BARGAINING POWER OF BUYERS
Due to increased competition the services offered by banks to customers have improved considerably
3) BARGAINING POWER OF THE SUPPLIERS
Suppliers to banks can be both - the customers and RBIa Customers of banks provide money to banks in the form of deposits and in
return earn some interest on that b RBI acts as a supplier to banks by selling govt securities treasury bills
govt bonds etc c Call money market Banks sometimes have to borrow from other banks to
meet CRR and SLR requirements or other capital requirements as provided by RBI
4) THREAT OF SUBSTITUTES
a Product-for-product substitutioni Banks provide interest on deposits made by people Similar
services are offered by post offices which may act as substitutes to the deposit schemes of banks
ii Some banks offer locker services to customers for yearly rates Similar services are provided by many post offices
47
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Generic substitution People who deposit their savings in banks can invest their money in other sources like mutual funds shares and other securities and life insurance schemes
5) COMPETITIVE RIVALRY
a Extent of competitor balance b Market growth ratesc High Exit Barriers
PEST Analysis for Banking Industry
1 Political factors - The major factors affecting the banking sector are the following
Banking sector reforms ndash As per the RBI roadmap for reforms in the first stage from 2005 to 2009 foreign banks will be allowed to set up wholly owned subsidiaries as well as get greater freedom to set up new branches Fulfilling the minimum priority sector credit -The government mandation of fulfilling the minimum priority sector credit (of which 18 per cent is food credit) has forced the domestic banks to cater to this segment despite the low profitability and vulnerability of asset quality
Banks have also been allowed to set up Offshore Banking Units in SEZrsquos
2 Economic factors -
Basell II norms for the risk management in banking sector - The new Basel Accord has its foundation on three mutually reinforcing pillars The first pillar is compatible with the credit risk market risk and operational risk The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bankConcurrently it also casts responsibility on the supervisors to review and validate banksrsquo risk measurement models
Consolidation and merger and acquisitions in the banking sector- HDFC bank also acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Universal Banking has been introduced ICICI Bank HDFCs closest competitor is already into Universal Banking so HDFC is also getting into it as now it is providing retail banking and also depository facilities in the form of demat account
48
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
3 Social factors-
Big and growing middle class in India - This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans car loans education loans auto loans etc Retail loans have grown from 19 in FYrsquo99 to 51 FYrsquo06Consumer credit accounts for a meager 286 per cent of the countrys GDP and the buoyancy in the economy offers sufficient scope for it to grow
Geographical and Cultural diversity- This is leading to a greater demand for financial products and customization by the customers
4 Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999 It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector
Banks (All) No of players = 40
Sector statistics
We see the sector aggregates and make a financial comparison for the major banks
Top PlayersFY2006
Based on Total Income Based on OPBDT Total Income Change OPBDT Change
(Rs Mn) () (Rs Mn) ()ICICI BANK 631619 5450 S B I 763528 -129 PUNJAB NATIONAL B 29218 1491 ICICI BANK 37174 1936
CAN BANK 277095 2378 PUNJAB NATIONAL B 222052 3936
BANK OF INDIA 23317 2543 CAN BANK 168825 1953
H D F C BANK 185508 6024 H D F C BANK 14324 2748 change - indicates the change between current and corresponding quarter
49
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
In short the Indian economy is exhibiting strong fundamentals and displaying
considerable resilience At the same time there are continuing signs of demand pressures
especially high credit growth that could exert upward pressure on prices when associated
with supply shocks such as from oil These pressures have the potential for impacting
stability and inflation expectations While domestic developments continue to dominate
the economy global factors tend to gain more attention now than before The global
outlook for growth is positive but downside risks in regard to inflation also RBI is
applying new repo and reverse repo for the balance of inflation and monetary policies
The following are macroeconomic policies generally found as part of government-
directed industrial auto policies
(a) Restrictions on domestic and foreign investment
(b) Domestic content requirements
(c) High tariff walls
(d) Auto export requirements
(e) National production to sales ratios
(f) Distribution controls
(g) Quotas and licensing requirements that significantly restrict imports
(h) Government approval for product related decisions including vehicle make
body type engine size etc
(i) Special government categories for auto taxes
II INDUSTRY ANALYSIS
Since 1991 opening of the economy has changed the face of auto industry Today it is
amongst the main drivers of growth of Indian economy with an output multiplier of
224(for every Re1 invested auto sector gives back Rs224 to the economy) In recent
years we have seen increasing number of global players entering Indian market by way of
Joint ventures collaborations or wholly owned subsidiary
The automobile industry is torn between trying to reduce costs on the one hand and on
the other dealing with the high price of performance-enhancing technology and
environmental compliance Key drivers in the automotive industry are
31
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Reducing air pollution
Reduction of weight
Recyclability
Safety
Better performance and engine efficiency
Aesthetics
Longer service Life
INDUSTRY LIFE CYCLE
The automobile market is at the maturity stage of the life cycle locally and globally due
to an increased number of competitors from domestic and foreign markets The
automobile market is characterized by a low potential for market growth but high sales
and profit potential as the products have still not saturated the market as a whole
MAJOR COMPETITORS OF TATA MOTORS ARE
Maruti Udyog Ltd
General Motors India
Ford India Ltd
Eicher Motors
Bajaj Auto
Hero Motors
Hindustan Motors
32
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Hyundai Motor India Ltd
Royal Enfield Motors
Telco
TVS Motors
FINANCIALS
Description 1 Day PriceChange
MarketCap
PEROE
Div Yield
Long-Term Debt toEquity
Price toBook Value
NetProfit Margin (mrq)
Price toFree Cash Flow (mrq)
Sector Consumer Goods 01125178B
2488
1707
222
1171076
706 40842
Industry Auto Manufacturers - Major (More Info)
0613310B
3000
750171
181 155 160 -440
Companies
Daimlerchrysler AG (DCX) 021 539B1072
1119
350
217 116 469 -354
Ford Motor Co (F) 121 157B NA-951
240
1107
115 -060 -8205
General Motors Corporation (GM) -024 165B NA
-6285
340
390 142 -621 014
Honda Motor Co Ltd (HMC) 083 622B1152
1654
100
083 173 552 20748
Tata Motors Ltd (TTM) -038 71B1864
NA150
NA 535 564 NA
Toyota Motor Corp (TM) 0731756B
1394
1505
120
103 197 659 NA
Opportunities and Threats
a) Opportunities
Road Development The ongoing road development program would improve
connectivity to ports cities and villages through a network of highways and
interconnecting roads by 2010-11 Improved road network would help in faster
33
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
movement of goods between various cities and towns The Company launched TATA
Novus range of vehicles in the heavy segment and TATA ACE for last mile distribution
Car penetration in India Car penetration in India is 7 cars per 1000 persons
International In FY 2006-07 the Company increased share of its overseas vehicle sales
from 76 last year to record high of 111 (as of its total sales) and has planned
further increase in this year
b) Threats
Global Competition India is increasingly attracting global players to set up
manufacturing facility for producing cars especially small cars Global automobile
manufacturers are also entering India in commercial vehicle segment to leverage Indiarsquos
low cost production advantage to their favor
Fuel Prices The continuing fuel price increase in the domestic market could
significantly impact demand of commercial and passenger vehicles
Input costs Commodity items particularly steel non-ferrous metals rubber and
engineering plastics have witnessed huge price increases in the past These prices are
expected to increase further affecting the Companyrsquos profitability
Interest rate hardening and other inflationary trends With interest rates hardening and
liquidity crunch in the system growth in sales may be adversely impacted
Government Regulations Stringent emission and safety requirements could bring new
complexities for automotive and component manufacturers impacting the Companyrsquos
business
Risks and Concerns
Interest Rates FY 2007-08 started with increasing interest rate regime and tightening
liquidity position in the economy Increasing interest rates could further affect vehicle
demand which could have an adverse impact on the Companyrsquos revenues and profits
Exchange rates The Company exports vehicles to many countries and exchange rate
fluctuations in the order execution period could impact the Companyrsquos business
34
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Freight rates In FY 2006-07 freight rates in road transport sector moved up mainly
due to surge in construction activity ongoing road development projects and severe
restriction on over-loading Demand for commercial vehicles could be impacted by
further change in freight rates and change in fuel prices
Domestic market The Company plans to reduce the impact of this cyclicality on its
business by strengthening its less cyclical businesses like buses light trucks small
commercial vehicles
Overseas market In overseas markets the Company competes with global players
which have multiple vehicle platforms large financial capability and global branding
Manufacturing The Company manufactures vehicles at multiple locations and given
the geographical dispersion of its suppliers it faces Logistics Problems
New Competition Competitive activity is expected to increase in commercial vehicle
and passenger vehicle domestic market in coming years
New projects The Company currently is in midst of executing many new projects
ranging from launch of new car platforms to development of new Truck models
III Company Analysis
Key Highlights
Symbol TTL
Sector Consumer Goods
Industry Auto Manufacturers Major
Market Cap Rs29232 crores
Data Since 1945
Last close Rs 74290
Brief Summary of the company
35
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Tata Motors is one of the largest companies in the Tata Group with a total income of US$
235 billion More than 3 million Tata vehicles ply on Indian roads making Tata a
dominant force in the Indian automobile industry
Joint Venture with Fiat and Hitachi
Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing
passenger vehicles engines and transmissions for both domestic and international
markets The Company has also entered into a JV with Hitachi to set up a new plant in
Kharagpur
Product Mix
Tata Motors is Indias only fully integrated automobile manufacturer with a portfolio that
covers trucks buses utility vehicles and passenger cars It would be no exaggeration to
say that Tata Motors provides the wheels for Indias growth
Segmental Overview
Commercial Vehicle Segment
The Company registered 696 volume growth in the domestic CV segment during
4QFY06 from 37228 units in Q3FY05 to 63082 units in Q3FY06 The market share in
this segment was 658 in Q4FY06 as compared to 552 in Q1FY06 The MHCV
goods-carrier segment registered a 544 growth YoY with sale of 33515 units and a
market share of 645 up by around 410 bps driven by infrastructure development and
increase in international trade
Passenger Vehicle Segment
The Company reported a growth of 212 YoY to 49907 vehicles in the domestic
passenger vehicle segment and a market share of 162 in the quarter The passenger
vehicle industry registered a volume growth of 204 during Q4FY06
36
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Plants
Tata Motors owes its leading position in the Indian automobile industry to its strong
focus on indigenisation Their manufacturing plants are situated at Jamshedpur in the
East Pune in the West and Lucknow in the North
Charts showing Key Statistics of tata motors
37
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Share holding pattern as on 31-Mar
shareholding pattern
34
1425
17
10
promotors
MF Banks Fis
FIIs
Others
Public
Financial highlights
38
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
39
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
RATIO ANALYSIS
Ratios 2006 2005 2004
Debtequity 056 049 044
Current ratio 108 087 076
Operating profit margin 1211 1151 1238
Gross profit margin 1087 1043 1104
ROCE 3125 3276 3377
total assets turnover ratio 315 353 343
ROE 2761 3009 2257
Dividend-equity 49794 45373 28211
Retention Ratio 6743 6332 6519
DPS (Rs) 1301 125 799
EPS (Rs) 25 34 41
Dividend Payout Ratio 039 042 037
CAGR of EPS 0177
CAGR of Dividend Payout Ratio -0017
Average ROE 2574
average retention 6354
Growth (g = Avg RR times Avg ROE ) 1636
Market return 1454
40
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
PE ratio (on the basis of historical analysis) = 1812
Therefore the Weighted PE ratio =(1812+2424)2 = 21181
Projected EPS = EPS OF 2006 + CAGR of EPSEPS OF 2006
= Rs48271
Value of Share at the end of financial year 06-07
= Projected EPS Weighted PE Ratio
= Rs1022
2) HPCL
Globalization and the Indian Petroleum Industry
Indian petroleum industry in the post independent period (1947-2001) it may be divided
into three distinct phases
(i) early phase (1947 to 1969)- when the government consolidated its control over
the industry with Soviet assistance
(ii) development phase (1970 to 1989)- in this period the US companies played
dominant role replacing the Soviets and
41
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
(iii) the economic liberalisation phase of 1990s
PORTERrsquoS MODEL
SWOT ANALYSIS
STRENGHS
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
WEAKNESSES
Dependence on refining function high
Moderate share in high profitable retail segment
42
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Diversifications in petrochemicals could trouble the company
High burden of subsidy loss on cooking gas and kerosene
OPPORTUNITIES
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
Overseas presence in upstream and downstream will determine growth
THREATS
Rising oil prices could dampen demand
High regulatory risk
Loss of market share to private players
Entrance of private players in pipelines will take away monopoly of company in
north India
COMPANY ANALYSIS
The Annual Report is broken down into the following specific parts
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the AccountsATHE DIRECTORrsquoS REPORTThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship Fundamental AnalysisB THE AUDITORS REPORTThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors
C FINANCIAL STATEMENTSIt comprises of Balance Sheet Profit and Loss account Cash Flows Its analysis would be discussed later
DSCHEDULES
43
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The schedules detail pertinent information about the items of Balance Sheet and Profit amp Loss Account It also details information about sales manufacturing costs administration costs interest and other income and expenses
1 THE MANAGEMENT
HPCL is a public sector undertaking Thus it is a professionally managed company
There are some parameters of management on which a company is analysed
a integrity of management
b past record of management
c how highly is the management rated by its peers in the same industry
d how the management fares in adversity
e the depth of the knowledge of management
f open and innovative management
on all these parameters HPCL scores good
2 COMPANY
Many times a company has made losses in the previous years but that does not mean
that the company is bad to invest Thus many factors are studied while studying a
company
a) perception of competitors
HPCL is the second largest petroleum company after IOCL Thus it is a competitor of
IOCL and it is trying hard to compete with IOCL on every front That is why now it
has decided to diversify itself in the oil exploration sector
b) company policies
As this is a PSU thus the policies are made by the government The oil sector is one
which is highly regulated by government Thus from time to time it is required to
watch out the various policies changed
3 ANNUAL REPORT
The most primary and most important source of information about a company is its
Annual Report This is prepared every year and distributed to its shareholders
44
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Ratio Analysis
Evaluation of Intrinsic Value of the Security
stdev mkt 0011934stdev sec 003831 Average
Retention Ratio 060504
correlation 0485958 ROE 019842Beta 156765 g 0120052Risk Free Rate 650
Mkt Rate 14
45
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
k 1826
Hence we see that here our g is less than k Thus we see that as per Dividend Discount Model our Intrinsic value is div=22(1+012)=240626= 387
Price= Projected EPS + Weighted PE ratioUsing CAGR EPS = 43468Weighted PE Ratio = 75+6652=33625
Price = 43468+33625 = 381
3) HDFC BANK
The Indian banking industry sector overview
With the economic growth picking up pace and the investment cycle on the way to recovery the banking sector has witnessed a transformation in its vital role of intermediating between the demand and supply of funds
Public sector banks have been very proactive in their restructuring initiatives be it in technology implementation or pruning their loss assets Windfall treasury gains made in the falling interest rate regime were used for writing off the doubtful and loss assets
Retail lending (especially mortgage financing) formed a significant portion of the portfolio for most banks and they customized their products to cater to the diverse demands
Apart from streamlining their processes through technology initiatives such as ATMs telephone banking online banking and web based products banks also resorted to cross selling of financial products such as credit cards mutual funds and insurance policies to augment their fee based income
PORTERrsquoS FIVE FORCES MODEL FOR THE BANKING INDUSTRY
1) BARRIERS TO ENTRY a Economies of scale Since the existing players in the market are well
established and already have a customer base they are able to bear the cost of using the advantages of technology to their maximum advantage
46
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Capital requirement for entry i The Banking Regulation Act prescribes the minimum capital
requirements for a bank Moreover banks have to maintain a capital adequacy ratio of 9 under the Basel I norms
ii Government has declared that the foreign banks will be permitted to establish their presence in India by way of setting up a wholly owned banking subsidiary (WOS) with a minimum capital of Rs300 crore
c Access to distribution channels Since banks have to set up their own distribution channels all the cost has to be directly born by them
d Cost advantage independent of size Existing banks have huge databases of customers which they use when they want to sell a new product launched by them
e Legislation or Government action Banks are governed by Banking Regulation Act 1949 which specifies the rules and regulations applicable to banks RBI is the governing body of banks in India
2) BARGAINING POWER OF BUYERS
Due to increased competition the services offered by banks to customers have improved considerably
3) BARGAINING POWER OF THE SUPPLIERS
Suppliers to banks can be both - the customers and RBIa Customers of banks provide money to banks in the form of deposits and in
return earn some interest on that b RBI acts as a supplier to banks by selling govt securities treasury bills
govt bonds etc c Call money market Banks sometimes have to borrow from other banks to
meet CRR and SLR requirements or other capital requirements as provided by RBI
4) THREAT OF SUBSTITUTES
a Product-for-product substitutioni Banks provide interest on deposits made by people Similar
services are offered by post offices which may act as substitutes to the deposit schemes of banks
ii Some banks offer locker services to customers for yearly rates Similar services are provided by many post offices
47
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Generic substitution People who deposit their savings in banks can invest their money in other sources like mutual funds shares and other securities and life insurance schemes
5) COMPETITIVE RIVALRY
a Extent of competitor balance b Market growth ratesc High Exit Barriers
PEST Analysis for Banking Industry
1 Political factors - The major factors affecting the banking sector are the following
Banking sector reforms ndash As per the RBI roadmap for reforms in the first stage from 2005 to 2009 foreign banks will be allowed to set up wholly owned subsidiaries as well as get greater freedom to set up new branches Fulfilling the minimum priority sector credit -The government mandation of fulfilling the minimum priority sector credit (of which 18 per cent is food credit) has forced the domestic banks to cater to this segment despite the low profitability and vulnerability of asset quality
Banks have also been allowed to set up Offshore Banking Units in SEZrsquos
2 Economic factors -
Basell II norms for the risk management in banking sector - The new Basel Accord has its foundation on three mutually reinforcing pillars The first pillar is compatible with the credit risk market risk and operational risk The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bankConcurrently it also casts responsibility on the supervisors to review and validate banksrsquo risk measurement models
Consolidation and merger and acquisitions in the banking sector- HDFC bank also acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Universal Banking has been introduced ICICI Bank HDFCs closest competitor is already into Universal Banking so HDFC is also getting into it as now it is providing retail banking and also depository facilities in the form of demat account
48
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
3 Social factors-
Big and growing middle class in India - This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans car loans education loans auto loans etc Retail loans have grown from 19 in FYrsquo99 to 51 FYrsquo06Consumer credit accounts for a meager 286 per cent of the countrys GDP and the buoyancy in the economy offers sufficient scope for it to grow
Geographical and Cultural diversity- This is leading to a greater demand for financial products and customization by the customers
4 Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999 It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector
Banks (All) No of players = 40
Sector statistics
We see the sector aggregates and make a financial comparison for the major banks
Top PlayersFY2006
Based on Total Income Based on OPBDT Total Income Change OPBDT Change
(Rs Mn) () (Rs Mn) ()ICICI BANK 631619 5450 S B I 763528 -129 PUNJAB NATIONAL B 29218 1491 ICICI BANK 37174 1936
CAN BANK 277095 2378 PUNJAB NATIONAL B 222052 3936
BANK OF INDIA 23317 2543 CAN BANK 168825 1953
H D F C BANK 185508 6024 H D F C BANK 14324 2748 change - indicates the change between current and corresponding quarter
49
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Reducing air pollution
Reduction of weight
Recyclability
Safety
Better performance and engine efficiency
Aesthetics
Longer service Life
INDUSTRY LIFE CYCLE
The automobile market is at the maturity stage of the life cycle locally and globally due
to an increased number of competitors from domestic and foreign markets The
automobile market is characterized by a low potential for market growth but high sales
and profit potential as the products have still not saturated the market as a whole
MAJOR COMPETITORS OF TATA MOTORS ARE
Maruti Udyog Ltd
General Motors India
Ford India Ltd
Eicher Motors
Bajaj Auto
Hero Motors
Hindustan Motors
32
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Hyundai Motor India Ltd
Royal Enfield Motors
Telco
TVS Motors
FINANCIALS
Description 1 Day PriceChange
MarketCap
PEROE
Div Yield
Long-Term Debt toEquity
Price toBook Value
NetProfit Margin (mrq)
Price toFree Cash Flow (mrq)
Sector Consumer Goods 01125178B
2488
1707
222
1171076
706 40842
Industry Auto Manufacturers - Major (More Info)
0613310B
3000
750171
181 155 160 -440
Companies
Daimlerchrysler AG (DCX) 021 539B1072
1119
350
217 116 469 -354
Ford Motor Co (F) 121 157B NA-951
240
1107
115 -060 -8205
General Motors Corporation (GM) -024 165B NA
-6285
340
390 142 -621 014
Honda Motor Co Ltd (HMC) 083 622B1152
1654
100
083 173 552 20748
Tata Motors Ltd (TTM) -038 71B1864
NA150
NA 535 564 NA
Toyota Motor Corp (TM) 0731756B
1394
1505
120
103 197 659 NA
Opportunities and Threats
a) Opportunities
Road Development The ongoing road development program would improve
connectivity to ports cities and villages through a network of highways and
interconnecting roads by 2010-11 Improved road network would help in faster
33
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
movement of goods between various cities and towns The Company launched TATA
Novus range of vehicles in the heavy segment and TATA ACE for last mile distribution
Car penetration in India Car penetration in India is 7 cars per 1000 persons
International In FY 2006-07 the Company increased share of its overseas vehicle sales
from 76 last year to record high of 111 (as of its total sales) and has planned
further increase in this year
b) Threats
Global Competition India is increasingly attracting global players to set up
manufacturing facility for producing cars especially small cars Global automobile
manufacturers are also entering India in commercial vehicle segment to leverage Indiarsquos
low cost production advantage to their favor
Fuel Prices The continuing fuel price increase in the domestic market could
significantly impact demand of commercial and passenger vehicles
Input costs Commodity items particularly steel non-ferrous metals rubber and
engineering plastics have witnessed huge price increases in the past These prices are
expected to increase further affecting the Companyrsquos profitability
Interest rate hardening and other inflationary trends With interest rates hardening and
liquidity crunch in the system growth in sales may be adversely impacted
Government Regulations Stringent emission and safety requirements could bring new
complexities for automotive and component manufacturers impacting the Companyrsquos
business
Risks and Concerns
Interest Rates FY 2007-08 started with increasing interest rate regime and tightening
liquidity position in the economy Increasing interest rates could further affect vehicle
demand which could have an adverse impact on the Companyrsquos revenues and profits
Exchange rates The Company exports vehicles to many countries and exchange rate
fluctuations in the order execution period could impact the Companyrsquos business
34
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Freight rates In FY 2006-07 freight rates in road transport sector moved up mainly
due to surge in construction activity ongoing road development projects and severe
restriction on over-loading Demand for commercial vehicles could be impacted by
further change in freight rates and change in fuel prices
Domestic market The Company plans to reduce the impact of this cyclicality on its
business by strengthening its less cyclical businesses like buses light trucks small
commercial vehicles
Overseas market In overseas markets the Company competes with global players
which have multiple vehicle platforms large financial capability and global branding
Manufacturing The Company manufactures vehicles at multiple locations and given
the geographical dispersion of its suppliers it faces Logistics Problems
New Competition Competitive activity is expected to increase in commercial vehicle
and passenger vehicle domestic market in coming years
New projects The Company currently is in midst of executing many new projects
