Equity Research Report

Equity Research Report

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DAYALBAGH EDUCATIONAL INSTITUTE

DAYALBAGH, AGRA

A PROJECT ONA PROJECT ONA PROJECT ONA PROJECT ON

EQUITY RESEARCHEQUITY RESEARCHEQUITY RESEARCHEQUITY RESEARCH

FINANCIAL SERVICES SECTORFINANCIAL SERVICES SECTORFINANCIAL SERVICES SECTORFINANCIAL SERVICES SECTOR

&&&&

PAIR STRATEGYPAIR STRATEGYPAIR STRATEGYPAIR STRATEGY

DATE OF SUBMISSION:

SUBMITTED BY:-

Shashank Sanwar 087633

MBA DEI


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ESCORTS MUTUAL FUNDS

A PROJECT ONA PROJECT ONA PROJECT ONA PROJECT ON

EQUITY RESEARCH EQUITY RESEARCH EQUITY RESEARCH EQUITY RESEARCH

FINANCIAL SERVICES SECTORFINANCIAL SERVICES SECTORFINANCIAL SERVICES SECTORFINANCIAL SERVICES SECTOR

&&&&

PAIR STRATEGYPAIR STRATEGYPAIR STRATEGYPAIR STRATEGY

DATE OF SUBMISSION:

SUBMITTED BY:- Shashank Sanwar

087633 MBA DEI


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AUTHORIZATIONAUTHORIZATIONAUTHORIZATIONAUTHORIZATION

The project is submitted as partial fulfillment of the requirements of Master of Business Administration of DAYALBAGH EDUCATIONAL INSTITUTE

DAYALBAGH, AGRA

I hereby declare that following projects “Equity Research, Valuation of Financial Services industry, Pair Trading are original and bon-a-fide work done by me.

This report has been authorized by Mr. Praveen Sevak, Equity Research

Analyst Securities Ltd Escorts Mutual Funds as a part of evaluation for the Summer Internship Program.

DATE: Shashank Sanwar 087633


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ACKNOWLEDGEMENTACKNOWLEDGEMENTACKNOWLEDGEMENTACKNOWLEDGEMENT

Surpassing milestones towards a mission sometimes gives us such degree of jubilance that we tend to forfeit the precious guidance and help extended by the people to whom the success of mission is solely dedicated.

Firstly, I would like express my gratitude to Mr. Lalit Khanna CEO and Dr.

Ashok Aggarwal, COO for allowing me to do the Summer Internship Training at Escorts Mutual Funds

My Special Thanks to Mrs. Manjeeta Mahajan who found me as the eligible student for training in Escorts Mutual Funds

I deeply express my special heartfelt thanks to company guide Mr. Praveen

Sevak, Equity Research Analyst who inspired me and guided me throughout the period of project work that enabled me to present the report on this topic.

I extend my sincere thanks to Mr. Ajay Kumar Gupta, Mr. Jagvir

Fauzdar, Mr. Sanjeev Sharma, Mr. Vipul Kumar and all other members of Equity Research Team for their continuous guidance, cooperation, and valuable suggestions to initiate & carry out the study.

I would also like to thank my faculty guide Prof K. Shanti Swroop who has been a source of constant inspiration, stimulating me to learn and making my learning process an enlightening experience. Lastly, it gives me immense gratification to place on records my profound gratitude and sincere appreciation to each and every one of those who have helped me in this endeavor.


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TABLE OF CONTENTSTABLE OF CONTENTSTABLE OF CONTENTSTABLE OF CONTENTS

1. EXECUTIVE SUMMARY………………………………………………………..... 8

2. MAJOR PROJECTS………………………………………………………………….. 9

3. PURPOSE & BENEFITS……………………………………………………………10

4. OBJECTIVE………………………………………………………………………………11

5. Introduction to financial services industries in India…………….12

6. India - Strategic Map in financial services industries……………12

7. Financial services industries –Over View………………………….……13

1) Stock markets……………………………………………………………….14

2) Insurance……………………………………………………………………….14

3) Banking services……………………………………………………………15

4) Government Initiatives………………………………………………….15

8. Private Equity Outlook in India……………………………………………….16

1) Strong Macroeconomic Outlook…………………………………….16

2) Private Equity in India – The Story So Far……………………16

3) Private Equity in India – Future Outlook………………………17

4) India Lags the Developed Markets In PE Investment

Levels…………………………………………………………………………….17

5) PE Investments in India Getting More Diversified ………18

6) Key Industry Groups’ to Look for…………………………………19

7) Risks and Opportunities in India………………………………….20

I. Risks……………………………………………………………….20

II. Opportunities in Public Sector Undertakings

(PSUs)…………………………………………………………….20

III. Opportunities in Family-run Businesses……….21

9. PAIR TRADING……………………………………………………………………….22

1) What Is Pairs Trading?...........................................22

2) An Example Using Stocks ……………………………………23

3) An Example Using Futures Contracts ..............................25

4) An Example Using Options ………………………………….25

5) Evidence of Profitability……………………………………………….25


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10. Market-neutral strategy……………………………………………………….26

1) TYPES OF MARKET NEUTRALITY………………………………….26

I. Share Neutrality…………………………………………….26

II. Dollar neutrality…………………………………………….26

III. Sector neutrality…………………………………………….27

IV. Beta Neutrality……………………………………………….27

V. Market capitalization neutrality…………………….27

11. MARKET NEUTRAL INVESTMENT PROCESS ……………………….28

1) INITIAL SCREEN……………………………………………………………28

2) LIQUIDITY…………………………………………………………………….28

3) SHORT –SALE ABILITY…………………………………………………28

4) INVOLVEMENT IN CORPORATE ACTION………………………29

5) STOCK SELECTION……………………………………………………….29

12. FUNDAMENTAL TRADE………………………………………………………….30

13. CORRELATION BETWEEN PAIR…………………………………………….30

14. TECHNICAL TRADE……………………………………………………………….31

15. MARKET STRENGTH INDICATORS……………………………………….31

16. MOVING AVERAGE INDICATORS…………………………………………32

17. BOLLINGER BAND………………………………………………………………..32

18. RELATIVE STRENGTH INDEX……………………………………………….32

19. VOLUME AS INDICATOR………………………………………………………33

20. FINAL PORTFOLIO SELECTION……………………………………………34

21. Summary………………………………………………………………………………34

22. Other Pairs……………………………………………………………………………34

23. CONCLUSION…………………………………………………………………………35

24. REFERENCE……………………………………………………………………………36

25. ANNEXURE…………………………………………………………………………….37


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LIST OF FIGURESLIST OF FIGURESLIST OF FIGURESLIST OF FIGURES

1. India - Strategic Map…………………………………………………………….12

2. Private Equity in India – The Story So Far……………………………16

3. Private Equity in India – Future Outlook………………………………17

4. PE Investments in India Getting More Diversified 2000……..18

5. PE Investments in India Getting More Diversified 2008………18

6. Closing Price of AXIS BANK & ICICI BANK……………………………23

7. Bollinger Band…………………………………………………………………………24

8. Price Ratio and Mean Value of Pair…………………………………………31

9. BOLLINGER BAND AXIS Bank & ICICI Bank………………………….32

10. Price Ratio & Mean Value Of Axis Bank & ICICI Bank………..33

11. AXIS Bank/ ICICI Bank Volatility…………………………………………33

LIST OF TABLESLIST OF TABLESLIST OF TABLESLIST OF TABLES

1. Private Equity Investments as a Percentage of GDP (2008) 17

2. Percentage by Number &Market Capitalization of the

Hundred Companies Comprising BSE-100…………………………………21

3. Correlation between the pair…………………………………………………30

4. Summary Table………………………………………………………………………34

5. Other Pairs……………………………………………………………………………..34


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EXECUTIVE SUMMARYEXECUTIVE SUMMARYEXECUTIVE SUMMARYEXECUTIVE SUMMARY

Equity Research is the area which deals with the live economy. Equity

Research is a field that has evolved and transformed the Financial Sector over the Past few decades. With the Capital market in doldrums,

sentiments and confidence reaching all time lows, investors are going back to fundamental and technical analysis which seems to have taken a

back seat from past few years.

Equity Research helps the investor to know about the value, risk & volatility of the covered security, and thus assist investors to decide

whether to buy, hold, sell, sell short, or simply avoid the security in question.

In the process of research, analysts require high level of real time as well

as historical data, so as to evaluate and analyze different aspects of the covered security. With Technology, the availability of data is no matter

today but there are tools and models needed to analyze the data.

The project is divided into three parts.

The first topic emphasizes on financial services industries in India. The main idea is to identify the Financial Services Industries Overview

and analysis the working of different financial services. This topic also includes Geographical Spread and Service Quality of different

financial companies.

The second topic emphasizes on Private Equity Outlook in India. The main idea is to identify the trend of investment in Private Equity over a

period of time. This part also includes forecasting of the trend of Private equity in next ten years.

The third topic deals with “Long/Short Trading Strategies: Stock

pairing ideas”. This is the new project that the company is working on.

There are two components of this part. First is to Identifying the pairs and best trading rules that should lead to higher returns and lower volatility of

returns. And second is for Opening a position when the ratio reaches two standard deviations away from the mean and closing it at one standard

deviation or when the price ratio approach its mean value, this methodology has a reasonable balance between reward and risk.


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MAJOR PROJECTSMAJOR PROJECTSMAJOR PROJECTSMAJOR PROJECTS The project is categorized under the following major topics.

� The first topic emphasizes on Introduction to financial services industries in India. The main idea is to identify the Financial

Services Industries Overview and analysis the working of different financial services. This topic also includes Geographical Spread

and Service Quality of different financial companies.

� The second topic emphasizes on Private Equity Outlook in India.

The main idea is to identify the trend of investment in Private

Equity over a period of time. This part also includes forecasting of the trend of Private equity in next ten years.

� The third topic deals with “Long/Short Trading Strategies: Stock pairing ideas”. This is the new project that the company is

working on. There are two components of the project –

• Identifying the pairs and best trading rules that should lead to higher returns and lower volatility of returns.

• Opening a position when the ratio reaches two standard deviations away from the mean and closing it at one standard

deviation or when the price ratio approach its mean value,

this methodology has a reasonable balance between reward and risk.


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PURPOSE & BENEFITSPURPOSE & BENEFITSPURPOSE & BENEFITSPURPOSE & BENEFITS

The Purpose of the project is to have in-depth knowledge and

understanding of Financial Sector in India. The project also intends to forecast and predict the future trend of financial sector in India.

The Main Purpose of project is the exposure to market neutral

strategies and to understand the derivative and stock market.

As the aspect of this project is multidimensional so is its purpose. The project brought about value additions not only to the company but also

benefited me academically.

This project also helps in understanding the Trading Strategies used by Escorts Mutual Funds.

This project leads us to emphasize on Using Pair Trading Strategy in Stock Market.


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OBJECTIVEOBJECTIVEOBJECTIVEOBJECTIVE

Introduction to financial services industries in India

� To determine the present factors affecting the financial services

industries in India

� To determine the - Strategic Map of financial services companies

with respect of Geographical spread & Service Quality.

Introduction to Private Equity in India

� To study the performance of Private Equity So far in India.

� To determine the future trend of Private Equity in India.

� To analysis the factor affecting Private Equity in India.

� To identify the Risk and Opportunities for Private Equity in India.

Stock Pair Trading

� To study the meaning of Pair Trading Strategy.

� To analysis the stocks which are appropriate for making Pair.

� To build profitable long-short strategies with equal in investment in

long & short. The return is not based on individual movement but relative movement reflected in the price ratio.


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Introduction to financial services industries in India

Financial

Services

Commercial Bank

Investment Services

Insurance Advisory Services

• Asset Management

• Hedge Fund Managers

• Custody services

• Private banking

• Investment Banks

• Bank cards

• Credit card

machine services

and networks

• Insurance Brokerage

• Insurance Underwriting

• Reinsurance

• Stock brokers (private client

services) and discount brokers

India - Strategic Map

Service Q

uality

Rural Urban

Low

High

Regional

Citibank ABN Amro

State Bank of India

ICICI Bank HDFC AXIS Bank

IndusInd Bank Vysya Bank

Karur Vysya

PNB Andhra Bank Canara Bank

Co-operative Bank Rural Banks

Bank of Baroda Bank of India

Stan C HSBC

Geographical Spread

Financial Services Industries - Overview


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With market sentiment turning positive due to the formation of a stable

newly elected government, the ripple effect is likely to felt across all the

financial services in India. The sectors, including banking and insurance, and mutual funds are all beginning to reap the benefits of a good closure

for 2008-09. In 2008-09, the Indian economy is estimated to have grown by 6.7 per cent. According to the latest Central Statistical Organization

(CSO) data, financial services and real estate sector rose by 9.5 per cent in the first quarter of 2009-10.

The government has taken a number of steps in recent months to revive the economy, including slashing interest rates, lowering factory levies and

more than doubling the limit on foreign investment in corporate bonds. The financial services space is a rapidly growing one in India. The country

received US$ 45 billion in foreign currency remittances from non-resident Indians in 2008, the highest in the world.

April-May 2009 saw increased inflow in to equity with investors steadily

turning positive on equity according to mutual fund analysts. As per the Securities and Exchange Board of India (SEBI), on May 15, net

investment of mutual funds in equity was around US$ 83.3 million

lowering to US$ 20.5 million on May 21. As against this, net investment of mutual funds in debt has more than tripled from US$ 42.9 million on May

15 to US$ 134.2 million on May 31, 2009.

There is optimism in the economy as funds are investing in corporate bonds, making liquidity available to enterprises. The total amount traded

in corporate bonds tripled from US$ 17.8 million to US$ 55.7 million during May 15 to May 21, 2009.

The largest fund house, Reliance Mutual Fund, registered 16 per cent growth in its average assets under management (AUM) to US$ 21.6

billion in May 2009 compared to April’s figure of US$ 18.6 billion. The second-largest fund house, HDFC Mutual Fund, grew 18 per cent to US$

16 billion, compared with the previous month’s figure of US$ 13.4 billion.

The Spice Group is now looking for a US$ 1-billion valuation in financial services business in the next three to five years. It has put US$ 105.2

million as seed money for the financial services business and is roping in

a Singapore-based firm as a partner for the asset reconstruction business.

India has increased its exposure to American debt securities by over three-fold to US$ 38.2 billion till March 2009 as against US$ 11.8 billion in

March 2008, according to the data from the US Treasury Department.


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Stock markets

India’s market capitalization (m-cap) has touched US$ 1.04 trillion

making it the ninth largest in the world. India’s share in the total world m-cap has risen to 2.79 per cent currently. The Indian stock market has

currently responded to the optimism of reforms by the new stable government and its continuity in policies. Further, according to global

consultancy firm, Deloitte Haskins & Sells, the Indian economy and capital markets are expected to witness a turnaround within six to nine months.

Fund raising by India Inc through initial public offers (IPOs) rose by a whopping 62 per cent since the beginning of 2008 to May 29, 2008 to

US$ 4.2 billion, against US$ 2.6 billion during the same period in 2006, according to global deal data provider, Dealogic. According to Goldman

Sachs, Indian companies may raise US$ 4 billion-6 billion from IPOs in the fiscal year ending March 31, 2010

Insurance

India is the fifth largest life insurance market in the emerging insurance economies globally and the segment is growing at a healthy 32–34 per

cent annually. The insurance industry’s sales rose the fastest in two years since April 2007. The country’s 22 life insurance companies saw 29.5 per

cent rise in premium collected through sale of new policies to US$ 758 million in April 2009, as against US$ 585 million in the corresponding

period last year. In case of LIC, which recorded 69.33 per cent growth in first-year premium during April 2009, a bulk of the growth came from the

group single premium segment and individual single premium rose to US$ 89.8 million from US$ 77 million in the corresponding period of last year.

According to a report by research firm RNCOS—'Booming Insurance Market in India (2008–2011)'—the total life insurance premium in India is

projected to grow to US$ 259.72 billion by 2010–11. Life Insurance Corporation (LIC) is bullish on growth and is targetting business in excess

of US$ 59.14 billion by 2011–12.

The government is planning to ease restrictions on foreign investments in

insurance, banking and pensions, and allow foreign direct investment (FDI) of 49 per cent from the present 26 per cent.