ranging from launch of new car platforms to development of new Truck models
III Company Analysis
Key Highlights
Symbol TTL
Sector Consumer Goods
Industry Auto Manufacturers Major
Market Cap Rs29232 crores
Data Since 1945
Last close Rs 74290
Brief Summary of the company
35
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Tata Motors is one of the largest companies in the Tata Group with a total income of US$
235 billion More than 3 million Tata vehicles ply on Indian roads making Tata a
dominant force in the Indian automobile industry
Joint Venture with Fiat and Hitachi
Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing
passenger vehicles engines and transmissions for both domestic and international
markets The Company has also entered into a JV with Hitachi to set up a new plant in
Kharagpur
Product Mix
Tata Motors is Indias only fully integrated automobile manufacturer with a portfolio that
covers trucks buses utility vehicles and passenger cars It would be no exaggeration to
say that Tata Motors provides the wheels for Indias growth
Segmental Overview
Commercial Vehicle Segment
The Company registered 696 volume growth in the domestic CV segment during
4QFY06 from 37228 units in Q3FY05 to 63082 units in Q3FY06 The market share in
this segment was 658 in Q4FY06 as compared to 552 in Q1FY06 The MHCV
goods-carrier segment registered a 544 growth YoY with sale of 33515 units and a
market share of 645 up by around 410 bps driven by infrastructure development and
increase in international trade
Passenger Vehicle Segment
The Company reported a growth of 212 YoY to 49907 vehicles in the domestic
passenger vehicle segment and a market share of 162 in the quarter The passenger
vehicle industry registered a volume growth of 204 during Q4FY06
36
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Plants
Tata Motors owes its leading position in the Indian automobile industry to its strong
focus on indigenisation Their manufacturing plants are situated at Jamshedpur in the
East Pune in the West and Lucknow in the North
Charts showing Key Statistics of tata motors
37
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Share holding pattern as on 31-Mar
shareholding pattern
34
1425
17
10
promotors
MF Banks Fis
FIIs
Others
Public
Financial highlights
38
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
39
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
RATIO ANALYSIS
Ratios 2006 2005 2004
Debtequity 056 049 044
Current ratio 108 087 076
Operating profit margin 1211 1151 1238
Gross profit margin 1087 1043 1104
ROCE 3125 3276 3377
total assets turnover ratio 315 353 343
ROE 2761 3009 2257
Dividend-equity 49794 45373 28211
Retention Ratio 6743 6332 6519
DPS (Rs) 1301 125 799
EPS (Rs) 25 34 41
Dividend Payout Ratio 039 042 037
CAGR of EPS 0177
CAGR of Dividend Payout Ratio -0017
Average ROE 2574
average retention 6354
Growth (g = Avg RR times Avg ROE ) 1636
Market return 1454
40
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
PE ratio (on the basis of historical analysis) = 1812
Therefore the Weighted PE ratio =(1812+2424)2 = 21181
Projected EPS = EPS OF 2006 + CAGR of EPSEPS OF 2006
= Rs48271
Value of Share at the end of financial year 06-07
= Projected EPS Weighted PE Ratio
= Rs1022
2) HPCL
Globalization and the Indian Petroleum Industry
Indian petroleum industry in the post independent period (1947-2001) it may be divided
into three distinct phases
(i) early phase (1947 to 1969)- when the government consolidated its control over
the industry with Soviet assistance
(ii) development phase (1970 to 1989)- in this period the US companies played
dominant role replacing the Soviets and
41
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
(iii) the economic liberalisation phase of 1990s
PORTERrsquoS MODEL
SWOT ANALYSIS
STRENGHS
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
WEAKNESSES
Dependence on refining function high
Moderate share in high profitable retail segment
42
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Diversifications in petrochemicals could trouble the company
High burden of subsidy loss on cooking gas and kerosene
OPPORTUNITIES
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
Overseas presence in upstream and downstream will determine growth
THREATS
Rising oil prices could dampen demand
High regulatory risk
Loss of market share to private players
Entrance of private players in pipelines will take away monopoly of company in
north India
COMPANY ANALYSIS
The Annual Report is broken down into the following specific parts
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the AccountsATHE DIRECTORrsquoS REPORTThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship Fundamental AnalysisB THE AUDITORS REPORTThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors
C FINANCIAL STATEMENTSIt comprises of Balance Sheet Profit and Loss account Cash Flows Its analysis would be discussed later
DSCHEDULES
43
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The schedules detail pertinent information about the items of Balance Sheet and Profit amp Loss Account It also details information about sales manufacturing costs administration costs interest and other income and expenses
1 THE MANAGEMENT
HPCL is a public sector undertaking Thus it is a professionally managed company
There are some parameters of management on which a company is analysed
a integrity of management
b past record of management
c how highly is the management rated by its peers in the same industry
d how the management fares in adversity
e the depth of the knowledge of management
f open and innovative management
on all these parameters HPCL scores good
2 COMPANY
Many times a company has made losses in the previous years but that does not mean
that the company is bad to invest Thus many factors are studied while studying a
company
a) perception of competitors
HPCL is the second largest petroleum company after IOCL Thus it is a competitor of
IOCL and it is trying hard to compete with IOCL on every front That is why now it
has decided to diversify itself in the oil exploration sector
b) company policies
As this is a PSU thus the policies are made by the government The oil sector is one
which is highly regulated by government Thus from time to time it is required to
watch out the various policies changed
3 ANNUAL REPORT
The most primary and most important source of information about a company is its
Annual Report This is prepared every year and distributed to its shareholders
44
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Ratio Analysis
Evaluation of Intrinsic Value of the Security
stdev mkt 0011934stdev sec 003831 Average
Retention Ratio 060504
correlation 0485958 ROE 019842Beta 156765 g 0120052Risk Free Rate 650
Mkt Rate 14
45
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
k 1826
Hence we see that here our g is less than k Thus we see that as per Dividend Discount Model our Intrinsic value is div=22(1+012)=240626= 387
Price= Projected EPS + Weighted PE ratioUsing CAGR EPS = 43468Weighted PE Ratio = 75+6652=33625
Price = 43468+33625 = 381
3) HDFC BANK
The Indian banking industry sector overview
With the economic growth picking up pace and the investment cycle on the way to recovery the banking sector has witnessed a transformation in its vital role of intermediating between the demand and supply of funds
Public sector banks have been very proactive in their restructuring initiatives be it in technology implementation or pruning their loss assets Windfall treasury gains made in the falling interest rate regime were used for writing off the doubtful and loss assets
Retail lending (especially mortgage financing) formed a significant portion of the portfolio for most banks and they customized their products to cater to the diverse demands
Apart from streamlining their processes through technology initiatives such as ATMs telephone banking online banking and web based products banks also resorted to cross selling of financial products such as credit cards mutual funds and insurance policies to augment their fee based income
PORTERrsquoS FIVE FORCES MODEL FOR THE BANKING INDUSTRY
1) BARRIERS TO ENTRY a Economies of scale Since the existing players in the market are well
established and already have a customer base they are able to bear the cost of using the advantages of technology to their maximum advantage
46
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Capital requirement for entry i The Banking Regulation Act prescribes the minimum capital
requirements for a bank Moreover banks have to maintain a capital adequacy ratio of 9 under the Basel I norms
ii Government has declared that the foreign banks will be permitted to establish their presence in India by way of setting up a wholly owned banking subsidiary (WOS) with a minimum capital of Rs300 crore
c Access to distribution channels Since banks have to set up their own distribution channels all the cost has to be directly born by them
d Cost advantage independent of size Existing banks have huge databases of customers which they use when they want to sell a new product launched by them
e Legislation or Government action Banks are governed by Banking Regulation Act 1949 which specifies the rules and regulations applicable to banks RBI is the governing body of banks in India
2) BARGAINING POWER OF BUYERS
Due to increased competition the services offered by banks to customers have improved considerably
3) BARGAINING POWER OF THE SUPPLIERS
Suppliers to banks can be both - the customers and RBIa Customers of banks provide money to banks in the form of deposits and in
return earn some interest on that b RBI acts as a supplier to banks by selling govt securities treasury bills
govt bonds etc c Call money market Banks sometimes have to borrow from other banks to
meet CRR and SLR requirements or other capital requirements as provided by RBI
4) THREAT OF SUBSTITUTES
a Product-for-product substitutioni Banks provide interest on deposits made by people Similar
services are offered by post offices which may act as substitutes to the deposit schemes of banks
ii Some banks offer locker services to customers for yearly rates Similar services are provided by many post offices
47
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Generic substitution People who deposit their savings in banks can invest their money in other sources like mutual funds shares and other securities and life insurance schemes
5) COMPETITIVE RIVALRY
a Extent of competitor balance b Market growth ratesc High Exit Barriers
PEST Analysis for Banking Industry
1 Political factors - The major factors affecting the banking sector are the following
Banking sector reforms ndash As per the RBI roadmap for reforms in the first stage from 2005 to 2009 foreign banks will be allowed to set up wholly owned subsidiaries as well as get greater freedom to set up new branches Fulfilling the minimum priority sector credit -The government mandation of fulfilling the minimum priority sector credit (of which 18 per cent is food credit) has forced the domestic banks to cater to this segment despite the low profitability and vulnerability of asset quality
Banks have also been allowed to set up Offshore Banking Units in SEZrsquos
2 Economic factors -
Basell II norms for the risk management in banking sector - The new Basel Accord has its foundation on three mutually reinforcing pillars The first pillar is compatible with the credit risk market risk and operational risk The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bankConcurrently it also casts responsibility on the supervisors to review and validate banksrsquo risk measurement models
Consolidation and merger and acquisitions in the banking sector- HDFC bank also acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Universal Banking has been introduced ICICI Bank HDFCs closest competitor is already into Universal Banking so HDFC is also getting into it as now it is providing retail banking and also depository facilities in the form of demat account
48
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
3 Social factors-
Big and growing middle class in India - This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans car loans education loans auto loans etc Retail loans have grown from 19 in FYrsquo99 to 51 FYrsquo06Consumer credit accounts for a meager 286 per cent of the countrys GDP and the buoyancy in the economy offers sufficient scope for it to grow
Geographical and Cultural diversity- This is leading to a greater demand for financial products and customization by the customers
4 Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999 It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector
Banks (All) No of players = 40
Sector statistics
We see the sector aggregates and make a financial comparison for the major banks
Top PlayersFY2006
Based on Total Income Based on OPBDT Total Income Change OPBDT Change
(Rs Mn) () (Rs Mn) ()ICICI BANK 631619 5450 S B I 763528 -129 PUNJAB NATIONAL B 29218 1491 ICICI BANK 37174 1936
CAN BANK 277095 2378 PUNJAB NATIONAL B 222052 3936
BANK OF INDIA 23317 2543 CAN BANK 168825 1953
H D F C BANK 185508 6024 H D F C BANK 14324 2748 change - indicates the change between current and corresponding quarter
49
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Hyundai Motor India Ltd
Royal Enfield Motors
Telco
TVS Motors
FINANCIALS
Description 1 Day PriceChange
MarketCap
PEROE
Div Yield
Long-Term Debt toEquity
Price toBook Value
NetProfit Margin (mrq)
Price toFree Cash Flow (mrq)
Sector Consumer Goods 01125178B
2488
1707
222
1171076
706 40842
Industry Auto Manufacturers - Major (More Info)
0613310B
3000
750171
181 155 160 -440
Companies
Daimlerchrysler AG (DCX) 021 539B1072
1119
350
217 116 469 -354
Ford Motor Co (F) 121 157B NA-951
240
1107
115 -060 -8205
General Motors Corporation (GM) -024 165B NA
-6285
340
390 142 -621 014
Honda Motor Co Ltd (HMC) 083 622B1152
1654
100
083 173 552 20748
Tata Motors Ltd (TTM) -038 71B1864
NA150
NA 535 564 NA
Toyota Motor Corp (TM) 0731756B
1394
1505
120
103 197 659 NA
Opportunities and Threats
a) Opportunities
Road Development The ongoing road development program would improve
connectivity to ports cities and villages through a network of highways and
interconnecting roads by 2010-11 Improved road network would help in faster
33
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
movement of goods between various cities and towns The Company launched TATA
Novus range of vehicles in the heavy segment and TATA ACE for last mile distribution
Car penetration in India Car penetration in India is 7 cars per 1000 persons
International In FY 2006-07 the Company increased share of its overseas vehicle sales
from 76 last year to record high of 111 (as of its total sales) and has planned
further increase in this year
b) Threats
Global Competition India is increasingly attracting global players to set up
manufacturing facility for producing cars especially small cars Global automobile
manufacturers are also entering India in commercial vehicle segment to leverage Indiarsquos
low cost production advantage to their favor
Fuel Prices The continuing fuel price increase in the domestic market could
significantly impact demand of commercial and passenger vehicles
Input costs Commodity items particularly steel non-ferrous metals rubber and
engineering plastics have witnessed huge price increases in the past These prices are
expected to increase further affecting the Companyrsquos profitability
Interest rate hardening and other inflationary trends With interest rates hardening and
liquidity crunch in the system growth in sales may be adversely impacted
Government Regulations Stringent emission and safety requirements could bring new
complexities for automotive and component manufacturers impacting the Companyrsquos
business
Risks and Concerns
Interest Rates FY 2007-08 started with increasing interest rate regime and tightening
liquidity position in the economy Increasing interest rates could further affect vehicle
demand which could have an adverse impact on the Companyrsquos revenues and profits
Exchange rates The Company exports vehicles to many countries and exchange rate
fluctuations in the order execution period could impact the Companyrsquos business
34
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Freight rates In FY 2006-07 freight rates in road transport sector moved up mainly
due to surge in construction activity ongoing road development projects and severe
restriction on over-loading Demand for commercial vehicles could be impacted by
further change in freight rates and change in fuel prices
Domestic market The Company plans to reduce the impact of this cyclicality on its
business by strengthening its less cyclical businesses like buses light trucks small
commercial vehicles
Overseas market In overseas markets the Company competes with global players
which have multiple vehicle platforms large financial capability and global branding
Manufacturing The Company manufactures vehicles at multiple locations and given
the geographical dispersion of its suppliers it faces Logistics Problems
New Competition Competitive activity is expected to increase in commercial vehicle
and passenger vehicle domestic market in coming years
New projects The Company currently is in midst of executing many new projects
ranging from launch of new car platforms to development of new Truck models
III Company Analysis
Key Highlights
Symbol TTL
Sector Consumer Goods
Industry Auto Manufacturers Major
Market Cap Rs29232 crores
Data Since 1945
Last close Rs 74290
Brief Summary of the company
35
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Tata Motors is one of the largest companies in the Tata Group with a total income of US$
235 billion More than 3 million Tata vehicles ply on Indian roads making Tata a
dominant force in the Indian automobile industry
Joint Venture with Fiat and Hitachi
Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing
passenger vehicles engines and transmissions for both domestic and international
markets The Company has also entered into a JV with Hitachi to set up a new plant in
Kharagpur
Product Mix
Tata Motors is Indias only fully integrated automobile manufacturer with a portfolio that
covers trucks buses utility vehicles and passenger cars It would be no exaggeration to
say that Tata Motors provides the wheels for Indias growth
Segmental Overview
Commercial Vehicle Segment
The Company registered 696 volume growth in the domestic CV segment during
4QFY06 from 37228 units in Q3FY05 to 63082 units in Q3FY06 The market share in
this segment was 658 in Q4FY06 as compared to 552 in Q1FY06 The MHCV
goods-carrier segment registered a 544 growth YoY with sale of 33515 units and a
market share of 645 up by around 410 bps driven by infrastructure development and
increase in international trade
Passenger Vehicle Segment
The Company reported a growth of 212 YoY to 49907 vehicles in the domestic
passenger vehicle segment and a market share of 162 in the quarter The passenger
vehicle industry registered a volume growth of 204 during Q4FY06
36
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Plants
Tata Motors owes its leading position in the Indian automobile industry to its strong
focus on indigenisation Their manufacturing plants are situated at Jamshedpur in the
East Pune in the West and Lucknow in the North
Charts showing Key Statistics of tata motors
37
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Share holding pattern as on 31-Mar
shareholding pattern
34
1425
17
10
promotors
MF Banks Fis
FIIs
Others
Public
Financial highlights
38
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
39
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
RATIO ANALYSIS
Ratios 2006 2005 2004
Debtequity 056 049 044
Current ratio 108 087 076
Operating profit margin 1211 1151 1238
Gross profit margin 1087 1043 1104
ROCE 3125 3276 3377
total assets turnover ratio 315 353 343
ROE 2761 3009 2257
Dividend-equity 49794 45373 28211
Retention Ratio 6743 6332 6519
DPS (Rs) 1301 125 799
EPS (Rs) 25 34 41
Dividend Payout Ratio 039 042 037
CAGR of EPS 0177
CAGR of Dividend Payout Ratio -0017
Average ROE 2574
average retention 6354
Growth (g = Avg RR times Avg ROE ) 1636
Market return 1454
40
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
PE ratio (on the basis of historical analysis) = 1812
Therefore the Weighted PE ratio =(1812+2424)2 = 21181
Projected EPS = EPS OF 2006 + CAGR of EPSEPS OF 2006
= Rs48271
Value of Share at the end of financial year 06-07
= Projected EPS Weighted PE Ratio
= Rs1022
2) HPCL
Globalization and the Indian Petroleum Industry
Indian petroleum industry in the post independent period (1947-2001) it may be divided
into three distinct phases
(i) early phase (1947 to 1969)- when the government consolidated its control over
the industry with Soviet assistance
(ii) development phase (1970 to 1989)- in this period the US companies played
dominant role replacing the Soviets and
41
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
(iii) the economic liberalisation phase of 1990s
PORTERrsquoS MODEL
SWOT ANALYSIS
STRENGHS
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
WEAKNESSES
Dependence on refining function high
Moderate share in high profitable retail segment
42
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Diversifications in petrochemicals could trouble the company
High burden of subsidy loss on cooking gas and kerosene
OPPORTUNITIES
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
Overseas presence in upstream and downstream will determine growth
THREATS
Rising oil prices could dampen demand
High regulatory risk
Loss of market share to private players
Entrance of private players in pipelines will take away monopoly of company in
north India
COMPANY ANALYSIS
The Annual Report is broken down into the following specific parts
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the AccountsATHE DIRECTORrsquoS REPORTThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship Fundamental AnalysisB THE AUDITORS REPORTThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors
C FINANCIAL STATEMENTSIt comprises of Balance Sheet Profit and Loss account Cash Flows Its analysis would be discussed later
DSCHEDULES
43
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The schedules detail pertinent information about the items of Balance Sheet and Profit amp Loss Account It also details information about sales manufacturing costs administration costs interest and other income and expenses
1 THE MANAGEMENT
HPCL is a public sector undertaking Thus it is a professionally managed company
There are some parameters of management on which a company is analysed
a integrity of management
b past record of management
c how highly is the management rated by its peers in the same industry
d how the management fares in adversity
e the depth of the knowledge of management
f open and innovative management
on all these parameters HPCL scores good
2 COMPANY
Many times a company has made losses in the previous years but that does not mean
that the company is bad to invest Thus many factors are studied while studying a
company
a) perception of competitors
HPCL is the second largest petroleum company after IOCL Thus it is a competitor of
IOCL and it is trying hard to compete with IOCL on every front That is why now it
has decided to diversify itself in the oil exploration sector
b) company policies
As this is a PSU thus the policies are made by the government The oil sector is one
which is highly regulated by government Thus from time to time it is required to
watch out the various policies changed
3 ANNUAL REPORT
The most primary and most important source of information about a company is its
Annual Report This is prepared every year and distributed to its shareholders
44
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Ratio Analysis
Evaluation of Intrinsic Value of the Security
stdev mkt 0011934stdev sec 003831 Average
Retention Ratio 060504
correlation 0485958 ROE 019842Beta 156765 g 0120052Risk Free Rate 650
Mkt Rate 14
45
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
k 1826
Hence we see that here our g is less than k Thus we see that as per Dividend Discount Model our Intrinsic value is div=22(1+012)=240626= 387
Price= Projected EPS + Weighted PE ratioUsing CAGR EPS = 43468Weighted PE Ratio = 75+6652=33625
Price = 43468+33625 = 381
3) HDFC BANK
The Indian banking industry sector overview
With the economic growth picking up pace and the investment cycle on the way to recovery the banking sector has witnessed a transformation in its vital role of intermediating between the demand and supply of funds
Public sector banks have been very proactive in their restructuring initiatives be it in technology implementation or pruning their loss assets Windfall treasury gains made in the falling interest rate regime were used for writing off the doubtful and loss assets
Retail lending (especially mortgage financing) formed a significant portion of the portfolio for most banks and they customized their products to cater to the diverse demands
Apart from streamlining their processes through technology initiatives such as ATMs telephone banking online banking and web based products banks also resorted to cross selling of financial products such as credit cards mutual funds and insurance policies to augment their fee based income
PORTERrsquoS FIVE FORCES MODEL FOR THE BANKING INDUSTRY
1) BARRIERS TO ENTRY a Economies of scale Since the existing players in the market are well
established and already have a customer base they are able to bear the cost of using the advantages of technology to their maximum advantage
46
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Capital requirement for entry i The Banking Regulation Act prescribes the minimum capital
requirements for a bank Moreover banks have to maintain a capital adequacy ratio of 9 under the Basel I norms
ii Government has declared that the foreign banks will be permitted to establish their presence in India by way of setting up a wholly owned banking subsidiary (WOS) with a minimum capital of Rs300 crore
c Access to distribution channels Since banks have to set up their own distribution channels all the cost has to be directly born by them
d Cost advantage independent of size Existing banks have huge databases of customers which they use when they want to sell a new product launched by them
e Legislation or Government action Banks are governed by Banking Regulation Act 1949 which specifies the rules and regulations applicable to banks RBI is the governing body of banks in India
2) BARGAINING POWER OF BUYERS
Due to increased competition the services offered by banks to customers have improved considerably
3) BARGAINING POWER OF THE SUPPLIERS
Suppliers to banks can be both - the customers and RBIa Customers of banks provide money to banks in the form of deposits and in
return earn some interest on that b RBI acts as a supplier to banks by selling govt securities treasury bills
govt bonds etc c Call money market Banks sometimes have to borrow from other banks to
meet CRR and SLR requirements or other capital requirements as provided by RBI
4) THREAT OF SUBSTITUTES
a Product-for-product substitutioni Banks provide interest on deposits made by people Similar
services are offered by post offices which may act as substitutes to the deposit schemes of banks
ii Some banks offer locker services to customers for yearly rates Similar services are provided by many post offices
47
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Generic substitution People who deposit their savings in banks can invest their money in other sources like mutual funds shares and other securities and life insurance schemes
5) COMPETITIVE RIVALRY
a Extent of competitor balance b Market growth ratesc High Exit Barriers
PEST Analysis for Banking Industry
1 Political factors - The major factors affecting the banking sector are the following
Banking sector reforms ndash As per the RBI roadmap for reforms in the first stage from 2005 to 2009 foreign banks will be allowed to set up wholly owned subsidiaries as well as get greater freedom to set up new branches Fulfilling the minimum priority sector credit -The government mandation of fulfilling the minimum priority sector credit (of which 18 per cent is food credit) has forced the domestic banks to cater to this segment despite the low profitability and vulnerability of asset quality
Banks have also been allowed to set up Offshore Banking Units in SEZrsquos
2 Economic factors -