The ‘Mallassurance’ delivery channel is first of its kind in India's insurance

sector, selling life and general insurance policies through all Future Group retail outlets across the country. For Future Generali Insurance, a sizeable

chunk of their customers now comes through the Mallassurance route.


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Online sales take place through two major channels through direct sales

by the insurers and through online insurance portals which offer a range of products from various insurers. The most active insurers online are

ICICI Lombard, Bajaj Allianz etc.

Banking services

During 2008-09, State Bank of India (SBI) and associate banks advanced

US$ 16.8 billion for infrastructure projects such as power plants and petroleum refineries. The big-sized credits have made SBI and group one

of the largest project financiers in the country.

IDFC Mutual Fund and Bank of India have entered into a strategic alliance to distribute and market mutual fund products of IDFC through Bank of

India's branches.

Government Initiatives

The Central Board of Direct Taxes (CBDT) has changed the investment

pattern for recognised provident funds and superannuation trusts managed by the private sector under the income-tax rules to take a

greater exposure in the stock market from April 1, 2009


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Private Equity Outlook in India India: Strong Macroeconomic Outlook Current Snapshot

� Gross Domestic Product (GDP) of US $1,030 billion

� 12th largest economy in the world and 4th largest in PPP terms � Real GDP growth of 9.4% in 2006-07

Projections - 2020

� GDP of $1,030 billion during calendar year 2007 � Assuming real GDP growth rate of 8% per year and an average of

5.5% inflation: � GDP of $1.920 billion in 2012

� GDP of $5,040 billion in 2020

Projections – 2020 – Comparison � Real GDP growth rate 8% per annum (13.5% including 5.5% annual

inflation)

� 4th largest economy of the world after US, China and Japan � 3rd largest economy in PPP terms behind China and the US

Private Equity in India – The Story So Far

(Source: Evalueserve, IVCA, Venture Intelligence India)

� First started in 1975 by Risk Capital Foundation followed by other

domestic financial institutions � After 1996, international VC and PE firms started investing in India

� Investments started surging in 2004

107

71

299

146

56

110

5 18

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280

470

2,183

20 80 250500

1,160

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7,460

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200

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300

350

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1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

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Number of Deals Value of Deals


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Private Equity in India – Future Outlook

� PE Investments of US $13.5 billion in 2009 to increase to US $23 billion by 2012

� 366 PE firms currently operating in India and another 69 planning to start their operations soon

� US $48 billion already earmarked for investment during the next three and a half years

India Lags the Developed Markets In PE Investment Levels:- Private Equity Investments as a Percentage of GDP (2006)

Countries GDP PE

Investment PE Investment/GDP

Ratio

USA $13,245 billion $191 billion 1.44%

UK $2,374 billion $42.3 billion 1.78%

China $2,630 billion $13 billion 0.49%

India $910 billion $7.5 billion 0.82%

� PE investment/GDP ratio in US/UK is much higher than China/India � India already catching up fast, projected ratio of 1.3% in 2008

� Indian economy can easily absorb US $60 billion during 2008-2010 and as much as US $490 billion during 2007-2020 including

investments by hedge funds

5 18

60

107 110

56 71

146

299

311280

20 80 250 5001,160 937

470

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100

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Number of Deals Value of Investments


18

PE Investments in India Getting More Diversified 2000

2008

� PE Investments in 2000 dominated by IT & ITES � Share of several other sectors esp. manufacturing, financial

services, and healthcare increasing significantly � New areas of investment include Engineering & Construction,

Textiles, Logistics, Food and Beverages, etc.

Financial Services

4%

Medical & Healthcare

2%

Manufacturing3%Others

25%

IT & ITeS66%

IT & ITeS Financial ServicesManufacturing Medical & HealthcareOthers

Engineering & Construction

8%

Others26%

IT & ITeS28%

Manufacturing18%

Medical & Healthcare

10%

Financial Services

10%

IT & ITeS Financial ServicesManufacturing Medical & HealthcareEngineering & Construction Others


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‘Key Industry Groups’ to Look for…

Hi-tech Services and Products

Domestic Services Sector

� Includes:

→ Retail → Travel and hospitality

→ Health care → Entertainment

→ Private education → Financial Services

� Expected to grow at

approximately 19% per year during the next five years

� Likely to contribute about 2.7% out of a total growth of 13% per year

High-end Manufacturing and

Infrastructure

� Includes: → Auto/Auto-

components → Electrical/electronic

goods → Specialty chemicals

→ Pharmaceuticals → Gems and Jewellery

→ Textiles

→ Construction/Real Estate

� Expected to grow at approximately 19% per

year during the next five years

� Likely to contribute about 2.5% out of a total growth

� Includes:

→ IT/ITES → Drug Research

→ Clinical Research Outsourcing (CRO)

→ Engineering Services Outsourcing (ESO)

→ Telecom products and

services � Expected to grow at

approximately 22% per year during the next five years

� Likely to contribute about 1.3% out of a total growth

of 13% per year


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Risks and Opportunities in India

Risks First... � High volatility in Indian stock markets

→ Heavy dependence on short-term Foreign Institutional Investment inflows

→ Rich valuations: P/E ratio of 25 for BSE-100 compared with 13 for emerging markets as a whole

� Currency fluctuations, which are making India less competitive to China. For example, Indian Rupee has appreciated by 14.5% during

Oct. 15, 2006 and Oct. 14, 2007 whereas the Chinese Yuan has only appreciated by 5.4% (during the same period).

� Political risk: “Rules of the game” sometimes not clear � Shortage of skilled workers especially in IT/ITES leading to wage

inflation

� Indian economy heating up very quickly. For example, real costs have gone up by a factor of five in five years whereas wages have

only doubled during last five years.

Opportunities in Public Sector Undertakings (PSUs)

� Top 42 listed PSUs make up the BSE-PSU index and have a

combined market cap exceeding US $210 billion � Impressive operational gains post liberalization (1991 to 2007)

→ Average revenue per employee up 10 times → Average profit per employee up 16 times

� Room for further efficiency gains – up to 60 percent in BSE-PSU companies and perhaps more in other PSUs

� Recent investments from Actis in Punjab Tractors andfrom Mittal Steel in HPCL refinery are recent examples of Private participation

in state owned enterprises

Key Challenge

� Most PSUs are hierarchical and bureaucratic in nature, and do not like external advice


21

Opportunities in Family-run Businesses

Percentage by Number and Market Capitalization of The Hundred Companies Comprising BSE-100

As of June 30, 2009 Percentage by

Number Percentage by Market

Capitalization

Public Sector Undertakings

16 24

Family run companies

47 46

Subsidiaries of Multi-nationals

23 20

Others 14 9 (Source: Bombay Stock Exchange Website)

� Overall, less than 1/3rd of family run businesses survive 20 years. Issues include:

→ Corporate governance

→ Good management structure → Long-term vision

� Can be a win-win for both parties if: → PE firm contributes strategy and operational expertise, not

just capital


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PAIR TRADING

What Is Pairs Trading? Pairs trading strategy is a market neutral strategy which enables traders

to profit from virtually any market condition; uptrend, downtrend or

sidewise movement. Although introduced in early 1980’s, the strategy became popular among retail traders only after the introduction of online

trading through sophisticated trading systems. Opportunities of pairs trading usually last for only a short-period of time thus quick response to

market movements is required, which can only be achieved by high degree of automation.

Pair Trading refers to opposite positions in two different stocks or indices

that is long position in one stock and short position in another stock. Pair Trading can be simple in concept, but can be one of the most complex

types of trading in practices

The first and most important step in pairs trading strategy is to find pairs.

Pairs are trading instruments (stocks, options, futures, currencies, bonds,

etc.) which show great correlation that is the price of one move in same direction of the other. For stocks, pairs can be shares of two companies in

same (or related) industry. For futures it can be mini and full-size contract or can be futures of related (same) industries. And for forex it

can be currencies of countries having good trade relations. Traders should use various fundamental and technical analysis tools to find these pairs*.

Pair traders look for divergence of correlation between shares of a pair. When a divergence is noticed, traders take opposite positions in a pair.