Basell II norms for the risk management in banking sector - The new Basel Accord has its foundation on three mutually reinforcing pillars The first pillar is compatible with the credit risk market risk and operational risk The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bankConcurrently it also casts responsibility on the supervisors to review and validate banksrsquo risk measurement models
Consolidation and merger and acquisitions in the banking sector- HDFC bank also acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Universal Banking has been introduced ICICI Bank HDFCs closest competitor is already into Universal Banking so HDFC is also getting into it as now it is providing retail banking and also depository facilities in the form of demat account
48
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
3 Social factors-
Big and growing middle class in India - This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans car loans education loans auto loans etc Retail loans have grown from 19 in FYrsquo99 to 51 FYrsquo06Consumer credit accounts for a meager 286 per cent of the countrys GDP and the buoyancy in the economy offers sufficient scope for it to grow
Geographical and Cultural diversity- This is leading to a greater demand for financial products and customization by the customers
4 Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999 It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector
Banks (All) No of players = 40
Sector statistics
We see the sector aggregates and make a financial comparison for the major banks
Top PlayersFY2006
Based on Total Income Based on OPBDT Total Income Change OPBDT Change
(Rs Mn) () (Rs Mn) ()ICICI BANK 631619 5450 S B I 763528 -129 PUNJAB NATIONAL B 29218 1491 ICICI BANK 37174 1936
CAN BANK 277095 2378 PUNJAB NATIONAL B 222052 3936
BANK OF INDIA 23317 2543 CAN BANK 168825 1953
H D F C BANK 185508 6024 H D F C BANK 14324 2748 change - indicates the change between current and corresponding quarter
49
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
movement of goods between various cities and towns The Company launched TATA
Novus range of vehicles in the heavy segment and TATA ACE for last mile distribution
Car penetration in India Car penetration in India is 7 cars per 1000 persons
International In FY 2006-07 the Company increased share of its overseas vehicle sales
from 76 last year to record high of 111 (as of its total sales) and has planned
further increase in this year
b) Threats
Global Competition India is increasingly attracting global players to set up
manufacturing facility for producing cars especially small cars Global automobile
manufacturers are also entering India in commercial vehicle segment to leverage Indiarsquos
low cost production advantage to their favor
Fuel Prices The continuing fuel price increase in the domestic market could
significantly impact demand of commercial and passenger vehicles
Input costs Commodity items particularly steel non-ferrous metals rubber and
engineering plastics have witnessed huge price increases in the past These prices are
expected to increase further affecting the Companyrsquos profitability
Interest rate hardening and other inflationary trends With interest rates hardening and
liquidity crunch in the system growth in sales may be adversely impacted
Government Regulations Stringent emission and safety requirements could bring new
complexities for automotive and component manufacturers impacting the Companyrsquos
business
Risks and Concerns
Interest Rates FY 2007-08 started with increasing interest rate regime and tightening
liquidity position in the economy Increasing interest rates could further affect vehicle
demand which could have an adverse impact on the Companyrsquos revenues and profits
Exchange rates The Company exports vehicles to many countries and exchange rate
fluctuations in the order execution period could impact the Companyrsquos business
34
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Freight rates In FY 2006-07 freight rates in road transport sector moved up mainly
due to surge in construction activity ongoing road development projects and severe
restriction on over-loading Demand for commercial vehicles could be impacted by
further change in freight rates and change in fuel prices
Domestic market The Company plans to reduce the impact of this cyclicality on its
business by strengthening its less cyclical businesses like buses light trucks small
commercial vehicles
Overseas market In overseas markets the Company competes with global players
which have multiple vehicle platforms large financial capability and global branding
Manufacturing The Company manufactures vehicles at multiple locations and given
the geographical dispersion of its suppliers it faces Logistics Problems
New Competition Competitive activity is expected to increase in commercial vehicle
and passenger vehicle domestic market in coming years
New projects The Company currently is in midst of executing many new projects
ranging from launch of new car platforms to development of new Truck models
III Company Analysis
Key Highlights
Symbol TTL
Sector Consumer Goods
Industry Auto Manufacturers Major
Market Cap Rs29232 crores
Data Since 1945
Last close Rs 74290
Brief Summary of the company
35
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Tata Motors is one of the largest companies in the Tata Group with a total income of US$
235 billion More than 3 million Tata vehicles ply on Indian roads making Tata a
dominant force in the Indian automobile industry
Joint Venture with Fiat and Hitachi
Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing
passenger vehicles engines and transmissions for both domestic and international
markets The Company has also entered into a JV with Hitachi to set up a new plant in
Kharagpur
Product Mix
Tata Motors is Indias only fully integrated automobile manufacturer with a portfolio that
covers trucks buses utility vehicles and passenger cars It would be no exaggeration to
say that Tata Motors provides the wheels for Indias growth
Segmental Overview
Commercial Vehicle Segment
The Company registered 696 volume growth in the domestic CV segment during
4QFY06 from 37228 units in Q3FY05 to 63082 units in Q3FY06 The market share in
this segment was 658 in Q4FY06 as compared to 552 in Q1FY06 The MHCV
goods-carrier segment registered a 544 growth YoY with sale of 33515 units and a
market share of 645 up by around 410 bps driven by infrastructure development and
increase in international trade
Passenger Vehicle Segment
The Company reported a growth of 212 YoY to 49907 vehicles in the domestic
passenger vehicle segment and a market share of 162 in the quarter The passenger
vehicle industry registered a volume growth of 204 during Q4FY06
36
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Plants
Tata Motors owes its leading position in the Indian automobile industry to its strong
focus on indigenisation Their manufacturing plants are situated at Jamshedpur in the
East Pune in the West and Lucknow in the North
Charts showing Key Statistics of tata motors
37
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Share holding pattern as on 31-Mar
shareholding pattern
34
1425
17
10
promotors
MF Banks Fis
FIIs
Others
Public
Financial highlights
38
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
39
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
RATIO ANALYSIS
Ratios 2006 2005 2004
Debtequity 056 049 044
Current ratio 108 087 076
Operating profit margin 1211 1151 1238
Gross profit margin 1087 1043 1104
ROCE 3125 3276 3377
total assets turnover ratio 315 353 343
ROE 2761 3009 2257
Dividend-equity 49794 45373 28211
Retention Ratio 6743 6332 6519
DPS (Rs) 1301 125 799
EPS (Rs) 25 34 41
Dividend Payout Ratio 039 042 037
CAGR of EPS 0177
CAGR of Dividend Payout Ratio -0017
Average ROE 2574
average retention 6354
Growth (g = Avg RR times Avg ROE ) 1636
Market return 1454
40
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
PE ratio (on the basis of historical analysis) = 1812
Therefore the Weighted PE ratio =(1812+2424)2 = 21181
Projected EPS = EPS OF 2006 + CAGR of EPSEPS OF 2006
= Rs48271
Value of Share at the end of financial year 06-07
= Projected EPS Weighted PE Ratio
= Rs1022
2) HPCL
Globalization and the Indian Petroleum Industry
Indian petroleum industry in the post independent period (1947-2001) it may be divided
into three distinct phases
(i) early phase (1947 to 1969)- when the government consolidated its control over
the industry with Soviet assistance
(ii) development phase (1970 to 1989)- in this period the US companies played
dominant role replacing the Soviets and
41
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
(iii) the economic liberalisation phase of 1990s
PORTERrsquoS MODEL
SWOT ANALYSIS
STRENGHS
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
WEAKNESSES
Dependence on refining function high
Moderate share in high profitable retail segment
42
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Diversifications in petrochemicals could trouble the company
High burden of subsidy loss on cooking gas and kerosene
OPPORTUNITIES
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
Overseas presence in upstream and downstream will determine growth
THREATS
Rising oil prices could dampen demand
High regulatory risk
Loss of market share to private players
Entrance of private players in pipelines will take away monopoly of company in
north India
COMPANY ANALYSIS
The Annual Report is broken down into the following specific parts
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the AccountsATHE DIRECTORrsquoS REPORTThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship Fundamental AnalysisB THE AUDITORS REPORTThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors
C FINANCIAL STATEMENTSIt comprises of Balance Sheet Profit and Loss account Cash Flows Its analysis would be discussed later
DSCHEDULES
43
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The schedules detail pertinent information about the items of Balance Sheet and Profit amp Loss Account It also details information about sales manufacturing costs administration costs interest and other income and expenses
1 THE MANAGEMENT
HPCL is a public sector undertaking Thus it is a professionally managed company
There are some parameters of management on which a company is analysed
a integrity of management
b past record of management
c how highly is the management rated by its peers in the same industry
d how the management fares in adversity
e the depth of the knowledge of management
f open and innovative management
on all these parameters HPCL scores good
2 COMPANY
Many times a company has made losses in the previous years but that does not mean
that the company is bad to invest Thus many factors are studied while studying a
company
a) perception of competitors
HPCL is the second largest petroleum company after IOCL Thus it is a competitor of
IOCL and it is trying hard to compete with IOCL on every front That is why now it
has decided to diversify itself in the oil exploration sector
b) company policies
As this is a PSU thus the policies are made by the government The oil sector is one
which is highly regulated by government Thus from time to time it is required to
watch out the various policies changed
3 ANNUAL REPORT
The most primary and most important source of information about a company is its
Annual Report This is prepared every year and distributed to its shareholders
44
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Ratio Analysis
Evaluation of Intrinsic Value of the Security
stdev mkt 0011934stdev sec 003831 Average
Retention Ratio 060504
correlation 0485958 ROE 019842Beta 156765 g 0120052Risk Free Rate 650
Mkt Rate 14
45
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
k 1826
Hence we see that here our g is less than k Thus we see that as per Dividend Discount Model our Intrinsic value is div=22(1+012)=240626= 387
Price= Projected EPS + Weighted PE ratioUsing CAGR EPS = 43468Weighted PE Ratio = 75+6652=33625
Price = 43468+33625 = 381
3) HDFC BANK
The Indian banking industry sector overview
With the economic growth picking up pace and the investment cycle on the way to recovery the banking sector has witnessed a transformation in its vital role of intermediating between the demand and supply of funds
Public sector banks have been very proactive in their restructuring initiatives be it in technology implementation or pruning their loss assets Windfall treasury gains made in the falling interest rate regime were used for writing off the doubtful and loss assets
Retail lending (especially mortgage financing) formed a significant portion of the portfolio for most banks and they customized their products to cater to the diverse demands
Apart from streamlining their processes through technology initiatives such as ATMs telephone banking online banking and web based products banks also resorted to cross selling of financial products such as credit cards mutual funds and insurance policies to augment their fee based income
PORTERrsquoS FIVE FORCES MODEL FOR THE BANKING INDUSTRY
1) BARRIERS TO ENTRY a Economies of scale Since the existing players in the market are well
established and already have a customer base they are able to bear the cost of using the advantages of technology to their maximum advantage
46
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Capital requirement for entry i The Banking Regulation Act prescribes the minimum capital
requirements for a bank Moreover banks have to maintain a capital adequacy ratio of 9 under the Basel I norms
ii Government has declared that the foreign banks will be permitted to establish their presence in India by way of setting up a wholly owned banking subsidiary (WOS) with a minimum capital of Rs300 crore
c Access to distribution channels Since banks have to set up their own distribution channels all the cost has to be directly born by them
d Cost advantage independent of size Existing banks have huge databases of customers which they use when they want to sell a new product launched by them
e Legislation or Government action Banks are governed by Banking Regulation Act 1949 which specifies the rules and regulations applicable to banks RBI is the governing body of banks in India
2) BARGAINING POWER OF BUYERS
Due to increased competition the services offered by banks to customers have improved considerably
3) BARGAINING POWER OF THE SUPPLIERS
Suppliers to banks can be both - the customers and RBIa Customers of banks provide money to banks in the form of deposits and in
return earn some interest on that b RBI acts as a supplier to banks by selling govt securities treasury bills
govt bonds etc c Call money market Banks sometimes have to borrow from other banks to
meet CRR and SLR requirements or other capital requirements as provided by RBI
4) THREAT OF SUBSTITUTES
a Product-for-product substitutioni Banks provide interest on deposits made by people Similar
services are offered by post offices which may act as substitutes to the deposit schemes of banks
ii Some banks offer locker services to customers for yearly rates Similar services are provided by many post offices
47
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Generic substitution People who deposit their savings in banks can invest their money in other sources like mutual funds shares and other securities and life insurance schemes
5) COMPETITIVE RIVALRY
a Extent of competitor balance b Market growth ratesc High Exit Barriers
PEST Analysis for Banking Industry
1 Political factors - The major factors affecting the banking sector are the following
Banking sector reforms ndash As per the RBI roadmap for reforms in the first stage from 2005 to 2009 foreign banks will be allowed to set up wholly owned subsidiaries as well as get greater freedom to set up new branches Fulfilling the minimum priority sector credit -The government mandation of fulfilling the minimum priority sector credit (of which 18 per cent is food credit) has forced the domestic banks to cater to this segment despite the low profitability and vulnerability of asset quality
Banks have also been allowed to set up Offshore Banking Units in SEZrsquos
2 Economic factors -
Basell II norms for the risk management in banking sector - The new Basel Accord has its foundation on three mutually reinforcing pillars The first pillar is compatible with the credit risk market risk and operational risk The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bankConcurrently it also casts responsibility on the supervisors to review and validate banksrsquo risk measurement models
Consolidation and merger and acquisitions in the banking sector- HDFC bank also acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Universal Banking has been introduced ICICI Bank HDFCs closest competitor is already into Universal Banking so HDFC is also getting into it as now it is providing retail banking and also depository facilities in the form of demat account
48
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
3 Social factors-
Big and growing middle class in India - This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans car loans education loans auto loans etc Retail loans have grown from 19 in FYrsquo99 to 51 FYrsquo06Consumer credit accounts for a meager 286 per cent of the countrys GDP and the buoyancy in the economy offers sufficient scope for it to grow
Geographical and Cultural diversity- This is leading to a greater demand for financial products and customization by the customers
4 Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999 It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector
Banks (All) No of players = 40
Sector statistics
We see the sector aggregates and make a financial comparison for the major banks
Top PlayersFY2006
Based on Total Income Based on OPBDT Total Income Change OPBDT Change
(Rs Mn) () (Rs Mn) ()ICICI BANK 631619 5450 S B I 763528 -129 PUNJAB NATIONAL B 29218 1491 ICICI BANK 37174 1936
CAN BANK 277095 2378 PUNJAB NATIONAL B 222052 3936
BANK OF INDIA 23317 2543 CAN BANK 168825 1953
H D F C BANK 185508 6024 H D F C BANK 14324 2748 change - indicates the change between current and corresponding quarter
49
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Freight rates In FY 2006-07 freight rates in road transport sector moved up mainly
due to surge in construction activity ongoing road development projects and severe
restriction on over-loading Demand for commercial vehicles could be impacted by
further change in freight rates and change in fuel prices
Domestic market The Company plans to reduce the impact of this cyclicality on its
business by strengthening its less cyclical businesses like buses light trucks small
commercial vehicles
Overseas market In overseas markets the Company competes with global players
which have multiple vehicle platforms large financial capability and global branding
Manufacturing The Company manufactures vehicles at multiple locations and given
the geographical dispersion of its suppliers it faces Logistics Problems
New Competition Competitive activity is expected to increase in commercial vehicle
and passenger vehicle domestic market in coming years
New projects The Company currently is in midst of executing many new projects
ranging from launch of new car platforms to development of new Truck models
III Company Analysis
Key Highlights
Symbol TTL
Sector Consumer Goods
Industry Auto Manufacturers Major
Market Cap Rs29232 crores
Data Since 1945
Last close Rs 74290
Brief Summary of the company
35
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Tata Motors is one of the largest companies in the Tata Group with a total income of US$
235 billion More than 3 million Tata vehicles ply on Indian roads making Tata a
dominant force in the Indian automobile industry
Joint Venture with Fiat and Hitachi
Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing
passenger vehicles engines and transmissions for both domestic and international
markets The Company has also entered into a JV with Hitachi to set up a new plant in
Kharagpur
Product Mix
Tata Motors is Indias only fully integrated automobile manufacturer with a portfolio that
covers trucks buses utility vehicles and passenger cars It would be no exaggeration to
say that Tata Motors provides the wheels for Indias growth
Segmental Overview
Commercial Vehicle Segment
The Company registered 696 volume growth in the domestic CV segment during
4QFY06 from 37228 units in Q3FY05 to 63082 units in Q3FY06 The market share in
this segment was 658 in Q4FY06 as compared to 552 in Q1FY06 The MHCV
goods-carrier segment registered a 544 growth YoY with sale of 33515 units and a
market share of 645 up by around 410 bps driven by infrastructure development and
increase in international trade
Passenger Vehicle Segment
The Company reported a growth of 212 YoY to 49907 vehicles in the domestic
passenger vehicle segment and a market share of 162 in the quarter The passenger
vehicle industry registered a volume growth of 204 during Q4FY06
36
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Plants
Tata Motors owes its leading position in the Indian automobile industry to its strong
focus on indigenisation Their manufacturing plants are situated at Jamshedpur in the
East Pune in the West and Lucknow in the North
Charts showing Key Statistics of tata motors
37
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Share holding pattern as on 31-Mar
shareholding pattern
34
1425
17
10
promotors
MF Banks Fis
FIIs
Others
Public
Financial highlights
38
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
39
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
RATIO ANALYSIS
Ratios 2006 2005 2004
Debtequity 056 049 044
Current ratio 108 087 076
Operating profit margin 1211 1151 1238
Gross profit margin 1087 1043 1104
ROCE 3125 3276 3377
total assets turnover ratio 315 353 343
ROE 2761 3009 2257
Dividend-equity 49794 45373 28211
Retention Ratio 6743 6332 6519
DPS (Rs) 1301 125 799
EPS (Rs) 25 34 41
Dividend Payout Ratio 039 042 037
CAGR of EPS 0177
CAGR of Dividend Payout Ratio -0017
Average ROE 2574
average retention 6354
Growth (g = Avg RR times Avg ROE ) 1636
Market return 1454
40
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
PE ratio (on the basis of historical analysis) = 1812
Therefore the Weighted PE ratio =(1812+2424)2 = 21181
Projected EPS = EPS OF 2006 + CAGR of EPSEPS OF 2006
= Rs48271
Value of Share at the end of financial year 06-07
= Projected EPS Weighted PE Ratio
= Rs1022
2) HPCL
Globalization and the Indian Petroleum Industry
Indian petroleum industry in the post independent period (1947-2001) it may be divided
into three distinct phases
(i) early phase (1947 to 1969)- when the government consolidated its control over
the industry with Soviet assistance
(ii) development phase (1970 to 1989)- in this period the US companies played
dominant role replacing the Soviets and
41
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
(iii) the economic liberalisation phase of 1990s
PORTERrsquoS MODEL
SWOT ANALYSIS
STRENGHS
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
WEAKNESSES
Dependence on refining function high
Moderate share in high profitable retail segment
42
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Diversifications in petrochemicals could trouble the company
High burden of subsidy loss on cooking gas and kerosene
OPPORTUNITIES
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
Overseas presence in upstream and downstream will determine growth
THREATS
Rising oil prices could dampen demand
High regulatory risk
Loss of market share to private players
Entrance of private players in pipelines will take away monopoly of company in
north India
COMPANY ANALYSIS
The Annual Report is broken down into the following specific parts
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the AccountsATHE DIRECTORrsquoS REPORTThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship Fundamental AnalysisB THE AUDITORS REPORTThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors
C FINANCIAL STATEMENTSIt comprises of Balance Sheet Profit and Loss account Cash Flows Its analysis would be discussed later
DSCHEDULES
43
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The schedules detail pertinent information about the items of Balance Sheet and Profit amp Loss Account It also details information about sales manufacturing costs administration costs interest and other income and expenses
1 THE MANAGEMENT
HPCL is a public sector undertaking Thus it is a professionally managed company
There are some parameters of management on which a company is analysed
a integrity of management
b past record of management
c how highly is the management rated by its peers in the same industry
d how the management fares in adversity
e the depth of the knowledge of management
f open and innovative management
on all these parameters HPCL scores good
2 COMPANY
Many times a company has made losses in the previous years but that does not mean
that the company is bad to invest Thus many factors are studied while studying a
company
a) perception of competitors
HPCL is the second largest petroleum company after IOCL Thus it is a competitor of
IOCL and it is trying hard to compete with IOCL on every front That is why now it
has decided to diversify itself in the oil exploration sector
b) company policies
As this is a PSU thus the policies are made by the government The oil sector is one
which is highly regulated by government Thus from time to time it is required to
watch out the various policies changed
3 ANNUAL REPORT
The most primary and most important source of information about a company is its
Annual Report This is prepared every year and distributed to its shareholders
44
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Ratio Analysis
Evaluation of Intrinsic Value of the Security
stdev mkt 0011934stdev sec 003831 Average
Retention Ratio 060504
correlation 0485958 ROE 019842Beta 156765 g 0120052Risk Free Rate 650
Mkt Rate 14
45
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
k 1826
Hence we see that here our g is less than k Thus we see that as per Dividend Discount Model our Intrinsic value is div=22(1+012)=240626= 387
Price= Projected EPS + Weighted PE ratioUsing CAGR EPS = 43468Weighted PE Ratio = 75+6652=33625
Price = 43468+33625 = 381
3) HDFC BANK
The Indian banking industry sector overview
With the economic growth picking up pace and the investment cycle on the way to recovery the banking sector has witnessed a transformation in its vital role of intermediating between the demand and supply of funds
Public sector banks have been very proactive in their restructuring initiatives be it in technology implementation or pruning their loss assets Windfall treasury gains made in the falling interest rate regime were used for writing off the doubtful and loss assets
Retail lending (especially mortgage financing) formed a significant portion of the portfolio for most banks and they customized their products to cater to the diverse demands
Apart from streamlining their processes through technology initiatives such as ATMs telephone banking online banking and web based products banks also resorted to cross selling of financial products such as credit cards mutual funds and insurance policies to augment their fee based income
PORTERrsquoS FIVE FORCES MODEL FOR THE BANKING INDUSTRY
1) BARRIERS TO ENTRY a Economies of scale Since the existing players in the market are well
established and already have a customer base they are able to bear the cost of using the advantages of technology to their maximum advantage
46
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Capital requirement for entry i The Banking Regulation Act prescribes the minimum capital
requirements for a bank Moreover banks have to maintain a capital adequacy ratio of 9 under the Basel I norms
ii Government has declared that the foreign banks will be permitted to establish their presence in India by way of setting up a wholly owned banking subsidiary (WOS) with a minimum capital of Rs300 crore
c Access to distribution channels Since banks have to set up their own distribution channels all the cost has to be directly born by them
d Cost advantage independent of size Existing banks have huge databases of customers which they use when they want to sell a new product launched by them
e Legislation or Government action Banks are governed by Banking Regulation Act 1949 which specifies the rules and regulations applicable to banks RBI is the governing body of banks in India
2) BARGAINING POWER OF BUYERS
Due to increased competition the services offered by banks to customers have improved considerably
3) BARGAINING POWER OF THE SUPPLIERS
Suppliers to banks can be both - the customers and RBIa Customers of banks provide money to banks in the form of deposits and in
return earn some interest on that b RBI acts as a supplier to banks by selling govt securities treasury bills
govt bonds etc c Call money market Banks sometimes have to borrow from other banks to
meet CRR and SLR requirements or other capital requirements as provided by RBI
4) THREAT OF SUBSTITUTES
a Product-for-product substitutioni Banks provide interest on deposits made by people Similar
services are offered by post offices which may act as substitutes to the deposit schemes of banks
ii Some banks offer locker services to customers for yearly rates Similar services are provided by many post offices
47
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Generic substitution People who deposit their savings in banks can invest their money in other sources like mutual funds shares and other securities and life insurance schemes
5) COMPETITIVE RIVALRY
a Extent of competitor balance b Market growth ratesc High Exit Barriers
PEST Analysis for Banking Industry
1 Political factors - The major factors affecting the banking sector are the following
Banking sector reforms ndash As per the RBI roadmap for reforms in the first stage from 2005 to 2009 foreign banks will be allowed to set up wholly owned subsidiaries as well as get greater freedom to set up new branches Fulfilling the minimum priority sector credit -The government mandation of fulfilling the minimum priority sector credit (of which 18 per cent is food credit) has forced the domestic banks to cater to this segment despite the low profitability and vulnerability of asset quality
Banks have also been allowed to set up Offshore Banking Units in SEZrsquos
2 Economic factors -
Basell II norms for the risk management in banking sector - The new Basel Accord has its foundation on three mutually reinforcing pillars The first pillar is compatible with the credit risk market risk and operational risk The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bankConcurrently it also casts responsibility on the supervisors to review and validate banksrsquo risk measurement models
Consolidation and merger and acquisitions in the banking sector- HDFC bank also acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Universal Banking has been introduced ICICI Bank HDFCs closest competitor is already into Universal Banking so HDFC is also getting into it as now it is providing retail banking and also depository facilities in the form of demat account
48
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
3 Social factors-
Big and growing middle class in India - This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans car loans education loans auto loans etc Retail loans have grown from 19 in FYrsquo99 to 51 FYrsquo06Consumer credit accounts for a meager 286 per cent of the countrys GDP and the buoyancy in the economy offers sufficient scope for it to grow
Geographical and Cultural diversity- This is leading to a greater demand for financial products and customization by the customers
4 Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999 It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector
Banks (All) No of players = 40
Sector statistics
We see the sector aggregates and make a financial comparison for the major banks
Top PlayersFY2006
Based on Total Income Based on OPBDT Total Income Change OPBDT Change
(Rs Mn) () (Rs Mn) ()ICICI BANK 631619 5450 S B I 763528 -129 PUNJAB NATIONAL B 29218 1491 ICICI BANK 37174 1936
CAN BANK 277095 2378 PUNJAB NATIONAL B 222052 3936
BANK OF INDIA 23317 2543 CAN BANK 168825 1953
H D F C BANK 185508 6024 H D F C BANK 14324 2748 change - indicates the change between current and corresponding quarter
49
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Tata Motors is one of the largest companies in the Tata Group with a total income of US$
235 billion More than 3 million Tata vehicles ply on Indian roads making Tata a
dominant force in the Indian automobile industry
Joint Venture with Fiat and Hitachi
Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing
passenger vehicles engines and transmissions for both domestic and international
markets The Company has also entered into a JV with Hitachi to set up a new plant in
Kharagpur
Product Mix
Tata Motors is Indias only fully integrated automobile manufacturer with a portfolio that
covers trucks buses utility vehicles and passenger cars It would be no exaggeration to
say that Tata Motors provides the wheels for Indias growth
Segmental Overview
Commercial Vehicle Segment
The Company registered 696 volume growth in the domestic CV segment during
4QFY06 from 37228 units in Q3FY05 to 63082 units in Q3FY06 The market share in
this segment was 658 in Q4FY06 as compared to 552 in Q1FY06 The MHCV
goods-carrier segment registered a 544 growth YoY with sale of 33515 units and a
market share of 645 up by around 410 bps driven by infrastructure development and
increase in international trade
Passenger Vehicle Segment
The Company reported a growth of 212 YoY to 49907 vehicles in the domestic
passenger vehicle segment and a market share of 162 in the quarter The passenger
vehicle industry registered a volume growth of 204 during Q4FY06
36
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Plants
Tata Motors owes its leading position in the Indian automobile industry to its strong
focus on indigenisation Their manufacturing plants are situated at Jamshedpur in the
East Pune in the West and Lucknow in the North
Charts showing Key Statistics of tata motors
37
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Share holding pattern as on 31-Mar
shareholding pattern
34
1425
17
10
promotors
MF Banks Fis
FIIs
Others
Public
Financial highlights
38
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
39
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
RATIO ANALYSIS
Ratios 2006 2005 2004
Debtequity 056 049 044
Current ratio 108 087 076
Operating profit margin 1211 1151 1238
Gross profit margin 1087 1043 1104
ROCE 3125 3276 3377
total assets turnover ratio 315 353 343
ROE 2761 3009 2257
Dividend-equity 49794 45373 28211
Retention Ratio 6743 6332 6519
DPS (Rs) 1301 125 799
EPS (Rs) 25 34 41
Dividend Payout Ratio 039 042 037
CAGR of EPS 0177
CAGR of Dividend Payout Ratio -0017
Average ROE 2574
average retention 6354
Growth (g = Avg RR times Avg ROE ) 1636
Market return 1454
40
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
PE ratio (on the basis of historical analysis) = 1812
Therefore the Weighted PE ratio =(1812+2424)2 = 21181
Projected EPS = EPS OF 2006 + CAGR of EPSEPS OF 2006
= Rs48271
Value of Share at the end of financial year 06-07
= Projected EPS Weighted PE Ratio
= Rs1022
2) HPCL
Globalization and the Indian Petroleum Industry
Indian petroleum industry in the post independent period (1947-2001) it may be divided
into three distinct phases
(i) early phase (1947 to 1969)- when the government consolidated its control over
the industry with Soviet assistance
(ii) development phase (1970 to 1989)- in this period the US companies played
dominant role replacing the Soviets and
41
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
(iii) the economic liberalisation phase of 1990s
PORTERrsquoS MODEL
SWOT ANALYSIS
STRENGHS
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
WEAKNESSES
Dependence on refining function high
Moderate share in high profitable retail segment
42
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Diversifications in petrochemicals could trouble the company
High burden of subsidy loss on cooking gas and kerosene
OPPORTUNITIES
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
Overseas presence in upstream and downstream will determine growth
THREATS
Rising oil prices could dampen demand
High regulatory risk
Loss of market share to private players
Entrance of private players in pipelines will take away monopoly of company in
north India
COMPANY ANALYSIS
The Annual Report is broken down into the following specific parts
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the AccountsATHE DIRECTORrsquoS REPORTThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship Fundamental AnalysisB THE AUDITORS REPORTThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors
C FINANCIAL STATEMENTSIt comprises of Balance Sheet Profit and Loss account Cash Flows Its analysis would be discussed later
DSCHEDULES
43
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The schedules detail pertinent information about the items of Balance Sheet and Profit amp Loss Account It also details information about sales manufacturing costs administration costs interest and other income and expenses
1 THE MANAGEMENT
HPCL is a public sector undertaking Thus it is a professionally managed company
There are some parameters of management on which a company is analysed
a integrity of management
b past record of management
c how highly is the management rated by its peers in the same industry
d how the management fares in adversity
e the depth of the knowledge of management
f open and innovative management
on all these parameters HPCL scores good
2 COMPANY
Many times a company has made losses in the previous years but that does not mean
that the company is bad to invest Thus many factors are studied while studying a
company
a) perception of competitors
HPCL is the second largest petroleum company after IOCL Thus it is a competitor of
IOCL and it is trying hard to compete with IOCL on every front That is why now it
has decided to diversify itself in the oil exploration sector
b) company policies
As this is a PSU thus the policies are made by the government The oil sector is one
which is highly regulated by government Thus from time to time it is required to
watch out the various policies changed
3 ANNUAL REPORT
The most primary and most important source of information about a company is its
Annual Report This is prepared every year and distributed to its shareholders
44
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Ratio Analysis
Evaluation of Intrinsic Value of the Security
stdev mkt 0011934stdev sec 003831 Average
Retention Ratio 060504
correlation 0485958 ROE 019842Beta 156765 g 0120052Risk Free Rate 650
Mkt Rate 14
45
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
k 1826
Hence we see that here our g is less than k Thus we see that as per Dividend Discount Model our Intrinsic value is div=22(1+012)=240626= 387
Price= Projected EPS + Weighted PE ratioUsing CAGR EPS = 43468Weighted PE Ratio = 75+6652=33625
Price = 43468+33625 = 381
3) HDFC BANK
The Indian banking industry sector overview
With the economic growth picking up pace and the investment cycle on the way to recovery the banking sector has witnessed a transformation in its vital role of intermediating between the demand and supply of funds
Public sector banks have been very proactive in their restructuring initiatives be it in technology implementation or pruning their loss assets Windfall treasury gains made in the falling interest rate regime were used for writing off the doubtful and loss assets
Retail lending (especially mortgage financing) formed a significant portion of the portfolio for most banks and they customized their products to cater to the diverse demands
Apart from streamlining their processes through technology initiatives such as ATMs telephone banking online banking and web based products banks also resorted to cross selling of financial products such as credit cards mutual funds and insurance policies to augment their fee based income
PORTERrsquoS FIVE FORCES MODEL FOR THE BANKING INDUSTRY
1) BARRIERS TO ENTRY a Economies of scale Since the existing players in the market are well
established and already have a customer base they are able to bear the cost of using the advantages of technology to their maximum advantage
46
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Capital requirement for entry i The Banking Regulation Act prescribes the minimum capital
requirements for a bank Moreover banks have to maintain a capital adequacy ratio of 9 under the Basel I norms
ii Government has declared that the foreign banks will be permitted to establish their presence in India by way of setting up a wholly owned banking subsidiary (WOS) with a minimum capital of Rs300 crore
c Access to distribution channels Since banks have to set up their own distribution channels all the cost has to be directly born by them
d Cost advantage independent of size Existing banks have huge databases of customers which they use when they want to sell a new product launched by them
e Legislation or Government action Banks are governed by Banking Regulation Act 1949 which specifies the rules and regulations applicable to banks RBI is the governing body of banks in India
2) BARGAINING POWER OF BUYERS
Due to increased competition the services offered by banks to customers have improved considerably
3) BARGAINING POWER OF THE SUPPLIERS
Suppliers to banks can be both - the customers and RBIa Customers of banks provide money to banks in the form of deposits and in
return earn some interest on that b RBI acts as a supplier to banks by selling govt securities treasury bills
govt bonds etc c Call money market Banks sometimes have to borrow from other banks to
meet CRR and SLR requirements or other capital requirements as provided by RBI
4) THREAT OF SUBSTITUTES
a Product-for-product substitutioni Banks provide interest on deposits made by people Similar
services are offered by post offices which may act as substitutes to the deposit schemes of banks
ii Some banks offer locker services to customers for yearly rates Similar services are provided by many post offices
47
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Generic substitution People who deposit their savings in banks can invest their money in other sources like mutual funds shares and other securities and life insurance schemes
5) COMPETITIVE RIVALRY
a Extent of competitor balance b Market growth ratesc High Exit Barriers
PEST Analysis for Banking Industry
1 Political factors - The major factors affecting the banking sector are the following
Banking sector reforms ndash As per the RBI roadmap for reforms in the first stage from 2005 to 2009 foreign banks will be allowed to set up wholly owned subsidiaries as well as get greater freedom to set up new branches Fulfilling the minimum priority sector credit -The government mandation of fulfilling the minimum priority sector credit (of which 18 per cent is food credit) has forced the domestic banks to cater to this segment despite the low profitability and vulnerability of asset quality
Banks have also been allowed to set up Offshore Banking Units in SEZrsquos
2 Economic factors -
Basell II norms for the risk management in banking sector - The new Basel Accord has its foundation on three mutually reinforcing pillars The first pillar is compatible with the credit risk market risk and operational risk The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bankConcurrently it also casts responsibility on the supervisors to review and validate banksrsquo risk measurement models
Consolidation and merger and acquisitions in the banking sector- HDFC bank also acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Universal Banking has been introduced ICICI Bank HDFCs closest competitor is already into Universal Banking so HDFC is also getting into it as now it is providing retail banking and also depository facilities in the form of demat account
48
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
3 Social factors-
Big and growing middle class in India - This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans car loans education loans auto loans etc Retail loans have grown from 19 in FYrsquo99 to 51 FYrsquo06Consumer credit accounts for a meager 286 per cent of the countrys GDP and the buoyancy in the economy offers sufficient scope for it to grow
Geographical and Cultural diversity- This is leading to a greater demand for financial products and customization by the customers
4 Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999 It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector
Banks (All) No of players = 40
Sector statistics
We see the sector aggregates and make a financial comparison for the major banks
Top PlayersFY2006
Based on Total Income Based on OPBDT Total Income Change OPBDT Change
(Rs Mn) () (Rs Mn) ()ICICI BANK 631619 5450 S B I 763528 -129 PUNJAB NATIONAL B 29218 1491 ICICI BANK 37174 1936
CAN BANK 277095 2378 PUNJAB NATIONAL B 222052 3936
BANK OF INDIA 23317 2543 CAN BANK 168825 1953
H D F C BANK 185508 6024 H D F C BANK 14324 2748 change - indicates the change between current and corresponding quarter
49
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Plants
Tata Motors owes its leading position in the Indian automobile industry to its strong
focus on indigenisation Their manufacturing plants are situated at Jamshedpur in the
East Pune in the West and Lucknow in the North
Charts showing Key Statistics of tata motors
37
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Share holding pattern as on 31-Mar
shareholding pattern
34
1425
17
10
promotors
MF Banks Fis
FIIs
Others
Public
Financial highlights
38
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
39
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
RATIO ANALYSIS
Ratios 2006 2005 2004
Debtequity 056 049 044
Current ratio 108 087 076
Operating profit margin 1211 1151 1238
Gross profit margin 1087 1043 1104
ROCE 3125 3276 3377
total assets turnover ratio 315 353 343
ROE 2761 3009 2257
Dividend-equity 49794 45373 28211
Retention Ratio 6743 6332 6519
DPS (Rs) 1301 125 799
EPS (Rs) 25 34 41
Dividend Payout Ratio 039 042 037
CAGR of EPS 0177
CAGR of Dividend Payout Ratio -0017
Average ROE 2574
average retention 6354
Growth (g = Avg RR times Avg ROE ) 1636
Market return 1454
40
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
PE ratio (on the basis of historical analysis) = 1812
Therefore the Weighted PE ratio =(1812+2424)2 = 21181
Projected EPS = EPS OF 2006 + CAGR of EPSEPS OF 2006
= Rs48271
Value of Share at the end of financial year 06-07
= Projected EPS Weighted PE Ratio
= Rs1022
2) HPCL
Globalization and the Indian Petroleum Industry
Indian petroleum industry in the post independent period (1947-2001) it may be divided
into three distinct phases
(i) early phase (1947 to 1969)- when the government consolidated its control over
the industry with Soviet assistance
(ii) development phase (1970 to 1989)- in this period the US companies played
dominant role replacing the Soviets and
41
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
(iii) the economic liberalisation phase of 1990s
PORTERrsquoS MODEL
SWOT ANALYSIS
STRENGHS
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
WEAKNESSES
Dependence on refining function high
Moderate share in high profitable retail segment
42
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Diversifications in petrochemicals could trouble the company
High burden of subsidy loss on cooking gas and kerosene
OPPORTUNITIES
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
Overseas presence in upstream and downstream will determine growth
THREATS
Rising oil prices could dampen demand
High regulatory risk
Loss of market share to private players
Entrance of private players in pipelines will take away monopoly of company in
north India
COMPANY ANALYSIS
The Annual Report is broken down into the following specific parts
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the AccountsATHE DIRECTORrsquoS REPORTThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship Fundamental AnalysisB THE AUDITORS REPORTThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors
C FINANCIAL STATEMENTSIt comprises of Balance Sheet Profit and Loss account Cash Flows Its analysis would be discussed later
DSCHEDULES
43
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The schedules detail pertinent information about the items of Balance Sheet and Profit amp Loss Account It also details information about sales manufacturing costs administration costs interest and other income and expenses
1 THE MANAGEMENT
HPCL is a public sector undertaking Thus it is a professionally managed company
There are some parameters of management on which a company is analysed
a integrity of management
b past record of management
c how highly is the management rated by its peers in the same industry
d how the management fares in adversity
e the depth of the knowledge of management
f open and innovative management
on all these parameters HPCL scores good
2 COMPANY
Many times a company has made losses in the previous years but that does not mean
that the company is bad to invest Thus many factors are studied while studying a
company
a) perception of competitors
HPCL is the second largest petroleum company after IOCL Thus it is a competitor of
IOCL and it is trying hard to compete with IOCL on every front That is why now it
has decided to diversify itself in the oil exploration sector
b) company policies
As this is a PSU thus the policies are made by the government The oil sector is one
which is highly regulated by government Thus from time to time it is required to
watch out the various policies changed
3 ANNUAL REPORT
The most primary and most important source of information about a company is its
Annual Report This is prepared every year and distributed to its shareholders
44
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Ratio Analysis
Evaluation of Intrinsic Value of the Security
stdev mkt 0011934stdev sec 003831 Average
Retention Ratio 060504
correlation 0485958 ROE 019842Beta 156765 g 0120052Risk Free Rate 650
Mkt Rate 14
45
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
k 1826
Hence we see that here our g is less than k Thus we see that as per Dividend Discount Model our Intrinsic value is div=22(1+012)=240626= 387
Price= Projected EPS + Weighted PE ratioUsing CAGR EPS = 43468Weighted PE Ratio = 75+6652=33625
Price = 43468+33625 = 381
3) HDFC BANK
The Indian banking industry sector overview
With the economic growth picking up pace and the investment cycle on the way to recovery the banking sector has witnessed a transformation in its vital role of intermediating between the demand and supply of funds
Public sector banks have been very proactive in their restructuring initiatives be it in technology implementation or pruning their loss assets Windfall treasury gains made in the falling interest rate regime were used for writing off the doubtful and loss assets
Retail lending (especially mortgage financing) formed a significant portion of the portfolio for most banks and they customized their products to cater to the diverse demands
Apart from streamlining their processes through technology initiatives such as ATMs telephone banking online banking and web based products banks also resorted to cross selling of financial products such as credit cards mutual funds and insurance policies to augment their fee based income
PORTERrsquoS FIVE FORCES MODEL FOR THE BANKING INDUSTRY
1) BARRIERS TO ENTRY a Economies of scale Since the existing players in the market are well
established and already have a customer base they are able to bear the cost of using the advantages of technology to their maximum advantage
46
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Capital requirement for entry i The Banking Regulation Act prescribes the minimum capital
requirements for a bank Moreover banks have to maintain a capital adequacy ratio of 9 under the Basel I norms
ii Government has declared that the foreign banks will be permitted to establish their presence in India by way of setting up a wholly owned banking subsidiary (WOS) with a minimum capital of Rs300 crore
c Access to distribution channels Since banks have to set up their own distribution channels all the cost has to be directly born by them
d Cost advantage independent of size Existing banks have huge databases of customers which they use when they want to sell a new product launched by them
e Legislation or Government action Banks are governed by Banking Regulation Act 1949 which specifies the rules and regulations applicable to banks RBI is the governing body of banks in India
2) BARGAINING POWER OF BUYERS
Due to increased competition the services offered by banks to customers have improved considerably
3) BARGAINING POWER OF THE SUPPLIERS
Suppliers to banks can be both - the customers and RBIa Customers of banks provide money to banks in the form of deposits and in
return earn some interest on that b RBI acts as a supplier to banks by selling govt securities treasury bills
govt bonds etc c Call money market Banks sometimes have to borrow from other banks to
meet CRR and SLR requirements or other capital requirements as provided by RBI
4) THREAT OF SUBSTITUTES
a Product-for-product substitutioni Banks provide interest on deposits made by people Similar
services are offered by post offices which may act as substitutes to the deposit schemes of banks
ii Some banks offer locker services to customers for yearly rates Similar services are provided by many post offices
47
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Generic substitution People who deposit their savings in banks can invest their money in other sources like mutual funds shares and other securities and life insurance schemes
5) COMPETITIVE RIVALRY
a Extent of competitor balance b Market growth ratesc High Exit Barriers
PEST Analysis for Banking Industry
1 Political factors - The major factors affecting the banking sector are the following
Banking sector reforms ndash As per the RBI roadmap for reforms in the first stage from 2005 to 2009 foreign banks will be allowed to set up wholly owned subsidiaries as well as get greater freedom to set up new branches Fulfilling the minimum priority sector credit -The government mandation of fulfilling the minimum priority sector credit (of which 18 per cent is food credit) has forced the domestic banks to cater to this segment despite the low profitability and vulnerability of asset quality
Banks have also been allowed to set up Offshore Banking Units in SEZrsquos
2 Economic factors -
Basell II norms for the risk management in banking sector - The new Basel Accord has its foundation on three mutually reinforcing pillars The first pillar is compatible with the credit risk market risk and operational risk The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bankConcurrently it also casts responsibility on the supervisors to review and validate banksrsquo risk measurement models
Consolidation and merger and acquisitions in the banking sector- HDFC bank also acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Universal Banking has been introduced ICICI Bank HDFCs closest competitor is already into Universal Banking so HDFC is also getting into it as now it is providing retail banking and also depository facilities in the form of demat account
48
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
3 Social factors-
Big and growing middle class in India - This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans car loans education loans auto loans etc Retail loans have grown from 19 in FYrsquo99 to 51 FYrsquo06Consumer credit accounts for a meager 286 per cent of the countrys GDP and the buoyancy in the economy offers sufficient scope for it to grow
Geographical and Cultural diversity- This is leading to a greater demand for financial products and customization by the customers
4 Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999 It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector
Banks (All) No of players = 40
Sector statistics
We see the sector aggregates and make a financial comparison for the major banks
Top PlayersFY2006
Based on Total Income Based on OPBDT Total Income Change OPBDT Change
(Rs Mn) () (Rs Mn) ()ICICI BANK 631619 5450 S B I 763528 -129 PUNJAB NATIONAL B 29218 1491 ICICI BANK 37174 1936
CAN BANK 277095 2378 PUNJAB NATIONAL B 222052 3936
BANK OF INDIA 23317 2543 CAN BANK 168825 1953
H D F C BANK 185508 6024 H D F C BANK 14324 2748 change - indicates the change between current and corresponding quarter
49
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Share holding pattern as on 31-Mar
shareholding pattern
34
1425
17
10
promotors
MF Banks Fis
FIIs
Others
Public
Financial highlights
38
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
39
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