For stocks, currencies and futures, the trader takes long position for underperforming instrument and short position for over performing

instrument; for options, the trader writes put option for outperforming stock and call option for underperforming stock. In most cases cost of

taking one position is compensated by the revenue from the opposite

position. Trader is profited when the divergence is corrected and the instruments are brought to original (mean) correlation by market forces.

*Handbook of Pair Trading by Douglas E Ehram


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An Example Using Stocks Traders can use either fundamental or technical data to construct a pairs trading style. Our example here is technical in nature, but some traders

use a P/E ratio or other fundamental factors to measure correlation and divergence.

The first step in designing a pairs trade is finding two stocks that are highly correlated. Usually that means that the businesses are in the same

industry or sub-sector, but not always.

For instance, index tracking stocks like the AXIS BANK (NSE) or the ICICI BANK (NSE) can offer excellent pairs trading opportunities. Two indices

that generally trade together are the AXIS BANK and the ICICI BANK. This simple price plot of the two indices demonstrates their correlation:

For my example, I look at two businesses that are highly correlated: L&T and BHEL. Since both are INDIAN MANUFACTURERS, their stocks tend to

move together.


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Below is an annually chart of the price ratio between L&T and BHEL

(calculated by dividing L&T’s stock price by BHEL’s stock price). This price ratio is sometimes called "relative performance" (not to be confused with

the relative strength index, something completely different). The center Pink line represents the mean price ratio over the past One years. The

Blue and Sky blue lines represent Plus(+tive) one and two standard deviations from the Mean ratio, respectively. The Red and Green lines

represent Minus(-tive) one and two standard deviations from the Mean ratio, respectively.

In the chart below, the potential for profit can be identified when the price

ratio hits its first or second deviation. When these profitable divergences occur it is time to take a long position in the underperformer and a short

position in the overachiever. The revenue from the short sale can help cover the cost of the long position, making the pairs trade inexpensive to

put on. Position size of the pair should be matched by Rupees value

rather than number of shares; this way a 5% move in one equals a 5% move in the other. As with all investments, there is a risk that the trades

could move into the Blue & Green, so it is important to determine optimized stop-loss points before implementing the pairs trade.


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An Example Using Futures Contracts The pairs trading strategy works not only with stocks but also with currencies, commodities, and even options. In the futures market, "mini"

contracts - smaller-sized contracts that represent a fraction of the value of the full-size position - enable smaller investors to trade in futures.

A Pairs trade in the futures market might involve an arbitrage between the futures contract and the cash position of a given index. When the

futures contract gets ahead of the cash position, a trader might try to profit by shorting the future and going long in the index tracking stock,

expecting them to come together at some point. Often the moves between an index or commodity and its futures contract are so tight that

profits are left only for the fastest of traders - often using computers to automatically execute enormous positions at the blink of an eye.

An Example Using Options Option traders use calls and puts to hedge risks and exploit volatility (or

the lack thereof). A call is a commitment by the writer to buy shares of a stock at a given price sometime in the future. A put is a commitment by

the writer to sell shares at a given price sometime in the future. A pairs trade in the options market might involve writing a call for a security that

is outperforming its pair (another highly correlated security), and matching the position by writing a put for the pair (the underperforming

security). As the two underlying positions revert to their mean again, the options become worthless allowing the trader to pocket the proceeds from

one or both of the positions.

Evidence of Profitability In June of 1998, Yale School of Management released a paper written by Even G. Gatev, William Goetzmann, and K. Geert Rouwenhorst who attempted to prove that pairs trading is profitable. Using data from 1967 to 1997, the trio found that over a six-month trading period, the pairs trade averaged a 12% return. To distinguish profitable results from plain luck, their test included conservative estimates of transaction costs and randomly selected pairs. NOTE:-

The broad market is full of ups and downs that force out weak players and confound even the smartest prognosticators. Fortunately, using market-

neutral strategies like the pairs trade, investors and traders can find profits in all market conditions. The beauty of the pairs trade is its

simplicity. The long/short relationship of two correlated securities acts as a ballast for a portfolio caught in the choppy waters of the overall market.

Good luck with your hunt for profit in pairs trading, and here's to your success in the markets.


26

Market-neutral strategy

Market-neutral strategy is a trading strategy that derives its returns from the relationship between the performance of its long positions and the

performance of its short positions, regardless of whether this relationship functions on the security or portfolio level.

A market-neutral strategy has three key features: the combination of long and short investing, the ability to use leverage, and the inclusion of an

arbitrage situation. In market neutral strategy, the return on the portfolio is a function of the return differential between the securities that are held

long and those that are held short. As the market appreciates, both the long and short positions appreciate in value, so the overall portfolio value

remains constant.

TYPES OF MARKET NEUTRALITY There are several types of neutrality, each of which has a different impact on the portfolio and relates differently to pair trading. Understanding each

and how to apply it appropriately will directly impact the portfolio construction process.

Share Neutrality

Share neutrality refers to balancing a trade with an equal number of long

shares and short shares. This is a very uncommon approach because in terms of relationship investing, the share price of either security is

somewhat irrelevant. While it is usually a good idea to trade in similarly priced securities, because it is unlikely that the two securities in question

will be priced identically, share neutrality results in a disproportionate amount of exposure between the two legs of the trade.

Dollar neutrality Dollar neutrality is the most common type of market neutrality and is

usually considered a requirement for market-neutral investing in equity securities. Dollar neutrality refers to buying equal amounts of long and

short investments so that the dollar risk is equal on each side of the portfolio. By employing dollar neutrality in a market-neutral strategy, an

investor ensures that his net dollar exposure to market swings is zero.


27

Sector neutrality Sector neutrality means that portfolios are long/short balanced within

each sector of the market to insulate the overall portfolio against the possibility that one sector will perform very well while another performs

poorly. Being sector neutral avoids the risk of market swings affecting some industries or sectors differently from others

Beta Neutrality Beta neutrality refers to balancing the beta of the long side of the

portfolio against the beta of the short side of the portfolio. Beta is the measurement of a stock’s volatility relative to the market. A stock with a

beta of 1 move historically in sync with the market, while a stock with a higher beta tends to be more volatile than the market and a stock with a

lower beta can be expected to rise and fall more slowly than the market.

Beta neutrality, therefore, refers to the practice of matching the beta of the long portfolio with the beta of the short portfolio to ensure that

market swings affect each portfolio in a similar way.

Market capitalization neutrality Market capitalization neutrality refers to balancing the portfolio in such a way as to keep the market capitalization exposure of the long side of the

portfolio similar to the market capitalization exposure of the short side of the portfolio. Stocks of different market capitalization can be affected by

market forces in various ways; while large cap stocks tend to be more stable and liquid, they may fall out of favor in times of explosive growth.

While there are exception that the stocks of similar market capitalization are more likely to react similarly to general economic conditions. For this

reason, managers prefer to keep their portfolios relatively neutral to this type of exposure. It is important to remember that the ultimate goal of

market neutral investing is to reduce systematic risk whenever possible. “This strategy is used by Escorts securities in screening the stocks for pair trading:”

(Escorts Securities policies)


28

MARKET NEUTRAL INVESTMENT PROCESS The process describes the step involved to achieve a well constructed market neutral portfolio. The process is broken down into three basic

steps:- � Initial Screen

� Stock selection process � Final Portfolio construction.

In order to have an in-depth understanding of the market neutral investment process an example is taken. The entire concept will be

explained taking this example into account. This example was also a part of the work done during my summer internship.

INITIAL SCREEN The most important step involves initial screening of stocks. By taking this

step, we can quickly eliminate a large percentage of stocks that would not be included in the portfolio under any circumstances. There are usually

four criteria used during the initial screen.

LIQUIDITY Market capitalization is most salient way to judge the liquidity of a stock. The greater the liquidity of a given security, the more assurance the fund

manager can have that he will be able to quickly, easily and efficiently exit a position when time comes. As per the company policy all the stocks

having market capitalization of more than 2 million averages are considered for the pair trading*

SHORT –SALE ABILITY

Market-neutral investing involves shorting securities as well as buying

them long. A manager must, therefore, be able to short the equities he is considering in order to build a portfolio. Many of the largest brokerage

houses keep lists, called “hard-to-borrow” lists, of securities that are not always easy to short sell. Many managers will obtain these lists in

advance of their initial screen and exclude any stock that is listed on the “hard-to-borrow” list.