RATIO ANALYSIS
Ratios 2006 2005 2004
Debtequity 056 049 044
Current ratio 108 087 076
Operating profit margin 1211 1151 1238
Gross profit margin 1087 1043 1104
ROCE 3125 3276 3377
total assets turnover ratio 315 353 343
ROE 2761 3009 2257
Dividend-equity 49794 45373 28211
Retention Ratio 6743 6332 6519
DPS (Rs) 1301 125 799
EPS (Rs) 25 34 41
Dividend Payout Ratio 039 042 037
CAGR of EPS 0177
CAGR of Dividend Payout Ratio -0017
Average ROE 2574
average retention 6354
Growth (g = Avg RR times Avg ROE ) 1636
Market return 1454
40
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
PE ratio (on the basis of historical analysis) = 1812
Therefore the Weighted PE ratio =(1812+2424)2 = 21181
Projected EPS = EPS OF 2006 + CAGR of EPSEPS OF 2006
= Rs48271
Value of Share at the end of financial year 06-07
= Projected EPS Weighted PE Ratio
= Rs1022
2) HPCL
Globalization and the Indian Petroleum Industry
Indian petroleum industry in the post independent period (1947-2001) it may be divided
into three distinct phases
(i) early phase (1947 to 1969)- when the government consolidated its control over
the industry with Soviet assistance
(ii) development phase (1970 to 1989)- in this period the US companies played
dominant role replacing the Soviets and
41
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
(iii) the economic liberalisation phase of 1990s
PORTERrsquoS MODEL
SWOT ANALYSIS
STRENGHS
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
WEAKNESSES
Dependence on refining function high
Moderate share in high profitable retail segment
42
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Diversifications in petrochemicals could trouble the company
High burden of subsidy loss on cooking gas and kerosene
OPPORTUNITIES
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
Overseas presence in upstream and downstream will determine growth
THREATS
Rising oil prices could dampen demand
High regulatory risk
Loss of market share to private players
Entrance of private players in pipelines will take away monopoly of company in
north India
COMPANY ANALYSIS
The Annual Report is broken down into the following specific parts
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the AccountsATHE DIRECTORrsquoS REPORTThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship Fundamental AnalysisB THE AUDITORS REPORTThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors
C FINANCIAL STATEMENTSIt comprises of Balance Sheet Profit and Loss account Cash Flows Its analysis would be discussed later
DSCHEDULES
43
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The schedules detail pertinent information about the items of Balance Sheet and Profit amp Loss Account It also details information about sales manufacturing costs administration costs interest and other income and expenses
1 THE MANAGEMENT
HPCL is a public sector undertaking Thus it is a professionally managed company
There are some parameters of management on which a company is analysed
a integrity of management
b past record of management
c how highly is the management rated by its peers in the same industry
d how the management fares in adversity
e the depth of the knowledge of management
f open and innovative management
on all these parameters HPCL scores good
2 COMPANY
Many times a company has made losses in the previous years but that does not mean
that the company is bad to invest Thus many factors are studied while studying a
company
a) perception of competitors
HPCL is the second largest petroleum company after IOCL Thus it is a competitor of
IOCL and it is trying hard to compete with IOCL on every front That is why now it
has decided to diversify itself in the oil exploration sector
b) company policies
As this is a PSU thus the policies are made by the government The oil sector is one
which is highly regulated by government Thus from time to time it is required to
watch out the various policies changed
3 ANNUAL REPORT
The most primary and most important source of information about a company is its
Annual Report This is prepared every year and distributed to its shareholders
44
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Ratio Analysis
Evaluation of Intrinsic Value of the Security
stdev mkt 0011934stdev sec 003831 Average
Retention Ratio 060504
correlation 0485958 ROE 019842Beta 156765 g 0120052Risk Free Rate 650
Mkt Rate 14
45
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
k 1826
Hence we see that here our g is less than k Thus we see that as per Dividend Discount Model our Intrinsic value is div=22(1+012)=240626= 387
Price= Projected EPS + Weighted PE ratioUsing CAGR EPS = 43468Weighted PE Ratio = 75+6652=33625
Price = 43468+33625 = 381
3) HDFC BANK
The Indian banking industry sector overview
With the economic growth picking up pace and the investment cycle on the way to recovery the banking sector has witnessed a transformation in its vital role of intermediating between the demand and supply of funds
Public sector banks have been very proactive in their restructuring initiatives be it in technology implementation or pruning their loss assets Windfall treasury gains made in the falling interest rate regime were used for writing off the doubtful and loss assets
Retail lending (especially mortgage financing) formed a significant portion of the portfolio for most banks and they customized their products to cater to the diverse demands
Apart from streamlining their processes through technology initiatives such as ATMs telephone banking online banking and web based products banks also resorted to cross selling of financial products such as credit cards mutual funds and insurance policies to augment their fee based income
PORTERrsquoS FIVE FORCES MODEL FOR THE BANKING INDUSTRY
1) BARRIERS TO ENTRY a Economies of scale Since the existing players in the market are well
established and already have a customer base they are able to bear the cost of using the advantages of technology to their maximum advantage
46
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Capital requirement for entry i The Banking Regulation Act prescribes the minimum capital
requirements for a bank Moreover banks have to maintain a capital adequacy ratio of 9 under the Basel I norms
ii Government has declared that the foreign banks will be permitted to establish their presence in India by way of setting up a wholly owned banking subsidiary (WOS) with a minimum capital of Rs300 crore
c Access to distribution channels Since banks have to set up their own distribution channels all the cost has to be directly born by them
d Cost advantage independent of size Existing banks have huge databases of customers which they use when they want to sell a new product launched by them
e Legislation or Government action Banks are governed by Banking Regulation Act 1949 which specifies the rules and regulations applicable to banks RBI is the governing body of banks in India
2) BARGAINING POWER OF BUYERS
Due to increased competition the services offered by banks to customers have improved considerably
3) BARGAINING POWER OF THE SUPPLIERS
Suppliers to banks can be both - the customers and RBIa Customers of banks provide money to banks in the form of deposits and in
return earn some interest on that b RBI acts as a supplier to banks by selling govt securities treasury bills
govt bonds etc c Call money market Banks sometimes have to borrow from other banks to
meet CRR and SLR requirements or other capital requirements as provided by RBI
4) THREAT OF SUBSTITUTES
a Product-for-product substitutioni Banks provide interest on deposits made by people Similar
services are offered by post offices which may act as substitutes to the deposit schemes of banks
ii Some banks offer locker services to customers for yearly rates Similar services are provided by many post offices
47
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Generic substitution People who deposit their savings in banks can invest their money in other sources like mutual funds shares and other securities and life insurance schemes
5) COMPETITIVE RIVALRY
a Extent of competitor balance b Market growth ratesc High Exit Barriers
PEST Analysis for Banking Industry
1 Political factors - The major factors affecting the banking sector are the following
Banking sector reforms ndash As per the RBI roadmap for reforms in the first stage from 2005 to 2009 foreign banks will be allowed to set up wholly owned subsidiaries as well as get greater freedom to set up new branches Fulfilling the minimum priority sector credit -The government mandation of fulfilling the minimum priority sector credit (of which 18 per cent is food credit) has forced the domestic banks to cater to this segment despite the low profitability and vulnerability of asset quality
Banks have also been allowed to set up Offshore Banking Units in SEZrsquos
2 Economic factors -
Basell II norms for the risk management in banking sector - The new Basel Accord has its foundation on three mutually reinforcing pillars The first pillar is compatible with the credit risk market risk and operational risk The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bankConcurrently it also casts responsibility on the supervisors to review and validate banksrsquo risk measurement models
Consolidation and merger and acquisitions in the banking sector- HDFC bank also acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Universal Banking has been introduced ICICI Bank HDFCs closest competitor is already into Universal Banking so HDFC is also getting into it as now it is providing retail banking and also depository facilities in the form of demat account
48
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
3 Social factors-
Big and growing middle class in India - This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans car loans education loans auto loans etc Retail loans have grown from 19 in FYrsquo99 to 51 FYrsquo06Consumer credit accounts for a meager 286 per cent of the countrys GDP and the buoyancy in the economy offers sufficient scope for it to grow
Geographical and Cultural diversity- This is leading to a greater demand for financial products and customization by the customers
4 Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999 It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector
Banks (All) No of players = 40
Sector statistics
We see the sector aggregates and make a financial comparison for the major banks
Top PlayersFY2006
Based on Total Income Based on OPBDT Total Income Change OPBDT Change
(Rs Mn) () (Rs Mn) ()ICICI BANK 631619 5450 S B I 763528 -129 PUNJAB NATIONAL B 29218 1491 ICICI BANK 37174 1936
CAN BANK 277095 2378 PUNJAB NATIONAL B 222052 3936
BANK OF INDIA 23317 2543 CAN BANK 168825 1953
H D F C BANK 185508 6024 H D F C BANK 14324 2748 change - indicates the change between current and corresponding quarter
49
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
39
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
RATIO ANALYSIS
Ratios 2006 2005 2004
Debtequity 056 049 044
Current ratio 108 087 076
Operating profit margin 1211 1151 1238
Gross profit margin 1087 1043 1104
ROCE 3125 3276 3377
total assets turnover ratio 315 353 343
ROE 2761 3009 2257
Dividend-equity 49794 45373 28211
Retention Ratio 6743 6332 6519
DPS (Rs) 1301 125 799
EPS (Rs) 25 34 41
Dividend Payout Ratio 039 042 037
CAGR of EPS 0177
CAGR of Dividend Payout Ratio -0017
Average ROE 2574
average retention 6354
Growth (g = Avg RR times Avg ROE ) 1636
Market return 1454
40
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
PE ratio (on the basis of historical analysis) = 1812
Therefore the Weighted PE ratio =(1812+2424)2 = 21181
Projected EPS = EPS OF 2006 + CAGR of EPSEPS OF 2006
= Rs48271
Value of Share at the end of financial year 06-07
= Projected EPS Weighted PE Ratio
= Rs1022
2) HPCL
Globalization and the Indian Petroleum Industry
Indian petroleum industry in the post independent period (1947-2001) it may be divided
into three distinct phases
(i) early phase (1947 to 1969)- when the government consolidated its control over
the industry with Soviet assistance
(ii) development phase (1970 to 1989)- in this period the US companies played
dominant role replacing the Soviets and
41
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
(iii) the economic liberalisation phase of 1990s
PORTERrsquoS MODEL
SWOT ANALYSIS
STRENGHS
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
WEAKNESSES
Dependence on refining function high
Moderate share in high profitable retail segment
42
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Diversifications in petrochemicals could trouble the company
High burden of subsidy loss on cooking gas and kerosene
OPPORTUNITIES
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
Overseas presence in upstream and downstream will determine growth
THREATS
Rising oil prices could dampen demand
High regulatory risk
Loss of market share to private players
Entrance of private players in pipelines will take away monopoly of company in
north India
COMPANY ANALYSIS
The Annual Report is broken down into the following specific parts
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the AccountsATHE DIRECTORrsquoS REPORTThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship Fundamental AnalysisB THE AUDITORS REPORTThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors
C FINANCIAL STATEMENTSIt comprises of Balance Sheet Profit and Loss account Cash Flows Its analysis would be discussed later
DSCHEDULES
43
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The schedules detail pertinent information about the items of Balance Sheet and Profit amp Loss Account It also details information about sales manufacturing costs administration costs interest and other income and expenses
1 THE MANAGEMENT
HPCL is a public sector undertaking Thus it is a professionally managed company
There are some parameters of management on which a company is analysed
a integrity of management
b past record of management
c how highly is the management rated by its peers in the same industry
d how the management fares in adversity
e the depth of the knowledge of management
f open and innovative management
on all these parameters HPCL scores good
2 COMPANY
Many times a company has made losses in the previous years but that does not mean
that the company is bad to invest Thus many factors are studied while studying a
company
a) perception of competitors
HPCL is the second largest petroleum company after IOCL Thus it is a competitor of
IOCL and it is trying hard to compete with IOCL on every front That is why now it
has decided to diversify itself in the oil exploration sector
b) company policies
As this is a PSU thus the policies are made by the government The oil sector is one
which is highly regulated by government Thus from time to time it is required to
watch out the various policies changed
3 ANNUAL REPORT
The most primary and most important source of information about a company is its
Annual Report This is prepared every year and distributed to its shareholders
44
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Ratio Analysis
Evaluation of Intrinsic Value of the Security
stdev mkt 0011934stdev sec 003831 Average
Retention Ratio 060504
correlation 0485958 ROE 019842Beta 156765 g 0120052Risk Free Rate 650
Mkt Rate 14
45
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
k 1826
Hence we see that here our g is less than k Thus we see that as per Dividend Discount Model our Intrinsic value is div=22(1+012)=240626= 387
Price= Projected EPS + Weighted PE ratioUsing CAGR EPS = 43468Weighted PE Ratio = 75+6652=33625
Price = 43468+33625 = 381
3) HDFC BANK
The Indian banking industry sector overview
With the economic growth picking up pace and the investment cycle on the way to recovery the banking sector has witnessed a transformation in its vital role of intermediating between the demand and supply of funds
Public sector banks have been very proactive in their restructuring initiatives be it in technology implementation or pruning their loss assets Windfall treasury gains made in the falling interest rate regime were used for writing off the doubtful and loss assets
Retail lending (especially mortgage financing) formed a significant portion of the portfolio for most banks and they customized their products to cater to the diverse demands
Apart from streamlining their processes through technology initiatives such as ATMs telephone banking online banking and web based products banks also resorted to cross selling of financial products such as credit cards mutual funds and insurance policies to augment their fee based income
PORTERrsquoS FIVE FORCES MODEL FOR THE BANKING INDUSTRY
1) BARRIERS TO ENTRY a Economies of scale Since the existing players in the market are well
established and already have a customer base they are able to bear the cost of using the advantages of technology to their maximum advantage
46
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Capital requirement for entry i The Banking Regulation Act prescribes the minimum capital
requirements for a bank Moreover banks have to maintain a capital adequacy ratio of 9 under the Basel I norms
ii Government has declared that the foreign banks will be permitted to establish their presence in India by way of setting up a wholly owned banking subsidiary (WOS) with a minimum capital of Rs300 crore
c Access to distribution channels Since banks have to set up their own distribution channels all the cost has to be directly born by them
d Cost advantage independent of size Existing banks have huge databases of customers which they use when they want to sell a new product launched by them
e Legislation or Government action Banks are governed by Banking Regulation Act 1949 which specifies the rules and regulations applicable to banks RBI is the governing body of banks in India
2) BARGAINING POWER OF BUYERS
Due to increased competition the services offered by banks to customers have improved considerably
3) BARGAINING POWER OF THE SUPPLIERS
Suppliers to banks can be both - the customers and RBIa Customers of banks provide money to banks in the form of deposits and in
return earn some interest on that b RBI acts as a supplier to banks by selling govt securities treasury bills
govt bonds etc c Call money market Banks sometimes have to borrow from other banks to
meet CRR and SLR requirements or other capital requirements as provided by RBI
4) THREAT OF SUBSTITUTES
a Product-for-product substitutioni Banks provide interest on deposits made by people Similar
services are offered by post offices which may act as substitutes to the deposit schemes of banks
ii Some banks offer locker services to customers for yearly rates Similar services are provided by many post offices
47
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Generic substitution People who deposit their savings in banks can invest their money in other sources like mutual funds shares and other securities and life insurance schemes
5) COMPETITIVE RIVALRY
a Extent of competitor balance b Market growth ratesc High Exit Barriers
PEST Analysis for Banking Industry
1 Political factors - The major factors affecting the banking sector are the following
Banking sector reforms ndash As per the RBI roadmap for reforms in the first stage from 2005 to 2009 foreign banks will be allowed to set up wholly owned subsidiaries as well as get greater freedom to set up new branches Fulfilling the minimum priority sector credit -The government mandation of fulfilling the minimum priority sector credit (of which 18 per cent is food credit) has forced the domestic banks to cater to this segment despite the low profitability and vulnerability of asset quality
Banks have also been allowed to set up Offshore Banking Units in SEZrsquos
2 Economic factors -
Basell II norms for the risk management in banking sector - The new Basel Accord has its foundation on three mutually reinforcing pillars The first pillar is compatible with the credit risk market risk and operational risk The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bankConcurrently it also casts responsibility on the supervisors to review and validate banksrsquo risk measurement models
Consolidation and merger and acquisitions in the banking sector- HDFC bank also acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Universal Banking has been introduced ICICI Bank HDFCs closest competitor is already into Universal Banking so HDFC is also getting into it as now it is providing retail banking and also depository facilities in the form of demat account
48
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
3 Social factors-
Big and growing middle class in India - This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans car loans education loans auto loans etc Retail loans have grown from 19 in FYrsquo99 to 51 FYrsquo06Consumer credit accounts for a meager 286 per cent of the countrys GDP and the buoyancy in the economy offers sufficient scope for it to grow
Geographical and Cultural diversity- This is leading to a greater demand for financial products and customization by the customers
4 Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999 It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector
Banks (All) No of players = 40
Sector statistics
We see the sector aggregates and make a financial comparison for the major banks
Top PlayersFY2006
Based on Total Income Based on OPBDT Total Income Change OPBDT Change
(Rs Mn) () (Rs Mn) ()ICICI BANK 631619 5450 S B I 763528 -129 PUNJAB NATIONAL B 29218 1491 ICICI BANK 37174 1936
CAN BANK 277095 2378 PUNJAB NATIONAL B 222052 3936
BANK OF INDIA 23317 2543 CAN BANK 168825 1953
H D F C BANK 185508 6024 H D F C BANK 14324 2748 change - indicates the change between current and corresponding quarter
49
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
RATIO ANALYSIS
Ratios 2006 2005 2004
Debtequity 056 049 044
Current ratio 108 087 076
Operating profit margin 1211 1151 1238
Gross profit margin 1087 1043 1104
ROCE 3125 3276 3377
total assets turnover ratio 315 353 343
ROE 2761 3009 2257
Dividend-equity 49794 45373 28211
Retention Ratio 6743 6332 6519
DPS (Rs) 1301 125 799
EPS (Rs) 25 34 41
Dividend Payout Ratio 039 042 037
CAGR of EPS 0177
CAGR of Dividend Payout Ratio -0017
Average ROE 2574
average retention 6354
Growth (g = Avg RR times Avg ROE ) 1636
Market return 1454
40
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
PE ratio (on the basis of historical analysis) = 1812
Therefore the Weighted PE ratio =(1812+2424)2 = 21181
Projected EPS = EPS OF 2006 + CAGR of EPSEPS OF 2006
= Rs48271
Value of Share at the end of financial year 06-07
= Projected EPS Weighted PE Ratio
= Rs1022
2) HPCL
Globalization and the Indian Petroleum Industry
Indian petroleum industry in the post independent period (1947-2001) it may be divided
into three distinct phases
(i) early phase (1947 to 1969)- when the government consolidated its control over
the industry with Soviet assistance
(ii) development phase (1970 to 1989)- in this period the US companies played
dominant role replacing the Soviets and
41
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
(iii) the economic liberalisation phase of 1990s
PORTERrsquoS MODEL
SWOT ANALYSIS
STRENGHS
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
WEAKNESSES
Dependence on refining function high
Moderate share in high profitable retail segment
42
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Diversifications in petrochemicals could trouble the company
High burden of subsidy loss on cooking gas and kerosene
OPPORTUNITIES
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
Overseas presence in upstream and downstream will determine growth
THREATS
Rising oil prices could dampen demand
High regulatory risk
Loss of market share to private players
Entrance of private players in pipelines will take away monopoly of company in
north India
COMPANY ANALYSIS
The Annual Report is broken down into the following specific parts
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the AccountsATHE DIRECTORrsquoS REPORTThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship Fundamental AnalysisB THE AUDITORS REPORTThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors
C FINANCIAL STATEMENTSIt comprises of Balance Sheet Profit and Loss account Cash Flows Its analysis would be discussed later
DSCHEDULES
43
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The schedules detail pertinent information about the items of Balance Sheet and Profit amp Loss Account It also details information about sales manufacturing costs administration costs interest and other income and expenses
1 THE MANAGEMENT
HPCL is a public sector undertaking Thus it is a professionally managed company
There are some parameters of management on which a company is analysed
a integrity of management
b past record of management
c how highly is the management rated by its peers in the same industry
d how the management fares in adversity
e the depth of the knowledge of management
f open and innovative management
on all these parameters HPCL scores good
2 COMPANY
Many times a company has made losses in the previous years but that does not mean
that the company is bad to invest Thus many factors are studied while studying a
company
a) perception of competitors
HPCL is the second largest petroleum company after IOCL Thus it is a competitor of
IOCL and it is trying hard to compete with IOCL on every front That is why now it
has decided to diversify itself in the oil exploration sector
b) company policies
As this is a PSU thus the policies are made by the government The oil sector is one
which is highly regulated by government Thus from time to time it is required to
watch out the various policies changed
3 ANNUAL REPORT
The most primary and most important source of information about a company is its
Annual Report This is prepared every year and distributed to its shareholders
44
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Ratio Analysis
Evaluation of Intrinsic Value of the Security
stdev mkt 0011934stdev sec 003831 Average
Retention Ratio 060504
correlation 0485958 ROE 019842Beta 156765 g 0120052Risk Free Rate 650
Mkt Rate 14
45
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
k 1826
Hence we see that here our g is less than k Thus we see that as per Dividend Discount Model our Intrinsic value is div=22(1+012)=240626= 387
Price= Projected EPS + Weighted PE ratioUsing CAGR EPS = 43468Weighted PE Ratio = 75+6652=33625
Price = 43468+33625 = 381
3) HDFC BANK
The Indian banking industry sector overview
With the economic growth picking up pace and the investment cycle on the way to recovery the banking sector has witnessed a transformation in its vital role of intermediating between the demand and supply of funds
Public sector banks have been very proactive in their restructuring initiatives be it in technology implementation or pruning their loss assets Windfall treasury gains made in the falling interest rate regime were used for writing off the doubtful and loss assets
Retail lending (especially mortgage financing) formed a significant portion of the portfolio for most banks and they customized their products to cater to the diverse demands
Apart from streamlining their processes through technology initiatives such as ATMs telephone banking online banking and web based products banks also resorted to cross selling of financial products such as credit cards mutual funds and insurance policies to augment their fee based income
PORTERrsquoS FIVE FORCES MODEL FOR THE BANKING INDUSTRY
1) BARRIERS TO ENTRY a Economies of scale Since the existing players in the market are well
established and already have a customer base they are able to bear the cost of using the advantages of technology to their maximum advantage
46
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Capital requirement for entry i The Banking Regulation Act prescribes the minimum capital
requirements for a bank Moreover banks have to maintain a capital adequacy ratio of 9 under the Basel I norms
ii Government has declared that the foreign banks will be permitted to establish their presence in India by way of setting up a wholly owned banking subsidiary (WOS) with a minimum capital of Rs300 crore
c Access to distribution channels Since banks have to set up their own distribution channels all the cost has to be directly born by them
d Cost advantage independent of size Existing banks have huge databases of customers which they use when they want to sell a new product launched by them