“Escorts Securities have declared a list as “hard to borrow” stocks and are excluded from the initial screening of stocks”.


29

INVOLVEMENT IN CORPORATE ACTION At any given time, there are many companies involved in some type of

corporate action, ranging from mergers and acquisitions to secondary public offerings and stock repurchases. Such activities have a tendency to

cause the price of the company’s stock to fluctuate in ways that it might not otherwise. The stock of a company being considered for acquisition is

more likely to feel upward price pressure than that of a company

considering making acquisition; such stocks are excluded from consideration.

STOCK SELECTION This is the most vital step because of its value added characteristics.

Stock selection involves looking for quantifiable metrics that have strong predictive ability across a wide range of stocks. This metrics is based on

fundamental and technical analysis of the stock.


30

FUNDAMENTAL TRADE The two companies being considered for pair trading are AXIS BANK and ICICI BANK. These companies make an appropriate pair because they

are not only in the same sector and industry, but they follow similar business plans.

CORRELATION BETWEEN PAIR In order to calculate the correlation and mean of the pair, first the price

ratio is calculated which is defined as ratio of the closing price of the two stocks (figure ). Table below shows the correlation for 1 year, 6 months

and 3 months. We observe that the correlation is quite healthy not only for short term but also for long term. As on 12th December 2008 the

correlation between the pair comes to near about 97% which is calculated by Pair Trade finder software.

Correlation between the pair

Period 1 Yr 6 months 3 months

MEAN(PR) 1.13467498 1.091353116 1.104409894

Correlation 0.904893798 0.970676362 0.969121659


31

Price Ratio and Mean Value of Pair

00.20.40.60.8

11.21.41.61.8

26/

16/2

008

7/16

/200

8

8/16

/200

8

9/16

/200

8

10/1

6/20

08

11/1

6/20

08

12/1

6/20

08

1/16

/200

9

2/16

/200

9

3/16

/200

9

4/16

/200

9

5/16

/200

9

DATE

PR

ice

Rat

io &

Mea

n V

alu

e Price Ratio Mean Value

TECHNICAL TRADE Technical analysis deals with three pieces of data: price, volume and sentiments while fundamental analysis uses huge amount of subjective

data. There are thousands of indicators used worldwide however our study will be limited to those that are related to market neutral strategy.

The indicators are broken down into three groups

� Market Strength Indicators � Moving average indicators

� Volume as indicators

MARKET STRENGTH INDICATORS There are two indicators which describes the strength of the market:- RELATIVE STRENGTH INDEX RSI Measurement can be used to examine the relationship between the

two stocks .The RSI formula is as follows:

RSI=100-100/(1+RS)

Where RS = Average for net up closing changes for N days divided by average of net down closing changes for N days. The trader selects the

number of days to be used; 5, 9, and 14 are standards used by most traders and are included in most commercial software programs (Pair

Trade Finder). However manual calculation is very difficult to calculate.


32

Pair trading is only possible if the reading of RSI measurement is between 20 and 70.

For AXIS BANK and ICICI BANK the RSI is 29.3% which is within the acceptable limits. MOVING AVERAGE INDICATORS The moving average is a technical indicator that is widely used by almost

all technical traders. In its simplest form, the moving average is

calculated by finding the average price for a given stock or index over a set period of time. Traders use this information to determine how a stock

is behaving today relative to how it has behaved in the past.

BOLLINGER BAND Bollinger Bands are envelopes that surround the means price bars on a chart. Bollinger Bands are plotted two standard deviations away from a

simple moving average. Bollinger Bands can be used to evaluate the relationship between two stocks as well as to evaluate a single stock or

index. Bollinger Bands also give us the time and position at which a trader should enter or exit the trade. As we observe in the figure, entry point of

the trader should be at the point when the price ratio is away form mean

value. The return would be higher in the case when the price ratio curve is close to two standard deviation as compared to when the curve is near

mean value. As evident from the figure below, price ratio is close to two standard deviation, eventually with passage of time it would come back to

its mean value; however the time taken the stock can be utilized by the trader to make profit.

00.20.40.60.8

11.21.41.61.8

2

6/16

/200

8

7/16

/200

8

8/16

/200

8

9/16

/200

8

10/1

6/20

08

11/1

6/20

08

12/1

6/20

08

1/16

/200

9

2/16

/200

9

3/16

/200

9

4/16

/200

9

5/16

/200

9

DATE

PriceRatioMEAN(PR)

SD(+1)

(SD+2)

SD(-1)

SD(-2)

Entry Point


33

VOLUME AS INDICATOR If increasing volume is observed in a down-trending stock, the technician confirms the strength of that trend and believes it will continue. In

simpler terms, volume should increase or expand in the direction of the prevailing price trend. When volume decreases in the direction of the

prevailing price trend, this suggests that a reversal may occur in the near future.

As we observe in the figure the price ratio of AXIS BANK/ ICICI BANK has decreased for the past 100 days. Since the volatility of the pair is also

starting decreasing we can expect an inverse of the trend in future.

This indicator gives a tentative confirmation that trading in this pair would be profitable.

00.20.40.60.8

11.21.41.61.8

2

6/16

/200

8

7/16

/200

8

8/16

/200

8

9/16

/200

8

10/1

6/20

08

11/1

6/20

08

12/1

6/20

08

1/16

/200

9

2/16

/200

9

3/16

/200

9

4/16

/200

9

5/16

/200

9

DATE

PR

ice

Rat

io &

Mea

n V

alu

e Price Ratio Mean Value

AXIS Bank / ICICI Bank Volatility

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1 15 29 43 57 71 85 99 113 127 141 155 169 183 197 211 225 239

Series1


34

FINAL PORTFOLIO SELECTION This pair has passed all the test so can be considered in the final portfolio selection. The pair trading call for this pair can be summarized (Refer

Annexure)

Summary

C.P(15Jun09)

Price Ratio Target

Ratio

Stop

Loss

%

Return

AXISBANK(Long) 718.4 0.977747533 .50 .20 48.99

ICICI BANK(Short)

734.75

The same process was followed for the below mentioned pair. Depending

upon the result, recommendation was given to Fund managers of the company. Table 21 below shows the summary of the work done by me.

The stock highlighted as red signifies stock to be short (sell) while green signifies to long (buy). For all calculation please have a look at the excel

sheet attached in the annexure

OTHER PAIRSOTHER PAIRSOTHER PAIRSOTHER PAIRS SN

Stock1

Stock2

Correlation

Mean of PR (Stock1 / Stock2)

SD (PR)

SD (+1)

SD (+2)

SD (-1)

SD (-2)

1yr

6m

3m

Cur

1yr

6m

3m

1 R POWER

TATA STEEL

0.80

0.98

0.97

0.44

0.52

0.48

0.13

0.93

1.05

0.67

0.80

2 HDFC ICICI .83 .96 .97 2.21 2.34 2.31 .35 1.18 1.52 .49 .83

3 AIRTEL TATA COM

.16 .16 .36 1.58 1.41 1.38 .22 .38 .60 -.07 .16

4 M&M MARUTI .72 .96 .98 .66 .56 .60 .13 .84 .97 .59 .72

5 L&T BHEL .74 .58 .88 1.03 .52 .47 .47 1.50 1.97 .55 .08

6 WIPRO

INFOSYTECH

.96

.94

.95

.22

.20

.22

.03

.98

1.0 1

.93

.96

7

RANBAXY

CIPLA

.44

.09

.47

1.39

1.00

.90

.54

.98

1.52

-0.1

.44


35

CONCLUSION This example has helped us to understand the factors that go into market neutral investing. Some of the advantages and risks associated with this

type of investment strategy as well as the steps one takes to build a market-neutral portfolio have been explored. Large investment banks,

institutions & hedge funds spend millions of dollars each year on developing pair trading programs and the application of them, they know

it’s crucial to not only have the right information, but be able to view &

analyze it in a timely manner. With the significant advances and development in technologies in recent years this has become possible for

the average online trader to view and analyze the same information.


36

REFERENCEREFERENCEREFERENCEREFERENCE

Reading Material

� NCFM module From National Stock Exchange • Derivative Module

• Currency Module

• Debt Market Module

� Portfolio Management • Where Science Meets Business, Patrick Grogan, Sr.

Director, Strategic Planning, BD Biosciences

� The Hand Book Of Pairs Trading • Strategies Using Equities, Options, and Futures by DOUGLAS

S. EHRMAN

� Jefferies Pairs Trading Strategy

� Economic Survey

Website

� www.commodityonline.com

� www.moneycontrol.com

� http://capitalmarket.com/

� www.mcxindia.com

� http://www.appuonline.com

� www.bseindia.com

� http://www.nseindia.com/

� www.commodityonline.com/FuturesWatch/commodityfuture.ph

p

� http://www.khelostocks.com/

� www.anyoption.com

� http://www.bseindia.com/histdata/hindices.asp#


37

ANNEXUREANNEXUREANNEXUREANNEXURE

Date AXIS Bank ICICI Bank Price Ratio MEAN(PR) SD(+1) (SD+2) SD(-1) SD(-2)

16-Jun-08 735.75 797.45 0.92 1.13 1.02 1.14 0.79 0.90 17-Jun-08 794.5 820.65 0.97 1.13 1.02 1.14 0.79 0.90 18-Jun-08 750.5 786.95 0.95 1.13 1.02 1.14 0.79 0.90 19-Jun-08 718.1 753.6 0.95 1.13 1.02 1.14 0.79 0.90 20-Jun-08 703.7 732.95 0.96 1.13 1.02 1.14 0.79 0.90 23-Jun-08 697.15 720.7 0.97 1.13 1.02 1.14 0.79 0.90 24-Jun-08 678.65 703.15 0.97 1.13 1.02 1.14 0.79 0.90 25-Jun-08 685.05 698.2 0.98 1.13 1.02 1.14 0.79 0.90 26-Jun-08 678.2 697.55 0.97 1.13 1.02 1.14 0.79 0.90 27-Jun-08 628.6 652.15 0.96 1.13 1.02 1.14 0.79 0.90 30-Jun-08 605.05 630.2 0.96 1.13 1.02 1.14 0.79 0.90

1-Jul-08 593.85 589.1 1.01 1.13 1.02 1.14 0.79 0.90 2-Jul-08 634.45 621.05 1.02 1.13 1.02 1.14 0.79 0.90 3-Jul-08 580.2 571.9 1.01 1.13 1.02 1.14 0.79 0.90 4-Jul-08 600.45 603.6 0.99 1.13 1.02 1.14 0.79 0.90 7-Jul-08 603.95 605.15 1.00 1.13 1.02 1.14 0.79 0.90 8-Jul-08 606.95 594.35 1.02 1.13 1.02 1.14 0.79 0.90 9-Jul-08 669.1 621.7 1.08 1.13 1.02 1.14 0.79 0.90

10-Jul-08 678.45 616.9 1.10 1.13 1.02 1.14 0.79 0.90 11-Jul-08 665.25 591.6 1.12 1.13 1.02 1.14 0.79 0.90 14-Jul-08 634.35 578.9 1.10 1.13 1.02 1.14 0.79 0.90 15-Jul-08 597.1 529.15 1.13 1.13 1.02 1.14 0.79 0.90 16-Jul-08 584.45 519.75 1.12 1.13 1.02 1.14 0.79 0.90 17-Jul-08 635.45 551.85 1.15 1.13 1.02 1.14 0.79 0.90 18-Jul-08 685.6 617.45 1.11 1.13 1.02 1.14 0.79 0.90 21-Jul-08 697.4 642.95 1.08 1.13 1.02 1.14 0.79 0.90 22-Jul-08 735.05 661.7 1.11 1.13 1.02 1.14 0.79 0.90 23-Jul-08 763.65 738.7 1.03 1.13 1.02 1.14 0.79 0.90 24-Jul-08 760.3 730.2 1.04 1.13 1.02 1.14 0.79 0.90 25-Jul-08 712.85 656.75 1.09 1.13 1.02 1.14 0.79 0.90 28-Jul-08 697.3 663.4 1.05 1.13 1.02 1.14 0.79 0.90 29-Jul-08 619.7 607.7 1.02 1.13 1.02 1.14 0.79 0.90 30-Jul-08 679.25 636.1 1.07 1.13 1.02 1.14 0.79 0.90 31-Jul-08 653.9 637.3 1.03 1.13 1.02 1.14 0.79 0.90 1-Aug-08 679.9 642.4 1.06 1.13 1.02 1.14 0.79 0.90 4-Aug-08 706.05 640.45 1.10 1.13 1.02 1.14 0.79 0.90 5-Aug-08 760.55 694.1 1.10 1.13 1.02 1.14 0.79 0.90 6-Aug-08 743.05 706.65 1.05 1.13 1.02 1.14 0.79 0.90 7-Aug-08 746.55 707.95 1.05 1.13 1.02 1.14 0.79 0.90 8-Aug-08 735.15 731.6 1.00 1.13 1.02 1.14 0.79 0.90

11-Aug-08 759.6 771.15 0.99 1.13 1.02 1.14 0.79 0.90 12-Aug-08 720.55 740.65 0.97 1.13 1.02 1.14 0.79 0.90 13-Aug-08 725.1 710.7 1.02 1.13 1.02 1.14 0.79 0.90 14-Aug-08 700 673.45 1.04 1.13 1.02 1.14 0.79 0.90 18-Aug-08 692.5 665 1.04 1.13 1.02 1.14 0.79 0.90 19-Aug-08 679.8 677.7 1.00 1.13 1.02 1.14 0.79 0.90 20-Aug-08 673.8 678.8 0.99 1.13 1.02 1.14 0.79 0.90 21-Aug-08 649.1 643.7 1.01 1.13 1.02 1.14 0.79 0.90 22-Aug-08 679.85 644.55 1.05 1.13 1.02 1.14 0.79 0.90 25-Aug-08 685.6 657.15 1.04 1.13 1.02 1.14 0.79 0.90 26-Aug-08 679.65 666.55 1.02 1.13 1.02 1.14 0.79 0.90


38

27-Aug-08 677.35 649.95 1.04 1.13 1.02 1.14 0.79 0.90 28-Aug-08 670.55 632.55 1.06 1.13 1.02 1.14 0.79 0.90 29-Aug-08 723.4 671.9 1.08 1.13 1.02 1.14 0.79 0.90 1-Sep-08 722.9 665 1.09 1.13 1.02 1.14 0.79 0.90 2-Sep-08 759.85 714.05 1.06 1.13 1.02 1.14 0.79 0.90 4-Sep-08 734.2 716.65 1.02 1.13 1.02 1.14 0.79 0.90 5-Sep-08 687.25 686.75 1.00 1.13 1.02 1.14 0.79 0.90 8-Sep-08 711.25 720.45 0.99 1.13 1.02 1.14 0.79 0.90 9-Sep-08 710 712.1 1.00 1.13 1.02 1.14 0.79 0.90

10-Sep-08 710.45 701 1.01 1.13 1.02 1.14 0.79 0.90 11-Sep-08 704.15 686.6 1.03 1.13 1.02 1.14 0.79 0.90 12-Sep-08 692.55 652.8 1.06 1.13 1.02 1.14 0.79 0.90 15-Sep-08 656.9 627.5 1.05 1.13 1.02 1.14 0.79 0.90 16-Sep-08 695.8 591.65 1.18 1.13 1.02 1.14 0.79 0.90 17-Sep-08 666.45 560.05 1.19 1.13 1.02 1.14 0.79 0.90 18-Sep-08 678.6 577.15 1.18 1.13 1.02 1.14 0.79 0.90 19-Sep-08 708.55 627.5 1.13 1.13 1.02 1.14 0.79 0.90 22-Sep-08 704.9 635.75 1.11 1.13 1.02 1.14 0.79 0.90 23-Sep-08 683.35 599.15 1.14 1.13 1.02 1.14 0.79 0.90 24-Sep-08 710.2 600.1 1.18 1.13 1.02 1.14 0.79 0.90 25-Sep-08 721.4 596.2 1.21 1.13 1.02 1.14 0.79 0.90 26-Sep-08 705.1 560.4 1.26 1.13 1.02 1.14 0.79 0.90 29-Sep-08 671.55 493.3 1.36 1.13 1.02 1.14 0.79 0.90 30-Sep-08 720.25 535.55 1.34 1.13 1.02 1.14 0.79 0.90