e Legislation or Government action Banks are governed by Banking Regulation Act 1949 which specifies the rules and regulations applicable to banks RBI is the governing body of banks in India
2) BARGAINING POWER OF BUYERS
Due to increased competition the services offered by banks to customers have improved considerably
3) BARGAINING POWER OF THE SUPPLIERS
Suppliers to banks can be both - the customers and RBIa Customers of banks provide money to banks in the form of deposits and in
return earn some interest on that b RBI acts as a supplier to banks by selling govt securities treasury bills
govt bonds etc c Call money market Banks sometimes have to borrow from other banks to
meet CRR and SLR requirements or other capital requirements as provided by RBI
4) THREAT OF SUBSTITUTES
a Product-for-product substitutioni Banks provide interest on deposits made by people Similar
services are offered by post offices which may act as substitutes to the deposit schemes of banks
ii Some banks offer locker services to customers for yearly rates Similar services are provided by many post offices
47
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Generic substitution People who deposit their savings in banks can invest their money in other sources like mutual funds shares and other securities and life insurance schemes
5) COMPETITIVE RIVALRY
a Extent of competitor balance b Market growth ratesc High Exit Barriers
PEST Analysis for Banking Industry
1 Political factors - The major factors affecting the banking sector are the following
Banking sector reforms ndash As per the RBI roadmap for reforms in the first stage from 2005 to 2009 foreign banks will be allowed to set up wholly owned subsidiaries as well as get greater freedom to set up new branches Fulfilling the minimum priority sector credit -The government mandation of fulfilling the minimum priority sector credit (of which 18 per cent is food credit) has forced the domestic banks to cater to this segment despite the low profitability and vulnerability of asset quality
Banks have also been allowed to set up Offshore Banking Units in SEZrsquos
2 Economic factors -
Basell II norms for the risk management in banking sector - The new Basel Accord has its foundation on three mutually reinforcing pillars The first pillar is compatible with the credit risk market risk and operational risk The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bankConcurrently it also casts responsibility on the supervisors to review and validate banksrsquo risk measurement models
Consolidation and merger and acquisitions in the banking sector- HDFC bank also acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Universal Banking has been introduced ICICI Bank HDFCs closest competitor is already into Universal Banking so HDFC is also getting into it as now it is providing retail banking and also depository facilities in the form of demat account
48
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
3 Social factors-
Big and growing middle class in India - This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans car loans education loans auto loans etc Retail loans have grown from 19 in FYrsquo99 to 51 FYrsquo06Consumer credit accounts for a meager 286 per cent of the countrys GDP and the buoyancy in the economy offers sufficient scope for it to grow
Geographical and Cultural diversity- This is leading to a greater demand for financial products and customization by the customers
4 Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999 It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector
Banks (All) No of players = 40
Sector statistics
We see the sector aggregates and make a financial comparison for the major banks
Top PlayersFY2006
Based on Total Income Based on OPBDT Total Income Change OPBDT Change
(Rs Mn) () (Rs Mn) ()ICICI BANK 631619 5450 S B I 763528 -129 PUNJAB NATIONAL B 29218 1491 ICICI BANK 37174 1936
CAN BANK 277095 2378 PUNJAB NATIONAL B 222052 3936
BANK OF INDIA 23317 2543 CAN BANK 168825 1953
H D F C BANK 185508 6024 H D F C BANK 14324 2748 change - indicates the change between current and corresponding quarter
49
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
PE ratio (on the basis of historical analysis) = 1812
Therefore the Weighted PE ratio =(1812+2424)2 = 21181
Projected EPS = EPS OF 2006 + CAGR of EPSEPS OF 2006
= Rs48271
Value of Share at the end of financial year 06-07
= Projected EPS Weighted PE Ratio
= Rs1022
2) HPCL
Globalization and the Indian Petroleum Industry
Indian petroleum industry in the post independent period (1947-2001) it may be divided
into three distinct phases
(i) early phase (1947 to 1969)- when the government consolidated its control over
the industry with Soviet assistance
(ii) development phase (1970 to 1989)- in this period the US companies played
dominant role replacing the Soviets and
41
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
(iii) the economic liberalisation phase of 1990s
PORTERrsquoS MODEL
SWOT ANALYSIS
STRENGHS
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
WEAKNESSES
Dependence on refining function high
Moderate share in high profitable retail segment
42
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Diversifications in petrochemicals could trouble the company
High burden of subsidy loss on cooking gas and kerosene
OPPORTUNITIES
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
Overseas presence in upstream and downstream will determine growth
THREATS
Rising oil prices could dampen demand
High regulatory risk
Loss of market share to private players
Entrance of private players in pipelines will take away monopoly of company in
north India
COMPANY ANALYSIS
The Annual Report is broken down into the following specific parts
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the AccountsATHE DIRECTORrsquoS REPORTThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship Fundamental AnalysisB THE AUDITORS REPORTThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors
C FINANCIAL STATEMENTSIt comprises of Balance Sheet Profit and Loss account Cash Flows Its analysis would be discussed later
DSCHEDULES
43
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The schedules detail pertinent information about the items of Balance Sheet and Profit amp Loss Account It also details information about sales manufacturing costs administration costs interest and other income and expenses
1 THE MANAGEMENT
HPCL is a public sector undertaking Thus it is a professionally managed company
There are some parameters of management on which a company is analysed
a integrity of management
b past record of management
c how highly is the management rated by its peers in the same industry
d how the management fares in adversity
e the depth of the knowledge of management
f open and innovative management
on all these parameters HPCL scores good
2 COMPANY
Many times a company has made losses in the previous years but that does not mean
that the company is bad to invest Thus many factors are studied while studying a
company
a) perception of competitors
HPCL is the second largest petroleum company after IOCL Thus it is a competitor of
IOCL and it is trying hard to compete with IOCL on every front That is why now it
has decided to diversify itself in the oil exploration sector
b) company policies
As this is a PSU thus the policies are made by the government The oil sector is one
which is highly regulated by government Thus from time to time it is required to
watch out the various policies changed
3 ANNUAL REPORT
The most primary and most important source of information about a company is its
Annual Report This is prepared every year and distributed to its shareholders
44
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Ratio Analysis
Evaluation of Intrinsic Value of the Security
stdev mkt 0011934stdev sec 003831 Average
Retention Ratio 060504
correlation 0485958 ROE 019842Beta 156765 g 0120052Risk Free Rate 650
Mkt Rate 14
45
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
k 1826
Hence we see that here our g is less than k Thus we see that as per Dividend Discount Model our Intrinsic value is div=22(1+012)=240626= 387
Price= Projected EPS + Weighted PE ratioUsing CAGR EPS = 43468Weighted PE Ratio = 75+6652=33625
Price = 43468+33625 = 381
3) HDFC BANK
The Indian banking industry sector overview
With the economic growth picking up pace and the investment cycle on the way to recovery the banking sector has witnessed a transformation in its vital role of intermediating between the demand and supply of funds
Public sector banks have been very proactive in their restructuring initiatives be it in technology implementation or pruning their loss assets Windfall treasury gains made in the falling interest rate regime were used for writing off the doubtful and loss assets
Retail lending (especially mortgage financing) formed a significant portion of the portfolio for most banks and they customized their products to cater to the diverse demands
Apart from streamlining their processes through technology initiatives such as ATMs telephone banking online banking and web based products banks also resorted to cross selling of financial products such as credit cards mutual funds and insurance policies to augment their fee based income
PORTERrsquoS FIVE FORCES MODEL FOR THE BANKING INDUSTRY
1) BARRIERS TO ENTRY a Economies of scale Since the existing players in the market are well
established and already have a customer base they are able to bear the cost of using the advantages of technology to their maximum advantage
46
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Capital requirement for entry i The Banking Regulation Act prescribes the minimum capital
requirements for a bank Moreover banks have to maintain a capital adequacy ratio of 9 under the Basel I norms
ii Government has declared that the foreign banks will be permitted to establish their presence in India by way of setting up a wholly owned banking subsidiary (WOS) with a minimum capital of Rs300 crore
c Access to distribution channels Since banks have to set up their own distribution channels all the cost has to be directly born by them
d Cost advantage independent of size Existing banks have huge databases of customers which they use when they want to sell a new product launched by them
e Legislation or Government action Banks are governed by Banking Regulation Act 1949 which specifies the rules and regulations applicable to banks RBI is the governing body of banks in India
2) BARGAINING POWER OF BUYERS
Due to increased competition the services offered by banks to customers have improved considerably
3) BARGAINING POWER OF THE SUPPLIERS
Suppliers to banks can be both - the customers and RBIa Customers of banks provide money to banks in the form of deposits and in
return earn some interest on that b RBI acts as a supplier to banks by selling govt securities treasury bills
govt bonds etc c Call money market Banks sometimes have to borrow from other banks to
meet CRR and SLR requirements or other capital requirements as provided by RBI
4) THREAT OF SUBSTITUTES
a Product-for-product substitutioni Banks provide interest on deposits made by people Similar
services are offered by post offices which may act as substitutes to the deposit schemes of banks
ii Some banks offer locker services to customers for yearly rates Similar services are provided by many post offices
47
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Generic substitution People who deposit their savings in banks can invest their money in other sources like mutual funds shares and other securities and life insurance schemes
5) COMPETITIVE RIVALRY
a Extent of competitor balance b Market growth ratesc High Exit Barriers
PEST Analysis for Banking Industry
1 Political factors - The major factors affecting the banking sector are the following
Banking sector reforms ndash As per the RBI roadmap for reforms in the first stage from 2005 to 2009 foreign banks will be allowed to set up wholly owned subsidiaries as well as get greater freedom to set up new branches Fulfilling the minimum priority sector credit -The government mandation of fulfilling the minimum priority sector credit (of which 18 per cent is food credit) has forced the domestic banks to cater to this segment despite the low profitability and vulnerability of asset quality
Banks have also been allowed to set up Offshore Banking Units in SEZrsquos
2 Economic factors -
Basell II norms for the risk management in banking sector - The new Basel Accord has its foundation on three mutually reinforcing pillars The first pillar is compatible with the credit risk market risk and operational risk The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bankConcurrently it also casts responsibility on the supervisors to review and validate banksrsquo risk measurement models
Consolidation and merger and acquisitions in the banking sector- HDFC bank also acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Universal Banking has been introduced ICICI Bank HDFCs closest competitor is already into Universal Banking so HDFC is also getting into it as now it is providing retail banking and also depository facilities in the form of demat account
48
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
3 Social factors-
Big and growing middle class in India - This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans car loans education loans auto loans etc Retail loans have grown from 19 in FYrsquo99 to 51 FYrsquo06Consumer credit accounts for a meager 286 per cent of the countrys GDP and the buoyancy in the economy offers sufficient scope for it to grow
Geographical and Cultural diversity- This is leading to a greater demand for financial products and customization by the customers
4 Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999 It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector
Banks (All) No of players = 40
Sector statistics
We see the sector aggregates and make a financial comparison for the major banks
Top PlayersFY2006
Based on Total Income Based on OPBDT Total Income Change OPBDT Change
(Rs Mn) () (Rs Mn) ()ICICI BANK 631619 5450 S B I 763528 -129 PUNJAB NATIONAL B 29218 1491 ICICI BANK 37174 1936
CAN BANK 277095 2378 PUNJAB NATIONAL B 222052 3936
BANK OF INDIA 23317 2543 CAN BANK 168825 1953
H D F C BANK 185508 6024 H D F C BANK 14324 2748 change - indicates the change between current and corresponding quarter
49
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
(iii) the economic liberalisation phase of 1990s
PORTERrsquoS MODEL
SWOT ANALYSIS
STRENGHS
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
WEAKNESSES
Dependence on refining function high
Moderate share in high profitable retail segment
42
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Diversifications in petrochemicals could trouble the company
High burden of subsidy loss on cooking gas and kerosene
OPPORTUNITIES
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
Overseas presence in upstream and downstream will determine growth
THREATS
Rising oil prices could dampen demand
High regulatory risk
Loss of market share to private players
Entrance of private players in pipelines will take away monopoly of company in
north India
COMPANY ANALYSIS
The Annual Report is broken down into the following specific parts
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the AccountsATHE DIRECTORrsquoS REPORTThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship Fundamental AnalysisB THE AUDITORS REPORTThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors
C FINANCIAL STATEMENTSIt comprises of Balance Sheet Profit and Loss account Cash Flows Its analysis would be discussed later
DSCHEDULES
43
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The schedules detail pertinent information about the items of Balance Sheet and Profit amp Loss Account It also details information about sales manufacturing costs administration costs interest and other income and expenses
1 THE MANAGEMENT
HPCL is a public sector undertaking Thus it is a professionally managed company
There are some parameters of management on which a company is analysed
a integrity of management
b past record of management
c how highly is the management rated by its peers in the same industry
d how the management fares in adversity
e the depth of the knowledge of management
f open and innovative management
on all these parameters HPCL scores good
2 COMPANY
Many times a company has made losses in the previous years but that does not mean
that the company is bad to invest Thus many factors are studied while studying a
company
a) perception of competitors
HPCL is the second largest petroleum company after IOCL Thus it is a competitor of
IOCL and it is trying hard to compete with IOCL on every front That is why now it
has decided to diversify itself in the oil exploration sector
b) company policies
As this is a PSU thus the policies are made by the government The oil sector is one
which is highly regulated by government Thus from time to time it is required to
watch out the various policies changed
3 ANNUAL REPORT
The most primary and most important source of information about a company is its
Annual Report This is prepared every year and distributed to its shareholders
44
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Ratio Analysis
Evaluation of Intrinsic Value of the Security
stdev mkt 0011934stdev sec 003831 Average
Retention Ratio 060504
correlation 0485958 ROE 019842Beta 156765 g 0120052Risk Free Rate 650
Mkt Rate 14
45
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
k 1826
Hence we see that here our g is less than k Thus we see that as per Dividend Discount Model our Intrinsic value is div=22(1+012)=240626= 387
Price= Projected EPS + Weighted PE ratioUsing CAGR EPS = 43468Weighted PE Ratio = 75+6652=33625
Price = 43468+33625 = 381
3) HDFC BANK
The Indian banking industry sector overview
With the economic growth picking up pace and the investment cycle on the way to recovery the banking sector has witnessed a transformation in its vital role of intermediating between the demand and supply of funds
Public sector banks have been very proactive in their restructuring initiatives be it in technology implementation or pruning their loss assets Windfall treasury gains made in the falling interest rate regime were used for writing off the doubtful and loss assets
Retail lending (especially mortgage financing) formed a significant portion of the portfolio for most banks and they customized their products to cater to the diverse demands
Apart from streamlining their processes through technology initiatives such as ATMs telephone banking online banking and web based products banks also resorted to cross selling of financial products such as credit cards mutual funds and insurance policies to augment their fee based income
PORTERrsquoS FIVE FORCES MODEL FOR THE BANKING INDUSTRY
1) BARRIERS TO ENTRY a Economies of scale Since the existing players in the market are well
established and already have a customer base they are able to bear the cost of using the advantages of technology to their maximum advantage
46
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Capital requirement for entry i The Banking Regulation Act prescribes the minimum capital
requirements for a bank Moreover banks have to maintain a capital adequacy ratio of 9 under the Basel I norms
ii Government has declared that the foreign banks will be permitted to establish their presence in India by way of setting up a wholly owned banking subsidiary (WOS) with a minimum capital of Rs300 crore
c Access to distribution channels Since banks have to set up their own distribution channels all the cost has to be directly born by them
d Cost advantage independent of size Existing banks have huge databases of customers which they use when they want to sell a new product launched by them
e Legislation or Government action Banks are governed by Banking Regulation Act 1949 which specifies the rules and regulations applicable to banks RBI is the governing body of banks in India
2) BARGAINING POWER OF BUYERS
Due to increased competition the services offered by banks to customers have improved considerably
3) BARGAINING POWER OF THE SUPPLIERS
Suppliers to banks can be both - the customers and RBIa Customers of banks provide money to banks in the form of deposits and in
return earn some interest on that b RBI acts as a supplier to banks by selling govt securities treasury bills
govt bonds etc c Call money market Banks sometimes have to borrow from other banks to
meet CRR and SLR requirements or other capital requirements as provided by RBI
4) THREAT OF SUBSTITUTES
a Product-for-product substitutioni Banks provide interest on deposits made by people Similar
services are offered by post offices which may act as substitutes to the deposit schemes of banks
ii Some banks offer locker services to customers for yearly rates Similar services are provided by many post offices
47
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Generic substitution People who deposit their savings in banks can invest their money in other sources like mutual funds shares and other securities and life insurance schemes
5) COMPETITIVE RIVALRY
a Extent of competitor balance b Market growth ratesc High Exit Barriers
PEST Analysis for Banking Industry
1 Political factors - The major factors affecting the banking sector are the following
Banking sector reforms ndash As per the RBI roadmap for reforms in the first stage from 2005 to 2009 foreign banks will be allowed to set up wholly owned subsidiaries as well as get greater freedom to set up new branches Fulfilling the minimum priority sector credit -The government mandation of fulfilling the minimum priority sector credit (of which 18 per cent is food credit) has forced the domestic banks to cater to this segment despite the low profitability and vulnerability of asset quality
Banks have also been allowed to set up Offshore Banking Units in SEZrsquos
2 Economic factors -
Basell II norms for the risk management in banking sector - The new Basel Accord has its foundation on three mutually reinforcing pillars The first pillar is compatible with the credit risk market risk and operational risk The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bankConcurrently it also casts responsibility on the supervisors to review and validate banksrsquo risk measurement models
Consolidation and merger and acquisitions in the banking sector- HDFC bank also acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Universal Banking has been introduced ICICI Bank HDFCs closest competitor is already into Universal Banking so HDFC is also getting into it as now it is providing retail banking and also depository facilities in the form of demat account
48
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
3 Social factors-
Big and growing middle class in India - This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans car loans education loans auto loans etc Retail loans have grown from 19 in FYrsquo99 to 51 FYrsquo06Consumer credit accounts for a meager 286 per cent of the countrys GDP and the buoyancy in the economy offers sufficient scope for it to grow
Geographical and Cultural diversity- This is leading to a greater demand for financial products and customization by the customers
4 Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999 It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector
Banks (All) No of players = 40
Sector statistics
We see the sector aggregates and make a financial comparison for the major banks
Top PlayersFY2006
Based on Total Income Based on OPBDT Total Income Change OPBDT Change
(Rs Mn) () (Rs Mn) ()ICICI BANK 631619 5450 S B I 763528 -129 PUNJAB NATIONAL B 29218 1491 ICICI BANK 37174 1936
CAN BANK 277095 2378 PUNJAB NATIONAL B 222052 3936
BANK OF INDIA 23317 2543 CAN BANK 168825 1953
H D F C BANK 185508 6024 H D F C BANK 14324 2748 change - indicates the change between current and corresponding quarter
49
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Diversifications in petrochemicals could trouble the company
High burden of subsidy loss on cooking gas and kerosene
OPPORTUNITIES
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
Overseas presence in upstream and downstream will determine growth
THREATS
Rising oil prices could dampen demand
High regulatory risk
Loss of market share to private players
Entrance of private players in pipelines will take away monopoly of company in
north India
COMPANY ANALYSIS
The Annual Report is broken down into the following specific parts
A) The Directors ReportB) The Auditors ReportC) The Financial Statements andD) The Schedules and Notes to the AccountsATHE DIRECTORrsquoS REPORTThe Directorrsquos Report is a report submitted by the directors of a company to its shareholders advising them of the performance of the company under their stewardship Fundamental AnalysisB THE AUDITORS REPORTThe auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors
C FINANCIAL STATEMENTSIt comprises of Balance Sheet Profit and Loss account Cash Flows Its analysis would be discussed later
DSCHEDULES
43
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The schedules detail pertinent information about the items of Balance Sheet and Profit amp Loss Account It also details information about sales manufacturing costs administration costs interest and other income and expenses
1 THE MANAGEMENT
HPCL is a public sector undertaking Thus it is a professionally managed company
There are some parameters of management on which a company is analysed
a integrity of management
b past record of management
c how highly is the management rated by its peers in the same industry
d how the management fares in adversity
e the depth of the knowledge of management
f open and innovative management
on all these parameters HPCL scores good
2 COMPANY
Many times a company has made losses in the previous years but that does not mean
that the company is bad to invest Thus many factors are studied while studying a
company
a) perception of competitors
HPCL is the second largest petroleum company after IOCL Thus it is a competitor of
IOCL and it is trying hard to compete with IOCL on every front That is why now it
has decided to diversify itself in the oil exploration sector
b) company policies
As this is a PSU thus the policies are made by the government The oil sector is one
which is highly regulated by government Thus from time to time it is required to
watch out the various policies changed
3 ANNUAL REPORT
The most primary and most important source of information about a company is its
Annual Report This is prepared every year and distributed to its shareholders
44
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Ratio Analysis
Evaluation of Intrinsic Value of the Security
stdev mkt 0011934stdev sec 003831 Average
Retention Ratio 060504
correlation 0485958 ROE 019842Beta 156765 g 0120052Risk Free Rate 650
Mkt Rate 14
45
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
k 1826
Hence we see that here our g is less than k Thus we see that as per Dividend Discount Model our Intrinsic value is div=22(1+012)=240626= 387
Price= Projected EPS + Weighted PE ratioUsing CAGR EPS = 43468Weighted PE Ratio = 75+6652=33625
Price = 43468+33625 = 381
3) HDFC BANK
The Indian banking industry sector overview
With the economic growth picking up pace and the investment cycle on the way to recovery the banking sector has witnessed a transformation in its vital role of intermediating between the demand and supply of funds
Public sector banks have been very proactive in their restructuring initiatives be it in technology implementation or pruning their loss assets Windfall treasury gains made in the falling interest rate regime were used for writing off the doubtful and loss assets
Retail lending (especially mortgage financing) formed a significant portion of the portfolio for most banks and they customized their products to cater to the diverse demands
Apart from streamlining their processes through technology initiatives such as ATMs telephone banking online banking and web based products banks also resorted to cross selling of financial products such as credit cards mutual funds and insurance policies to augment their fee based income
PORTERrsquoS FIVE FORCES MODEL FOR THE BANKING INDUSTRY
1) BARRIERS TO ENTRY a Economies of scale Since the existing players in the market are well
established and already have a customer base they are able to bear the cost of using the advantages of technology to their maximum advantage
46
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Capital requirement for entry i The Banking Regulation Act prescribes the minimum capital