1-Oct-08 734.6 550.9 1.33 1.13 1.02 1.14 0.79 0.90 3-Oct-08 702.3 504.35 1.39 1.13 1.02 1.14 0.79 0.90 6-Oct-08 678 490.05 1.38 1.13 1.02 1.14 0.79 0.90 7-Oct-08 682.9 485.05 1.41 1.13 1.02 1.14 0.79 0.90 8-Oct-08 647.75 453.75 1.43 1.13 1.02 1.14 0.79 0.90

10-Oct-08 552.6 363.65 1.52 1.13 1.02 1.14 0.79 0.90 13-Oct-08 659.95 425.15 1.55 1.13 1.02 1.14 0.79 0.90 14-Oct-08 639.05 449.55 1.42 1.13 1.02 1.14 0.79 0.90 15-Oct-08 618.8 414.15 1.49 1.13 1.02 1.14 0.79 0.90 16-Oct-08 626.25 416.15 1.50 1.13 1.02 1.14 0.79 0.90 17-Oct-08 620.35 391.25 1.59 1.13 1.02 1.14 0.79 0.90 20-Oct-08 617.9 411.35 1.50 1.13 1.02 1.14 0.79 0.90 21-Oct-08 656.5 431.05 1.52 1.13 1.02 1.14 0.79 0.90 22-Oct-08 631.2 396.7 1.59 1.13 1.02 1.14 0.79 0.90 23-Oct-08 622.4 365.8 1.70 1.13 1.02 1.14 0.79 0.90 24-Oct-08 538.85 308.5 1.75 1.13 1.02 1.14 0.79 0.90 27-Oct-08 534.55 316.1 1.69 1.13 1.02 1.14 0.79 0.90 28-Oct-08 570 335.5 1.70 1.13 1.02 1.14 0.79 0.90 29-Oct-08 526.85 345.35 1.53 1.13 1.02 1.14 0.79 0.90 31-Oct-08 562.95 398.75 1.41 1.13 1.02 1.14 0.79 0.90 3-Nov-08 602.2 430.7 1.40 1.13 1.02 1.14 0.79 0.90 4-Nov-08 640.45 457.8 1.40 1.13 1.02 1.14 0.79 0.90 5-Nov-08 604 450.85 1.34 1.13 1.02 1.14 0.79 0.90 6-Nov-08 582.7 433.4 1.34 1.13 1.02 1.14 0.79 0.90 7-Nov-08 581.6 432.3 1.35 1.13 1.02 1.14 0.79 0.90

10-Nov-08 608.9 471.85 1.29 1.13 1.02 1.14 0.79 0.90 11-Nov-08 564.05 434.35 1.30 1.13 1.02 1.14 0.79 0.90 12-Nov-08 525.3 397.3 1.32 1.13 1.02 1.14 0.79 0.90 14-Nov-08 492.95 395.9 1.25 1.13 1.02 1.14 0.79 0.90 17-Nov-08 456.65 386.45 1.18 1.13 1.02 1.14 0.79 0.90


39

18-Nov-08 437.75 360.2 1.22 1.13 1.02 1.14 0.79 0.90 19-Nov-08 427.55 348.25 1.23 1.13 1.02 1.14 0.79 0.90 20-Nov-08 405.45 319.5 1.27 1.13 1.02 1.14 0.79 0.90 21-Nov-08 411.5 334.05 1.23 1.13 1.02 1.14 0.79 0.90 24-Nov-08 397.55 322.55 1.23 1.13 1.02 1.14 0.79 0.90 25-Nov-08 376.55 321.1 1.17 1.13 1.02 1.14 0.79 0.90 26-Nov-08 404.45 350.85 1.15 1.13 1.02 1.14 0.79 0.90 28-Nov-08 408.5 351.65 1.16 1.13 1.02 1.14 0.79 0.90 1-Dec-08 413.05 325.55 1.27 1.13 1.02 1.14 0.79 0.90 2-Dec-08 429.1 323.4 1.33 1.13 1.02 1.14 0.79 0.90 3-Dec-08 433.7 334.8 1.30 1.13 1.02 1.14 0.79 0.90 4-Dec-08 455.2 364 1.25 1.13 1.02 1.14 0.79 0.90 5-Dec-08 443.05 358.4 1.24 1.13 1.02 1.14 0.79 0.90 8-Dec-08 451.95 370 1.22 1.13 1.02 1.14 0.79 0.90

10-Dec-08 462.8 400.05 1.16 1.13 1.02 1.14 0.79 0.90 11-Dec-08 457 406.1 1.13 1.13 1.02 1.14 0.79 0.90 12-Dec-08 468.8 411 1.14 1.13 1.02 1.14 0.79 0.90 15-Dec-08 486.2 418.7 1.16 1.13 1.02 1.14 0.79 0.90 16-Dec-08 500.8 421 1.19 1.13 1.02 1.14 0.79 0.90 17-Dec-08 497.6 431.8 1.15 1.13 1.02 1.14 0.79 0.90 18-Dec-08 537.2 472 1.14 1.13 1.02 1.14 0.79 0.90 19-Dec-08 546 472.8 1.15 1.13 1.02 1.14 0.79 0.90 22-Dec-08 537.5 445.7 1.21 1.13 1.02 1.14 0.79 0.90 23-Dec-08 499.5 426.85 1.17 1.13 1.02 1.14 0.79 0.90 24-Dec-08 490.75 440.95 1.11 1.13 1.02 1.14 0.79 0.90 26-Dec-08 482.8 417.35 1.16 1.13 1.02 1.14 0.79 0.90 29-Dec-08 494.95 445 1.11 1.13 1.02 1.14 0.79 0.90 30-Dec-08 510.25 458.6 1.11 1.13 1.02 1.14 0.79 0.90 31-Dec-08 504.7 448.1 1.13 1.13 1.02 1.14 0.79 0.90

1-Jan-09 516.85 464.15 1.11 1.13 1.02 1.14 0.79 0.90 2-Jan-09 541.9 471.25 1.15 1.13 1.02 1.14 0.79 0.90 5-Jan-09 560.1 499.9 1.12 1.13 1.02 1.14 0.79 0.90 6-Jan-09 569.75 523.45 1.09 1.13 1.02 1.14 0.79 0.90 7-Jan-09 522.1 467.85 1.12 1.13 1.02 1.14 0.79 0.90 9-Jan-09 486.6 456.6 1.07 1.13 1.02 1.14 0.79 0.90

12-Jan-09 451.7 438 1.03 1.13 1.02 1.14 0.79 0.90 13-Jan-09 440.3 425.45 1.03 1.13 1.02 1.14 0.79 0.90 14-Jan-09 449.4 441.1 1.02 1.13 1.02 1.14 0.79 0.90 15-Jan-09 434.05 408.65 1.06 1.13 1.02 1.14 0.79 0.90 16-Jan-09 443.55 423.75 1.05 1.13 1.02 1.14 0.79 0.90 19-Jan-09 438.3 412.6 1.06 1.13 1.02 1.14 0.79 0.90 20-Jan-09 422.4 396.3 1.07 1.13 1.02 1.14 0.79 0.90 21-Jan-09 407.7 369.35 1.10 1.13 1.02 1.14 0.79 0.90 22-Jan-09 416.05 378.05 1.10 1.13 1.02 1.14 0.79 0.90 23-Jan-09 384.3 363.85 1.06 1.13 1.02 1.14 0.79 0.90 27-Jan-09 394.75 381.1 1.04 1.13 1.02 1.14 0.79 0.90 28-Jan-09 422.85 408.05 1.04 1.13 1.02 1.14 0.79 0.90 29-Jan-09 435.65 410.1 1.06 1.13 1.02 1.14 0.79 0.90 30-Jan-09 433.7 416.25 1.04 1.13 1.02 1.14 0.79 0.90 2-Feb-09 397.85 385.1 1.03 1.13 1.02 1.14 0.79 0.90 3-Feb-09 395.5 392 1.01 1.13 1.02 1.14 0.79 0.90 4-Feb-09 395.15 389.7 1.01 1.13 1.02 1.14 0.79 0.90 5-Feb-09 392.3 390.55 1.00 1.13 1.02 1.14 0.79 0.90 6-Feb-09 403 407.1 0.99 1.13 1.02 1.14 0.79 0.90


40

9-Feb-09 422.45 428.35 0.99 1.13 1.02 1.14 0.79 0.90 10-Feb-09 421 428.7 0.98 1.13 1.02 1.14 0.79 0.90 11-Feb-09 430.95 435.2 0.99 1.13 1.02 1.14 0.79 0.90 12-Feb-09 430.5 421.4 1.02 1.13 1.02 1.14 0.79 0.90 13-Feb-09 440.4 434.4 1.01 1.13 1.02 1.14 0.79 0.90 16-Feb-09 418.8 409 1.02 1.13 1.02 1.14 0.79 0.90 17-Feb-09 399.15 385.7 1.03 1.13 1.02 1.14 0.79 0.90 18-Feb-09 394.25 369.5 1.07 1.13 1.02 1.14 0.79 0.90 19-Feb-09 388.45 361.5 1.07 1.13 1.02 1.14 0.79 0.90 20-Feb-09 372.7 335.85 1.11 1.13 1.02 1.14 0.79 0.90 24-Feb-09 363.65 335.95 1.08 1.13 1.02 1.14 0.79 0.90 25-Feb-09 366.05 340.6 1.07 1.13 1.02 1.14 0.79 0.90 26-Feb-09 346.3 324.85 1.07 1.13 1.02 1.14 0.79 0.90 27-Feb-09 347.9 327.55 1.06 1.13 1.02 1.14 0.79 0.90

2-Mar-09 323.1 304.4 1.06 1.13 1.02 1.14 0.79 0.90 3-Mar-09 324.9 295.6 1.10 1.13 1.02 1.14 0.79 0.90 4-Mar-09 322.15 284.9 1.13 1.13 1.02 1.14 0.79 0.90 5-Mar-09 300.7 270.05 1.11 1.13 1.02 1.14 0.79 0.90 6-Mar-09 294.95 269.15 1.10 1.13 1.02 1.14 0.79 0.90 9-Mar-09 281.4 262.95 1.07 1.13 1.02 1.14 0.79 0.90

12-Mar-09 304.5 284.15 1.07 1.13 1.02 1.14 0.79 0.90 13-Mar-09 329.9 308.65 1.07 1.13 1.02 1.14 0.79 0.90 16-Mar-09 342.55 322.8 1.06 1.13 1.02 1.14 0.79 0.90 17-Mar-09 325.5 323.4 1.01 1.13 1.02 1.14 0.79 0.90 18-Mar-09 340.7 334.65 1.02 1.13 1.02 1.14 0.79 0.90 19-Mar-09 358 337.9 1.06 1.13 1.02 1.14 0.79 0.90 20-Mar-09 342.4 323.05 1.06 1.13 1.02 1.14 0.79 0.90 23-Mar-09 373.65 346.8 1.08 1.13 1.02 1.14 0.79 0.90 24-Mar-09 371.95 355.45 1.05 1.13 1.02 1.14 0.79 0.90 25-Mar-09 398.1 365.55 1.09 1.13 1.02 1.14 0.79 0.90 26-Mar-09 421.4 375.05 1.12 1.13 1.02 1.14 0.79 0.90 27-Mar-09 431.05 385.2 1.12 1.13 1.02 1.14 0.79 0.90 30-Mar-09 397 338.1 1.17 1.13 1.02 1.14 0.79 0.90 31-Mar-09 414.95 332.8 1.25 1.13 1.02 1.14 0.79 0.90

1-Apr-09 418.15 349.35 1.20 1.13 1.02 1.14 0.79 0.90 2-Apr-09 439.6 360.7 1.22 1.13 1.02 1.14 0.79 0.90 6-Apr-09 435.25 374.8 1.16 1.13 1.02 1.14 0.79 0.90 8-Apr-09 443.55 376.4 1.18 1.13 1.02 1.14 0.79 0.90 9-Apr-09 445.6 397.8 1.12 1.13 1.02 1.14 0.79 0.90

13-Apr-09 461.85 416.6 1.11 1.13 1.02 1.14 0.79 0.90 15-Apr-09 504.2 442.9 1.14 1.13 1.02 1.14 0.79 0.90 16-Apr-09 472.1 427.55 1.10 1.13 1.02 1.14 0.79 0.90 17-Apr-09 503.25 440.85 1.14 1.13 1.02 1.14 0.79 0.90 20-Apr-09 509.85 426.65 1.20 1.13 1.02 1.14 0.79 0.90 21-Apr-09 493.95 398.75 1.24 1.13 1.02 1.14 0.79 0.90 22-Apr-09 472.15 400.05 1.18 1.13 1.02 1.14 0.79 0.90 23-Apr-09 502.05 424.4 1.18 1.13 1.02 1.14 0.79 0.90 24-Apr-09 529.6 434.1 1.22 1.13 1.02 1.14 0.79 0.90 27-Apr-09 557.5 467.55 1.19 1.13 1.02 1.14 0.79 0.90 28-Apr-09 530.7 439.2 1.21 1.13 1.02 1.14 0.79 0.90 29-Apr-09 557.3 479.2 1.16 1.13 1.02 1.14 0.79 0.90 4-May-09 609.35 529.9 1.15 1.13 1.02 1.14 0.79 0.90 5-May-09 627.35 569.1 1.10 1.13 1.02 1.14 0.79 0.90 6-May-09 605.25 539.6 1.12 1.13 1.02 1.14 0.79 0.90


41

7-May-09 624.75 549.3 1.14 1.13 1.02 1.14 0.79 0.90 8-May-09 607.25 520.75 1.17 1.13 1.02 1.14 0.79 0.90

11-May-09 620.35 523.35 1.19 1.13 1.02 1.14 0.79 0.90 12-May-09 669 558.1 1.20 1.13 1.02 1.14 0.79 0.90 13-May-09 671.7 551.15 1.22 1.13 1.02 1.14 0.79 0.90 14-May-09 637.55 536.25 1.19 1.13 1.02 1.14 0.79 0.90 15-May-09 659.6 574.7 1.15 1.13 1.02 1.14 0.79 0.90 18-May-09 778.4 707.1 1.10 1.13 1.02 1.14 0.79 0.90 19-May-09 764.8 756.15 1.01 1.13 1.02 1.14 0.79 0.90 20-May-09 728.55 708.9 1.03 1.13 1.02 1.14 0.79 0.90 21-May-09 736.2 673.05 1.09 1.13 1.02 1.14 0.79 0.90 22-May-09 762.85 702.65 1.09 1.13 1.02 1.14 0.79 0.90 25-May-09 774 704.65 1.10 1.13 1.02 1.14 0.79 0.90 26-May-09 744.75 666 1.12 1.13 1.02 1.14 0.79 0.90 27-May-09 797.75 710.25 1.12 1.13 1.02 1.14 0.79 0.90 28-May-09 782.05 730.3 1.07 1.13 1.02 1.14 0.79 0.90 29-May-09 778.95 740.15 1.05 1.13 1.02 1.14 0.79 0.90

1-Jun-09 741.75 722.55 1.03 1.13 1.02 1.14 0.79 0.90 2-Jun-09 719.9 732.3 0.98 1.13 1.02 1.14 0.79 0.90 3-Jun-09 717 719.45 1.00 1.13 1.02 1.14 0.79 0.90 4-Jun-09 734.85 733.5 1.00 1.13 1.02 1.14 0.79 0.90 5-Jun-09 738.5 754.75 0.98 1.13 1.02 1.14 0.79 0.90 8-Jun-09 698.2 724.65 0.96 1.13 1.02 1.14 0.79 0.90 9-Jun-09 726.05 737.85 0.98 1.13 1.02 1.14 0.79 0.90

10-Jun-09 752.5 747.7 1.01 1.13 1.02 1.14 0.79 0.90 11-Jun-09 726.6 750.3 0.97 1.13 1.02 1.14 0.79 0.90 12-Jun-09 703.75 742.45 0.95 1.13 1.02 1.14 0.79 0.90 15-Jun-09 718.4 734.75 0.98 1.13 1.02 1.14 0.79 0.90

Documents

Equity Research Report