requirements for a bank Moreover banks have to maintain a capital adequacy ratio of 9 under the Basel I norms
ii Government has declared that the foreign banks will be permitted to establish their presence in India by way of setting up a wholly owned banking subsidiary (WOS) with a minimum capital of Rs300 crore
c Access to distribution channels Since banks have to set up their own distribution channels all the cost has to be directly born by them
d Cost advantage independent of size Existing banks have huge databases of customers which they use when they want to sell a new product launched by them
e Legislation or Government action Banks are governed by Banking Regulation Act 1949 which specifies the rules and regulations applicable to banks RBI is the governing body of banks in India
2) BARGAINING POWER OF BUYERS
Due to increased competition the services offered by banks to customers have improved considerably
3) BARGAINING POWER OF THE SUPPLIERS
Suppliers to banks can be both - the customers and RBIa Customers of banks provide money to banks in the form of deposits and in
return earn some interest on that b RBI acts as a supplier to banks by selling govt securities treasury bills
govt bonds etc c Call money market Banks sometimes have to borrow from other banks to
meet CRR and SLR requirements or other capital requirements as provided by RBI
4) THREAT OF SUBSTITUTES
a Product-for-product substitutioni Banks provide interest on deposits made by people Similar
services are offered by post offices which may act as substitutes to the deposit schemes of banks
ii Some banks offer locker services to customers for yearly rates Similar services are provided by many post offices
47
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Generic substitution People who deposit their savings in banks can invest their money in other sources like mutual funds shares and other securities and life insurance schemes
5) COMPETITIVE RIVALRY
a Extent of competitor balance b Market growth ratesc High Exit Barriers
PEST Analysis for Banking Industry
1 Political factors - The major factors affecting the banking sector are the following
Banking sector reforms ndash As per the RBI roadmap for reforms in the first stage from 2005 to 2009 foreign banks will be allowed to set up wholly owned subsidiaries as well as get greater freedom to set up new branches Fulfilling the minimum priority sector credit -The government mandation of fulfilling the minimum priority sector credit (of which 18 per cent is food credit) has forced the domestic banks to cater to this segment despite the low profitability and vulnerability of asset quality
Banks have also been allowed to set up Offshore Banking Units in SEZrsquos
2 Economic factors -
Basell II norms for the risk management in banking sector - The new Basel Accord has its foundation on three mutually reinforcing pillars The first pillar is compatible with the credit risk market risk and operational risk The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bankConcurrently it also casts responsibility on the supervisors to review and validate banksrsquo risk measurement models
Consolidation and merger and acquisitions in the banking sector- HDFC bank also acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Universal Banking has been introduced ICICI Bank HDFCs closest competitor is already into Universal Banking so HDFC is also getting into it as now it is providing retail banking and also depository facilities in the form of demat account
48
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
3 Social factors-
Big and growing middle class in India - This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans car loans education loans auto loans etc Retail loans have grown from 19 in FYrsquo99 to 51 FYrsquo06Consumer credit accounts for a meager 286 per cent of the countrys GDP and the buoyancy in the economy offers sufficient scope for it to grow
Geographical and Cultural diversity- This is leading to a greater demand for financial products and customization by the customers
4 Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999 It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector
Banks (All) No of players = 40
Sector statistics
We see the sector aggregates and make a financial comparison for the major banks
Top PlayersFY2006
Based on Total Income Based on OPBDT Total Income Change OPBDT Change
(Rs Mn) () (Rs Mn) ()ICICI BANK 631619 5450 S B I 763528 -129 PUNJAB NATIONAL B 29218 1491 ICICI BANK 37174 1936
CAN BANK 277095 2378 PUNJAB NATIONAL B 222052 3936
BANK OF INDIA 23317 2543 CAN BANK 168825 1953
H D F C BANK 185508 6024 H D F C BANK 14324 2748 change - indicates the change between current and corresponding quarter
49
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The schedules detail pertinent information about the items of Balance Sheet and Profit amp Loss Account It also details information about sales manufacturing costs administration costs interest and other income and expenses
1 THE MANAGEMENT
HPCL is a public sector undertaking Thus it is a professionally managed company
There are some parameters of management on which a company is analysed
a integrity of management
b past record of management
c how highly is the management rated by its peers in the same industry
d how the management fares in adversity
e the depth of the knowledge of management
f open and innovative management
on all these parameters HPCL scores good
2 COMPANY
Many times a company has made losses in the previous years but that does not mean
that the company is bad to invest Thus many factors are studied while studying a
company
a) perception of competitors
HPCL is the second largest petroleum company after IOCL Thus it is a competitor of
IOCL and it is trying hard to compete with IOCL on every front That is why now it
has decided to diversify itself in the oil exploration sector
b) company policies
As this is a PSU thus the policies are made by the government The oil sector is one
which is highly regulated by government Thus from time to time it is required to
watch out the various policies changed
3 ANNUAL REPORT
The most primary and most important source of information about a company is its
Annual Report This is prepared every year and distributed to its shareholders
44
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Ratio Analysis
Evaluation of Intrinsic Value of the Security
stdev mkt 0011934stdev sec 003831 Average
Retention Ratio 060504
correlation 0485958 ROE 019842Beta 156765 g 0120052Risk Free Rate 650
Mkt Rate 14
45
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
k 1826
Hence we see that here our g is less than k Thus we see that as per Dividend Discount Model our Intrinsic value is div=22(1+012)=240626= 387
Price= Projected EPS + Weighted PE ratioUsing CAGR EPS = 43468Weighted PE Ratio = 75+6652=33625
Price = 43468+33625 = 381
3) HDFC BANK
The Indian banking industry sector overview
With the economic growth picking up pace and the investment cycle on the way to recovery the banking sector has witnessed a transformation in its vital role of intermediating between the demand and supply of funds
Public sector banks have been very proactive in their restructuring initiatives be it in technology implementation or pruning their loss assets Windfall treasury gains made in the falling interest rate regime were used for writing off the doubtful and loss assets
Retail lending (especially mortgage financing) formed a significant portion of the portfolio for most banks and they customized their products to cater to the diverse demands
Apart from streamlining their processes through technology initiatives such as ATMs telephone banking online banking and web based products banks also resorted to cross selling of financial products such as credit cards mutual funds and insurance policies to augment their fee based income
PORTERrsquoS FIVE FORCES MODEL FOR THE BANKING INDUSTRY
1) BARRIERS TO ENTRY a Economies of scale Since the existing players in the market are well
established and already have a customer base they are able to bear the cost of using the advantages of technology to their maximum advantage
46
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Capital requirement for entry i The Banking Regulation Act prescribes the minimum capital
requirements for a bank Moreover banks have to maintain a capital adequacy ratio of 9 under the Basel I norms
ii Government has declared that the foreign banks will be permitted to establish their presence in India by way of setting up a wholly owned banking subsidiary (WOS) with a minimum capital of Rs300 crore
c Access to distribution channels Since banks have to set up their own distribution channels all the cost has to be directly born by them
d Cost advantage independent of size Existing banks have huge databases of customers which they use when they want to sell a new product launched by them
e Legislation or Government action Banks are governed by Banking Regulation Act 1949 which specifies the rules and regulations applicable to banks RBI is the governing body of banks in India
2) BARGAINING POWER OF BUYERS
Due to increased competition the services offered by banks to customers have improved considerably
3) BARGAINING POWER OF THE SUPPLIERS
Suppliers to banks can be both - the customers and RBIa Customers of banks provide money to banks in the form of deposits and in
return earn some interest on that b RBI acts as a supplier to banks by selling govt securities treasury bills
govt bonds etc c Call money market Banks sometimes have to borrow from other banks to
meet CRR and SLR requirements or other capital requirements as provided by RBI
4) THREAT OF SUBSTITUTES
a Product-for-product substitutioni Banks provide interest on deposits made by people Similar
services are offered by post offices which may act as substitutes to the deposit schemes of banks
ii Some banks offer locker services to customers for yearly rates Similar services are provided by many post offices
47
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Generic substitution People who deposit their savings in banks can invest their money in other sources like mutual funds shares and other securities and life insurance schemes
5) COMPETITIVE RIVALRY
a Extent of competitor balance b Market growth ratesc High Exit Barriers
PEST Analysis for Banking Industry
1 Political factors - The major factors affecting the banking sector are the following
Banking sector reforms ndash As per the RBI roadmap for reforms in the first stage from 2005 to 2009 foreign banks will be allowed to set up wholly owned subsidiaries as well as get greater freedom to set up new branches Fulfilling the minimum priority sector credit -The government mandation of fulfilling the minimum priority sector credit (of which 18 per cent is food credit) has forced the domestic banks to cater to this segment despite the low profitability and vulnerability of asset quality
Banks have also been allowed to set up Offshore Banking Units in SEZrsquos
2 Economic factors -
Basell II norms for the risk management in banking sector - The new Basel Accord has its foundation on three mutually reinforcing pillars The first pillar is compatible with the credit risk market risk and operational risk The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bankConcurrently it also casts responsibility on the supervisors to review and validate banksrsquo risk measurement models
Consolidation and merger and acquisitions in the banking sector- HDFC bank also acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Universal Banking has been introduced ICICI Bank HDFCs closest competitor is already into Universal Banking so HDFC is also getting into it as now it is providing retail banking and also depository facilities in the form of demat account
48
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
3 Social factors-
Big and growing middle class in India - This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans car loans education loans auto loans etc Retail loans have grown from 19 in FYrsquo99 to 51 FYrsquo06Consumer credit accounts for a meager 286 per cent of the countrys GDP and the buoyancy in the economy offers sufficient scope for it to grow
Geographical and Cultural diversity- This is leading to a greater demand for financial products and customization by the customers
4 Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999 It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector
Banks (All) No of players = 40
Sector statistics
We see the sector aggregates and make a financial comparison for the major banks
Top PlayersFY2006
Based on Total Income Based on OPBDT Total Income Change OPBDT Change
(Rs Mn) () (Rs Mn) ()ICICI BANK 631619 5450 S B I 763528 -129 PUNJAB NATIONAL B 29218 1491 ICICI BANK 37174 1936
CAN BANK 277095 2378 PUNJAB NATIONAL B 222052 3936
BANK OF INDIA 23317 2543 CAN BANK 168825 1953
H D F C BANK 185508 6024 H D F C BANK 14324 2748 change - indicates the change between current and corresponding quarter
49
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Ratio Analysis
Evaluation of Intrinsic Value of the Security
stdev mkt 0011934stdev sec 003831 Average
Retention Ratio 060504
correlation 0485958 ROE 019842Beta 156765 g 0120052Risk Free Rate 650
Mkt Rate 14
45
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
k 1826
Hence we see that here our g is less than k Thus we see that as per Dividend Discount Model our Intrinsic value is div=22(1+012)=240626= 387
Price= Projected EPS + Weighted PE ratioUsing CAGR EPS = 43468Weighted PE Ratio = 75+6652=33625
Price = 43468+33625 = 381
3) HDFC BANK
The Indian banking industry sector overview
With the economic growth picking up pace and the investment cycle on the way to recovery the banking sector has witnessed a transformation in its vital role of intermediating between the demand and supply of funds
Public sector banks have been very proactive in their restructuring initiatives be it in technology implementation or pruning their loss assets Windfall treasury gains made in the falling interest rate regime were used for writing off the doubtful and loss assets
Retail lending (especially mortgage financing) formed a significant portion of the portfolio for most banks and they customized their products to cater to the diverse demands
Apart from streamlining their processes through technology initiatives such as ATMs telephone banking online banking and web based products banks also resorted to cross selling of financial products such as credit cards mutual funds and insurance policies to augment their fee based income
PORTERrsquoS FIVE FORCES MODEL FOR THE BANKING INDUSTRY
1) BARRIERS TO ENTRY a Economies of scale Since the existing players in the market are well
established and already have a customer base they are able to bear the cost of using the advantages of technology to their maximum advantage
46
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Capital requirement for entry i The Banking Regulation Act prescribes the minimum capital
requirements for a bank Moreover banks have to maintain a capital adequacy ratio of 9 under the Basel I norms
ii Government has declared that the foreign banks will be permitted to establish their presence in India by way of setting up a wholly owned banking subsidiary (WOS) with a minimum capital of Rs300 crore
c Access to distribution channels Since banks have to set up their own distribution channels all the cost has to be directly born by them
d Cost advantage independent of size Existing banks have huge databases of customers which they use when they want to sell a new product launched by them
e Legislation or Government action Banks are governed by Banking Regulation Act 1949 which specifies the rules and regulations applicable to banks RBI is the governing body of banks in India
2) BARGAINING POWER OF BUYERS
Due to increased competition the services offered by banks to customers have improved considerably
3) BARGAINING POWER OF THE SUPPLIERS
Suppliers to banks can be both - the customers and RBIa Customers of banks provide money to banks in the form of deposits and in
return earn some interest on that b RBI acts as a supplier to banks by selling govt securities treasury bills
govt bonds etc c Call money market Banks sometimes have to borrow from other banks to
meet CRR and SLR requirements or other capital requirements as provided by RBI
4) THREAT OF SUBSTITUTES
a Product-for-product substitutioni Banks provide interest on deposits made by people Similar
services are offered by post offices which may act as substitutes to the deposit schemes of banks
ii Some banks offer locker services to customers for yearly rates Similar services are provided by many post offices
47
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Generic substitution People who deposit their savings in banks can invest their money in other sources like mutual funds shares and other securities and life insurance schemes
5) COMPETITIVE RIVALRY
a Extent of competitor balance b Market growth ratesc High Exit Barriers
PEST Analysis for Banking Industry
1 Political factors - The major factors affecting the banking sector are the following
Banking sector reforms ndash As per the RBI roadmap for reforms in the first stage from 2005 to 2009 foreign banks will be allowed to set up wholly owned subsidiaries as well as get greater freedom to set up new branches Fulfilling the minimum priority sector credit -The government mandation of fulfilling the minimum priority sector credit (of which 18 per cent is food credit) has forced the domestic banks to cater to this segment despite the low profitability and vulnerability of asset quality
Banks have also been allowed to set up Offshore Banking Units in SEZrsquos
2 Economic factors -
Basell II norms for the risk management in banking sector - The new Basel Accord has its foundation on three mutually reinforcing pillars The first pillar is compatible with the credit risk market risk and operational risk The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bankConcurrently it also casts responsibility on the supervisors to review and validate banksrsquo risk measurement models
Consolidation and merger and acquisitions in the banking sector- HDFC bank also acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Universal Banking has been introduced ICICI Bank HDFCs closest competitor is already into Universal Banking so HDFC is also getting into it as now it is providing retail banking and also depository facilities in the form of demat account
48
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
3 Social factors-
Big and growing middle class in India - This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans car loans education loans auto loans etc Retail loans have grown from 19 in FYrsquo99 to 51 FYrsquo06Consumer credit accounts for a meager 286 per cent of the countrys GDP and the buoyancy in the economy offers sufficient scope for it to grow
Geographical and Cultural diversity- This is leading to a greater demand for financial products and customization by the customers
4 Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999 It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector
Banks (All) No of players = 40
Sector statistics
We see the sector aggregates and make a financial comparison for the major banks
Top PlayersFY2006
Based on Total Income Based on OPBDT Total Income Change OPBDT Change
(Rs Mn) () (Rs Mn) ()ICICI BANK 631619 5450 S B I 763528 -129 PUNJAB NATIONAL B 29218 1491 ICICI BANK 37174 1936
CAN BANK 277095 2378 PUNJAB NATIONAL B 222052 3936
BANK OF INDIA 23317 2543 CAN BANK 168825 1953
H D F C BANK 185508 6024 H D F C BANK 14324 2748 change - indicates the change between current and corresponding quarter
49
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
k 1826
Hence we see that here our g is less than k Thus we see that as per Dividend Discount Model our Intrinsic value is div=22(1+012)=240626= 387
Price= Projected EPS + Weighted PE ratioUsing CAGR EPS = 43468Weighted PE Ratio = 75+6652=33625
Price = 43468+33625 = 381
3) HDFC BANK
The Indian banking industry sector overview
With the economic growth picking up pace and the investment cycle on the way to recovery the banking sector has witnessed a transformation in its vital role of intermediating between the demand and supply of funds
Public sector banks have been very proactive in their restructuring initiatives be it in technology implementation or pruning their loss assets Windfall treasury gains made in the falling interest rate regime were used for writing off the doubtful and loss assets
Retail lending (especially mortgage financing) formed a significant portion of the portfolio for most banks and they customized their products to cater to the diverse demands
Apart from streamlining their processes through technology initiatives such as ATMs telephone banking online banking and web based products banks also resorted to cross selling of financial products such as credit cards mutual funds and insurance policies to augment their fee based income
PORTERrsquoS FIVE FORCES MODEL FOR THE BANKING INDUSTRY
1) BARRIERS TO ENTRY a Economies of scale Since the existing players in the market are well
established and already have a customer base they are able to bear the cost of using the advantages of technology to their maximum advantage
46
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Capital requirement for entry i The Banking Regulation Act prescribes the minimum capital
requirements for a bank Moreover banks have to maintain a capital adequacy ratio of 9 under the Basel I norms
ii Government has declared that the foreign banks will be permitted to establish their presence in India by way of setting up a wholly owned banking subsidiary (WOS) with a minimum capital of Rs300 crore
c Access to distribution channels Since banks have to set up their own distribution channels all the cost has to be directly born by them
d Cost advantage independent of size Existing banks have huge databases of customers which they use when they want to sell a new product launched by them
e Legislation or Government action Banks are governed by Banking Regulation Act 1949 which specifies the rules and regulations applicable to banks RBI is the governing body of banks in India
2) BARGAINING POWER OF BUYERS
Due to increased competition the services offered by banks to customers have improved considerably
3) BARGAINING POWER OF THE SUPPLIERS
Suppliers to banks can be both - the customers and RBIa Customers of banks provide money to banks in the form of deposits and in
return earn some interest on that b RBI acts as a supplier to banks by selling govt securities treasury bills
govt bonds etc c Call money market Banks sometimes have to borrow from other banks to
meet CRR and SLR requirements or other capital requirements as provided by RBI
4) THREAT OF SUBSTITUTES
a Product-for-product substitutioni Banks provide interest on deposits made by people Similar
services are offered by post offices which may act as substitutes to the deposit schemes of banks
ii Some banks offer locker services to customers for yearly rates Similar services are provided by many post offices
47
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Generic substitution People who deposit their savings in banks can invest their money in other sources like mutual funds shares and other securities and life insurance schemes
5) COMPETITIVE RIVALRY
a Extent of competitor balance b Market growth ratesc High Exit Barriers
PEST Analysis for Banking Industry
1 Political factors - The major factors affecting the banking sector are the following
Banking sector reforms ndash As per the RBI roadmap for reforms in the first stage from 2005 to 2009 foreign banks will be allowed to set up wholly owned subsidiaries as well as get greater freedom to set up new branches Fulfilling the minimum priority sector credit -The government mandation of fulfilling the minimum priority sector credit (of which 18 per cent is food credit) has forced the domestic banks to cater to this segment despite the low profitability and vulnerability of asset quality
Banks have also been allowed to set up Offshore Banking Units in SEZrsquos
2 Economic factors -
Basell II norms for the risk management in banking sector - The new Basel Accord has its foundation on three mutually reinforcing pillars The first pillar is compatible with the credit risk market risk and operational risk The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bankConcurrently it also casts responsibility on the supervisors to review and validate banksrsquo risk measurement models
Consolidation and merger and acquisitions in the banking sector- HDFC bank also acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Universal Banking has been introduced ICICI Bank HDFCs closest competitor is already into Universal Banking so HDFC is also getting into it as now it is providing retail banking and also depository facilities in the form of demat account
48
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
3 Social factors-
Big and growing middle class in India - This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans car loans education loans auto loans etc Retail loans have grown from 19 in FYrsquo99 to 51 FYrsquo06Consumer credit accounts for a meager 286 per cent of the countrys GDP and the buoyancy in the economy offers sufficient scope for it to grow
Geographical and Cultural diversity- This is leading to a greater demand for financial products and customization by the customers
4 Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999 It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector
Banks (All) No of players = 40
Sector statistics
We see the sector aggregates and make a financial comparison for the major banks
Top PlayersFY2006
Based on Total Income Based on OPBDT Total Income Change OPBDT Change
(Rs Mn) () (Rs Mn) ()ICICI BANK 631619 5450 S B I 763528 -129 PUNJAB NATIONAL B 29218 1491 ICICI BANK 37174 1936
CAN BANK 277095 2378 PUNJAB NATIONAL B 222052 3936
BANK OF INDIA 23317 2543 CAN BANK 168825 1953
H D F C BANK 185508 6024 H D F C BANK 14324 2748 change - indicates the change between current and corresponding quarter
49
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Capital requirement for entry i The Banking Regulation Act prescribes the minimum capital
requirements for a bank Moreover banks have to maintain a capital adequacy ratio of 9 under the Basel I norms
ii Government has declared that the foreign banks will be permitted to establish their presence in India by way of setting up a wholly owned banking subsidiary (WOS) with a minimum capital of Rs300 crore
c Access to distribution channels Since banks have to set up their own distribution channels all the cost has to be directly born by them
d Cost advantage independent of size Existing banks have huge databases of customers which they use when they want to sell a new product launched by them
e Legislation or Government action Banks are governed by Banking Regulation Act 1949 which specifies the rules and regulations applicable to banks RBI is the governing body of banks in India
2) BARGAINING POWER OF BUYERS
Due to increased competition the services offered by banks to customers have improved considerably
3) BARGAINING POWER OF THE SUPPLIERS
Suppliers to banks can be both - the customers and RBIa Customers of banks provide money to banks in the form of deposits and in
return earn some interest on that b RBI acts as a supplier to banks by selling govt securities treasury bills
govt bonds etc c Call money market Banks sometimes have to borrow from other banks to
meet CRR and SLR requirements or other capital requirements as provided by RBI
4) THREAT OF SUBSTITUTES
a Product-for-product substitutioni Banks provide interest on deposits made by people Similar
services are offered by post offices which may act as substitutes to the deposit schemes of banks
ii Some banks offer locker services to customers for yearly rates Similar services are provided by many post offices
47
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Generic substitution People who deposit their savings in banks can invest their money in other sources like mutual funds shares and other securities and life insurance schemes
5) COMPETITIVE RIVALRY
a Extent of competitor balance b Market growth ratesc High Exit Barriers
PEST Analysis for Banking Industry
1 Political factors - The major factors affecting the banking sector are the following
Banking sector reforms ndash As per the RBI roadmap for reforms in the first stage from 2005 to 2009 foreign banks will be allowed to set up wholly owned subsidiaries as well as get greater freedom to set up new branches Fulfilling the minimum priority sector credit -The government mandation of fulfilling the minimum priority sector credit (of which 18 per cent is food credit) has forced the domestic banks to cater to this segment despite the low profitability and vulnerability of asset quality
Banks have also been allowed to set up Offshore Banking Units in SEZrsquos
2 Economic factors -
Basell II norms for the risk management in banking sector - The new Basel Accord has its foundation on three mutually reinforcing pillars The first pillar is compatible with the credit risk market risk and operational risk The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bankConcurrently it also casts responsibility on the supervisors to review and validate banksrsquo risk measurement models
Consolidation and merger and acquisitions in the banking sector- HDFC bank also acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Universal Banking has been introduced ICICI Bank HDFCs closest competitor is already into Universal Banking so HDFC is also getting into it as now it is providing retail banking and also depository facilities in the form of demat account
48
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
3 Social factors-
Big and growing middle class in India - This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans car loans education loans auto loans etc Retail loans have grown from 19 in FYrsquo99 to 51 FYrsquo06Consumer credit accounts for a meager 286 per cent of the countrys GDP and the buoyancy in the economy offers sufficient scope for it to grow
Geographical and Cultural diversity- This is leading to a greater demand for financial products and customization by the customers
4 Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999 It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector
Banks (All) No of players = 40
Sector statistics
We see the sector aggregates and make a financial comparison for the major banks
Top PlayersFY2006
Based on Total Income Based on OPBDT Total Income Change OPBDT Change
(Rs Mn) () (Rs Mn) ()ICICI BANK 631619 5450 S B I 763528 -129 PUNJAB NATIONAL B 29218 1491 ICICI BANK 37174 1936
CAN BANK 277095 2378 PUNJAB NATIONAL B 222052 3936
BANK OF INDIA 23317 2543 CAN BANK 168825 1953
H D F C BANK 185508 6024 H D F C BANK 14324 2748 change - indicates the change between current and corresponding quarter
49
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
b Generic substitution People who deposit their savings in banks can invest their money in other sources like mutual funds shares and other securities and life insurance schemes
5) COMPETITIVE RIVALRY
a Extent of competitor balance b Market growth ratesc High Exit Barriers
PEST Analysis for Banking Industry
1 Political factors - The major factors affecting the banking sector are the following
Banking sector reforms ndash As per the RBI roadmap for reforms in the first stage from 2005 to 2009 foreign banks will be allowed to set up wholly owned subsidiaries as well as get greater freedom to set up new branches Fulfilling the minimum priority sector credit -The government mandation of fulfilling the minimum priority sector credit (of which 18 per cent is food credit) has forced the domestic banks to cater to this segment despite the low profitability and vulnerability of asset quality
Banks have also been allowed to set up Offshore Banking Units in SEZrsquos
2 Economic factors -
Basell II norms for the risk management in banking sector - The new Basel Accord has its foundation on three mutually reinforcing pillars The first pillar is compatible with the credit risk market risk and operational risk The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bankConcurrently it also casts responsibility on the supervisors to review and validate banksrsquo risk measurement models
Consolidation and merger and acquisitions in the banking sector- HDFC bank also acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Universal Banking has been introduced ICICI Bank HDFCs closest competitor is already into Universal Banking so HDFC is also getting into it as now it is providing retail banking and also depository facilities in the form of demat account
48
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
3 Social factors-
Big and growing middle class in India - This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans car loans education loans auto loans etc Retail loans have grown from 19 in FYrsquo99 to 51 FYrsquo06Consumer credit accounts for a meager 286 per cent of the countrys GDP and the buoyancy in the economy offers sufficient scope for it to grow
Geographical and Cultural diversity- This is leading to a greater demand for financial products and customization by the customers
4 Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999 It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector
Banks (All) No of players = 40
Sector statistics
We see the sector aggregates and make a financial comparison for the major banks
Top PlayersFY2006
Based on Total Income Based on OPBDT Total Income Change OPBDT Change
(Rs Mn) () (Rs Mn) ()ICICI BANK 631619 5450 S B I 763528 -129 PUNJAB NATIONAL B 29218 1491 ICICI BANK 37174 1936
CAN BANK 277095 2378 PUNJAB NATIONAL B 222052 3936
BANK OF INDIA 23317 2543 CAN BANK 168825 1953
H D F C BANK 185508 6024 H D F C BANK 14324 2748 change - indicates the change between current and corresponding quarter
49
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
3 Social factors-
Big and growing middle class in India - This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans car loans education loans auto loans etc Retail loans have grown from 19 in FYrsquo99 to 51 FYrsquo06Consumer credit accounts for a meager 286 per cent of the countrys GDP and the buoyancy in the economy offers sufficient scope for it to grow
Geographical and Cultural diversity- This is leading to a greater demand for financial products and customization by the customers
4 Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999 It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector
Banks (All) No of players = 40
Sector statistics
We see the sector aggregates and make a financial comparison for the major banks
Top PlayersFY2006
Based on Total Income Based on OPBDT Total Income Change OPBDT Change
(Rs Mn) () (Rs Mn) ()ICICI BANK 631619 5450 S B I 763528 -129 PUNJAB NATIONAL B 29218 1491 ICICI BANK 37174 1936
CAN BANK 277095 2378 PUNJAB NATIONAL B 222052 3936
BANK OF INDIA 23317 2543 CAN BANK 168825 1953
H D F C BANK 185508 6024 H D F C BANK 14324 2748 change - indicates the change between current and corresponding quarter
49
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap PE
Banco Bilbao Vizcaya Argentaria BBV 2240009
7596B 1483
Lloyds TSB Group plc LYG 3959013
5545B 2152
ABN AMRO Holding NV ABN 2772165
5245B 1289
SanPaolo IMI SpA IMI 4095238
3240B NA
Banco Bradesco SA BBD 3122151
3050B 1010
HDFC Bank Ltd HDB 5558079
583B 3004
Quarterly Aggregates No of Players - 29
Previous Quarter Latest QuarterTotal Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 742968 816226PAT (Rs Mn) 304817 327054Equity Capital (Rs Mn) 126435 777301
HDFC Vs Industry Leaders
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 7596B 583B 13 24
PE Ratio (ttm) BMA 8436 3004 2 24
PEG Ratio (ttm 5 yr expected) BCA 322 064 16 24
Revenue Growth (Qtrly YoY) BFR 2970 4560 4 24
EPS Growth (Qtrly YoY) IRE 15400 3390 6 24
50
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Long-Term Growth Rate (5 yr) KB 445 300 2 24
Return on Equity (ttm) BFR 9121 NA NA
Long-Term DebtEquity (mrq) NA
Dividend Yield (annual) LYG 620 070 18 24
Company Analysis HDFC Bank (HDB)
Key Highlights
Symbol HDBSector FinancialIndustry Foreign Regional BanksMarket Cap 43882 CrData Since 2002-01-02Last close 1710Full time employees 9030
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an lsquoin principlersquo approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector as part of the
RBIrsquos liberalization of the Indian Banking Industry It was incorporated in
August 1994 in the name of lsquoHDFC Bank Limitedrsquo with its registered
office in Mumbai HDFC began operations as a Scheduled Commercial
Bank in January 1995
2002-03 2003-04 2004-05Interest Income 201361 254893 309349Interest Expense 119196 121105 131556Net Interest Income 82165 133788 177793Other Income 46555 48003 65134
51
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Net Revenues 128720 181791 242927Operating costs 57705 81000 108540Operating Result 71015 100791 134387Provisions and Contingencies 13930 28895 36493Profit before tax 57085 71896 97894Provision for taxation 18325 20946 31338Profit after tax 38760 50950 66556Funds Deposits 2237607 3040886 3635425Subordinated debt - - 20000 60000 50000Stockholdersrsquo Equity 224483 269188 451985Working Funds 3042408 4230699 5142900Loans 1175486 1774451 2556630Investments 1338808 1925679 1934981Key Ratios Earnings per share (Rs) 1375 1795 2292Return on Average Networth 1810 2014 2044Tier 1 Capital Ratio 949 803 960Total Capital Ratio 1112 1166 1216Dividend per share (Rs) - 3 35 45Dividend payout ratio - 2472 2215 2400Book value per share as at March 31 (Rs) 796 9452 14586Market price per share as at March 31 (Rs) 23455 37875 57364Price to Earnings Ratio 1706 211 2503
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source HDFC bank Annual Report 2006-07)
52
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
53
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) JET AIRWAYS
MARKETCurrently the market scenario is as shown
1) ACC LIMITED
AIRLINE CURRENT ACQUISITION INVESTMENTS
FLEET PLANS US $BnJet Airways 53 30 by 2012 2Air Deccan 29 79 by 2010 27Kingfisher 11 100 by 2012 45Spice Jet 6 38 by 2010 19GoAir 4 33 by 2008 24
STATE OF THE INDUSTRY
The Domestic Aviation Market Share
34
2121
8
8 2 6 0Jet Airways
Indian
Deccan
Sahara
KingFisher
GoAir
SpiceJet
Chartered Flights
54
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull High growth potential due to economic boom and highly under penetration in the market
bull 002 trips per capita per annumbull Long-term GDP growth at 8 annually
bull It is forecasted that India would be the second fastest growing travel and tourism economy in the world
bull ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
bull Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
bull The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its controlMain factors are
P OLITICAL E CONOMIC S OCIO-CULTURALT ECHNOLOGICAL
Other FactorsDEMOGRAPHICNATURAL ENVIRONMENT
POLITICAL
OPEN SKY POLICYDEREGULATIONS IN DIFFERENT SPHERESLESS ENTRY BARRIERSREDUCTION IN FDI LIMIT 49 for airlines
100 for airport
55
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIO-CULTURAL
bull Growing Middle Class1993 to 1999 395 million to 567m households
2005 300 million2010 400 million estimates
bull Increase in leisure travel by tourists by 15 in 2004
bull 32 million foreign tourists visited India last year tourism industry grew 88 per cent over 2003 the highest growth rate in the world
56
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERSHIGHEST PEOPLE IN 20-50 AGE GROUPEDUCATIONAL GROUPSSHIFT TOWARDS NUCLEAR FAMILIES(Source NCAER)MIDDLE CLASS INCOME OVER RS 90000 PA
NATURAL ENVIRONMENTHIGH ENERGY COSTS
bull The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market
bull Govt increased prices by 75 From 3256 to 35litre
57
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
bull ATF price in feb soared by 35 to the price in jan 06
PORTERS FIVE FORCE ANALYSIS
bull THREAT OF NEW ENTRANTS Easy entry but execution doubtful The capital requirement-a min of 30cr capitalization before takeoff Network amp time slots of existing players Expected retaliation Legislation or government action equity capital for floating an airline Differentiation Exit barriers
bull Inadequate airport infrastructure shortage of pilots high fuel costsbull Compulsion to operate on uneconomical routes no subsidy
bull POWER OF BUYERSbull Large number of buyers Business travelers sector intensified by GDP
growth leisure customer market too a huge growth opportunitybull Alternative source- large number of options availablebull Cost of switching- Minimalbull No differentiation among the players in the same segment
bull POWER OF SUPPLIERSbull ATF AIRCRAFT MFG PILOT
bull Switching costs- options of switching is very limitedbull Brand value- highbull Forward integration- no history in past but possiblebull Shortage of pilotsbull High fuel costs
bull AVAILABILITY OF SUBSTITUTEbull Product for product substitution- consumers can choose between the
various options such as road and railbull Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it It is marginally possible
COMPETITIVE RIVALRYIncreased competitive pressures due to new entrantsGrowth rates- high projected to be 22High fixed costsExtra capacityAcquisition of weaker companiesHigh exit barriersDifferentiation
58
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
SWOT of The Industry
Key Attractionsbull Low entry barrierbull Attraction of foreign shoresbull Foreign equity allowedbull Rising income levels and demographic profile
Key Problemsbull Crippling ldquoOil Shockrdquo bull Absence to Institutionalized Fundingbull Acute shortage of trained Pilots severely limiting growth prospects bull Unplanned location of Airports
Key Developments that may Influence the futurebull Average growth of about 25-30bull Air Freight segment is growing faster than the Passengers segmentbull Duties slashed on ATF and IATTbull Pilot license applications have tripled bull Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015bull Expected Market Size is projected to be about 50 million by 2010
4) JET AIRWAYS
Market Share 35
Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one
Weaknesses Required 1000 pilots in next two years Concentrates only most profitable routes Failed attempts at Merger
Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business
59
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Integrate more long haul aircrafts
Threats Stiff competition in the Economy class from Low Cost Carriers Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue
Growth Forecast World Passenger traffic grew to 5212 million in the last fiscal from 4347
million in 2004-05 to register a growth of 199 percent
In the last fiscal the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years riding on the overall economic growth of eight percent
The Positive StepsGreenfield airports ndashBangaloreHyderabad
bull JVs for Ground Handling and MRO facilitiesbull Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this yearbull AAI set up more radar stations ndash to bring entire Indian airspace under radar monitoringbull Training more Pilots and Air Traffic Controllersbull Raising retirement age of pilots to 65 from 61
New EntrantsThe aviation sector is likely to see the launch of many new airlines including
bull Premier Airwaysbull Star Airbull East West Airlines bull Indigobull Jagson
60
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS -Trend-1048766 The stock after correcting to 50 of the long bull run [Bottom 676 ndash Top 1197] pricesreversed back and are now in intermediary upward trendMoving Averages -The stock is currently trading above all the important trading moving averages The moving average rossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buyat current levels13 days = 103770 40 days = 10608430 days = 107865 100 days = 99162Moving Average Channels-1048766 The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levelsRelative Strength Index (RSI)-1048766 RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 5346 showing synchronization with price movement
61
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Pitchfork-1048766 The stock have broken the upper arms and moved out (at 1072) of the corrective trendpitchfork signaling positive trend amp buy at current levels1048766 The stock is now moving towards the median of the major pitchfork which is around 1160 levelsOscillators-1048766 Osc (1070) trading favorably in positive zone indicating presence of long term traders1048766 Osc (535) are pulling back to zero from negative indicating entry of short term tradersVolumes-The stock is trading with lack luster volumes Volumes should ideally expand for the advance togather steam27 Dec 2006 28 Dec 2006On the basis of above analysis price movement can be projected as follows -Target --- 1167Stop Loss --- 1040Support --- 1066 ndash 1063 ndash 1057 ndash 1046Resistance --- 1087 ndash 1093 ndash 1115 ndash 1122 ndash 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 235125
62
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
3) CIPLA LIMITED
CIPLA
Date 12th February 2007
Close 24835
Trend Not Clear
Support 220
Resistance 260
Stop loss 205
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
63
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
If you are a slightly longer term investor you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down If you are a short term trader you may use the below paragraph information and play for small moves
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Date 12th February 2007
Close 33185
Trend Down
Support 355
Resistance 390
Stop loss 347
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Date 12th February 2007
64
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Close 40915
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
6) TATA MOTORS LIMITED
TATAMOTORS
Date 12th February 2007
Close 87505
Trend Down
Support 810
Resistance 895
Stop loss 795
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
65
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Date 12th February 2007
Close 135885
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
8) MAHINDRA amp MAHINDRA LIMITED
MampM
Date 12th February 2007
Close 88080
Trend Down
Support 930
Resistance 980
Stop loss 918
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
66
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
9) STATE BANK OF INDIA
SBIN
Date 12th February 2007
Close 118370
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
10) MARUTI UDYOG LIMITED
MARUTI
Date 12th February 2007
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
How to trade according to the data mentioned above
67
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
If an entry is made in front of support and the close is above the support it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below Once you have bought the stock intraday put the Stop Loss accordingly mentioned and sell it before the market closes
If an entry is made in front of resistance and the close is less then resistance it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below At close one should cover if one is an intraday trader
If we do not find the stock giving clear signal for intraday trading than we will leave the support or resistance field empty
I
68
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-5 LIMITATIONS
LIMITATIONS
Like all studies based on samples this study also suffers from some limitations
1 As the study depends on human perceptions so there are chances of study getting biased2 Error due to some oversight or misinterpretation3 The scope of study was limited due to some constraints4 Any other error which could have crept in the course of the Project
69
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
70
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-6
CONCLUSION
CONCLUSION
RECOMMENDATIONS
1) ACC- At current price it is not advisable to buy the stock Reasons for not buying the stock
The stock is currently trading above all the important trading moving averages
The moving average crossover of 13 days amp 40 days is observed on 22nd Dec 2006 triggering price trend reversal and buy at current levels
71
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
The stock is trading with lack luster volumes Volumes should ideally expand for the advance to gather steam
2) INFOSYS TECHNOLOGIES- At current market price its advisable to buy the share Reasons
The stock is currently trading below all the important moving averages
The stock is trading with good volumes Volumes are ideal and are set to gather further steam
3) TATA MOTORS- At current market price we should buy the share because of the following reasons
Since 1991 opening of the economy has changed the face of auto industry Today it is amongst the main drivers of growth of Indian economy with an output multiplier of 224(for every Re1 invested auto sector gives back Rs224 to the economy)
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat at Pune for manufacturing passenger vehicles engines and transmissions for both domestic and international markets The Company has also entered into a JV with Hitachi to set up a new plant in Kharagpur
4) HPCL
Strengths
Favourable production ndash sale mix
Entry on petrochemicals and gas sector will reduce dependence on RampM sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
72
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK Growing stock and its advisable to invest in this stock for long term
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers
Growth in net revenues of 422 Net profit up by 32 Total customer asset increased by 449
6) JET AIRWAYS We should not invest in the stock because of the following reasons
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry
6) RELIANCE INDUSTRIES Good stock for any Portfolio
Very high GRM thus it will continue to produce Positive Cash Flow
Charts show good volume with positive uptrend
8) STATE BANK OF INDIA Should be Sold
Due to tight monetary policies it will remain under pressure
Very low volumes plus twenty day moving average both indicate that it should not be held
10)MARUTI UDYOG Can be held
Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past
11)RANBAXY PHARMACEUTICALS Should be bought
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule
73
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger
Volumes are increasing so it appears there is a upside left to this stock
12)MAHINDRA amp MAHINDRA Should be held
In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates
Twenty day moving average plus it is around a very strong support so it seems that it can show a rally
74
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-7
GLOSSARY
GLOSSARY
SECURITY ANALYSIS stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements make purchases when the market inevitably under-prices some of them earn a satisfactory return and never be in real danger of permanent loss
FUNDAMENTAL ANALYSIS is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price
75
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
TECHNICAL ANALYSIS is the study of prices and volume for forecasting of future stock price or financial price movements
DOW JONES THEORY The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages
ELLIOT WAVES BASICS Breaking through support or resistance levels results in a change of tradersrsquo expectations
SUPPORT Support is a level at which bulls (ie buyers) take control over the prices and prevent them from falling lower
RESISTANCE is the point at which sellers (bears) take control of prices and prevent them from rising higher
ROLE REVERSAL When a resistance level is successfully broken through that level becomes a support level Similarly when a support level is successfully broken through that level becomes a resistance level
BULL TREND The start of an up trend is signaled when price makes a higher low (trough) followed by a rally above the previous high (peak)
BEAR TREND when a rally ends with a lower peak and then retreats below the previous low The end of a bear trend is identical to the start of a bull trend
LARGE CORRECTION A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend)
MOVING AVERAGE A moving average is the average price of a financial instrument
over a given time RELATIVE STRENGTH INDEX The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100ADVANCEDECLINE LINE The ldquoadvancedecline linerdquo shows for some period the
cumulative difference between advancing and declining issues CLOSING TICK ldquoClosing tickrdquo is the difference between the number of shares that
closed on an uptick and those that closed on a downtick CLOSING ARMS ldquoClosing armsrdquo or ldquotrinrdquo (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues Z-BLOCK TRADES ldquozBlock tradesrdquo are trades in excess of 10000 sharesHI-LO-CLOSE CHART A hi-lo-close chart is a bar chart showing for each day the
high price low price and closing price
CANDESTICK CHART A candlestick chart is an extended version of the hi-lo-close chart It plots the high low open and closing prices and also shows whether the closing price was above or below the opening price
POINT AND FIGURE CHARTS Point-and-figure charts are a way of showing only major price moves and their direction A ldquomajorrdquo up move is marked with an ldquoXrdquo while a ldquomajorrdquo down move is marked with an ldquoOrdquo A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION Once a chart is drawn technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation
76
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
ODD-LOT The ldquoodd-lotrdquo indicator looks at whether odd-lot purchases are up or down
HEMLINE Followers of the ldquohemlinerdquo indicator claim that hemlines tend to rise in good times
SUPER BOWL The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins
BETA Beta is a risk measure comparing the volatility of a stocks price movement to the general market
MOMENTUM Momentum measures the speed of price change and provides a leading indicator of changes in trend
UPSIDEDOWNSIDE Measures of UpsideDownside separate the volumes for rising markets from those in falling markets Since volume is independent of price it makes a valuable tool for measuring the quality of a price trend
SWING INDEX Is a swing or wave system used to capitalize on breakout patterns ASI is commonly used to confirm trend line breakouts on price charts
ARMS INDEX (TRIN) Short term breadth indicator showing whether volume is flowing into advancing or declining issues
77
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
CHAPTER-8
BIBLIOGRAPHY
BIBLIOGRAPHY
1) John L Person ldquoA Complete Guide to Technical Trading Tacticsrdquo Ninth Edition (March 26 2004)
2) Colby Robert W and Thomas A Meyers ldquoThe Encyclopedia of Technical Market Indicatorsrdquo (Tenth Edition 2000)
3) Nison Steve ldquoBeyond Candlesticksrdquo (John Wiley amp Sons 1994) Fourth Edition 1998
4) Edwards Robert D and John Magee Technical Analysis of Stock Trends (John Magee 1997 first edition 1948)
78
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
4) Geoffrey Poitras ldquoSecurity Analysis and Investment Strategyrdquo (2001)
5) Benjamin Graham and David Dodd ldquoSecurity Analysisrdquo (November 1999)
6) Erich A Helfert DBA ldquoFinancial Analysis Tools and Techniquesrdquo (2000)
7) Peter J Klien ldquoGetting Started in Security Analysisrdquo (April 2002)
8) Richard A Brealey Stewart C Myers Alan J Marcus rdquoFundamentals of Corporate
Financerdquo Third Edition McGraw-Hill Section A
9) Sharekhan ldquoFundamental Analysis Which Companyrdquo (October 2004)
WEBSITES
wwwtradingdaycomwwwmarketscreencomwwwicicidirectcomwwwnseindiacomwwwinvestopediacomwwwindiainfolinecomwwweconomictimescom
79
- END TERM PROJECT
- SNo
- TITLE
- PgNo
- 1
- CH 1 Introduction
- 6
- 11 Rationale
- 8
- 12 Objectives
- 8
- 13 Research Methodology
- 9
- 2
- CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
- 10
- 21 DOW THEORY
- 12
- 22 ELLIOT WAVES BASICS
- 16
- 23 MOVING AVERAGE
- 17
- 3
- CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
- 19
- 31 Economic Analysis
- 20
- 32 Industry Analysis
- 22
- 33 Company Analysis
- 24
- 331 The Management
- 24
- 332 The Company
- 25
- 333 The Annual Report
- 25
- 334 Ratios
- 27
- 335 Cash Flow
- 28
- 4
- CH 4 Analysis
- 30
- 5
- CH 5 Limitations
- 71
- 6
- CH 6 Conclusion
- 73
- 7
- Glossary
- 77
- 8
- References and Bibliography
- 80
- CHAPTER- 1
- Role Reversal
- Three Movements
- Primary Movements have Three Phases
-
- Bull markets
- Bear markets
-
- Ranging Markets
- Trends
-
- Bull Trends
- Large Corrections
-
- Basically fundamental analysis is covered in 3 parts
- III Company Analysis
- Company Analysis HDFC Bank (HDB)
-