“STUDY ON EQUITY MARKET IN INDIAINFOLINE

LIMITED”

Project Report Submitted To University Of Pune, In Partial

Fulfillment Of The Requirement For The Award Of Degree

Of

MASTER OF BUSINESS ADMINSITRATION

Under The Guidance of

Sinhgad Institute of Business Administration and Computer

Application

SIBACA, LONAVALA

[ACDEMIC YEAR 2010 – 2011]

1

DECLARATION

I, the undersigned, hereby declare that the project report entitled “STUDY ON EQUITY

MARKET” written and submitted by me to the University of Pune, in partial fulfillment for

the award of degree of Master of Business Administration under the guidance of Prof. Salim

Shamsher is my original work and the conclusions drawn therein are based on the materials

collected by myself .

Place : Lonavala

Date:

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3

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ACKNOWLEDGEMENT

“Accomplishment requires the effort of many People and this work is no different.

I would like to thank all those who helped me directly or indirectly and whose

diligent efforts made this project possible.”

I wish to express my sincere thanks to Mr. Nikhil Shah(Team Leader) and Miss.

Khushbu Kochar(Relationship Manager) IIFL for giving an opportunity to carry

out this internship in IIFL, Pune & guiding me throughout my training period.

My special thanks to Prof. Salim Shamsher (Guide) in guiding me towards the

successful completion of my training.

I also thank Mr. Dinesh Chordiya & all executives and staff in the organization

and others who helped me to complete this internship.

I also take this opportunity to express my profound gratitude to all those

respondents who made this project successful by cooperating with me.

Last but never the least I thank all my friends for their consistent motivation and

moral support all through the training. Thanks to all.

PLACE: LONAVALA

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INDEX

 

SR. NO PARTICULARS PAGE NO.

     

1 EXECUTIVE SUMMERY  

2 OBJECTIVES OF STUDY  

3 COMPANY PROFILE  

4 INTRODUCTION  

5 RESEARCH METHODOLOGY  

6 DATA ANALYSIS  

7 FINDINGS  

8 LIMITATIONS OF PROJECTS  

9 RECOMMENDATION  

10 CONCLUSIONS  

11 BIBLIOGRAPHY  

 

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Chapter I

EXECUTIVE SUMMARY

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EXECUTIVE SUMMARY

The project is done with IndiaInfoline which is one of the best brands amongst Indian domestic

broking houses enjoying an unmatched & unparalleled brand recall. This project gave me a

chance to get valuable insights from a hoard of vastly experienced people in this field and to get

various approaches each one adopts to evaluate various companies.

 

The project was carried out in the “Pune office” of with IndiaInfoline which is located near

“Chandanichowk”. The duration of the project was two months. These two months were not only

limited to learning and devoting time towards equity research but it also provided an insight of

working of a financial website and what efforts are required to manage such organizations.

IndiaInfoline is financially sound with an excellent track record of consistent market growth in

all key business segments.

According to the study of the markets, it is being observed that markets are very volatile for

equity market. In near future a proper financial planning is required to invest money in all type of

financial product because there is good potential in market to invest.

The term stock market for the overall market is in which shares are issued and traded on

exchanges or in over-the-counter markets. Also known as the equity market, it is one of the most

vital areas of a market economy because it provides companies with access to capital and allows

investors to own companies and participate in economic growth

As the trading in equity market in India is increasing and now more and more companies are

beginning on this market, so trading in equity market in future can go only in one direction that is

up. So this is the right time to know about equity market.

By Fundamental Analysis the most important information can be analyzed solid financial

reporting and non-financial information, for example, estimates of the growth in demand for

competing products, industrial comparisons, and the whole economy.

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The methodology for carrying out the project was very simple that is through discussion with

expert primary data is obtained and secondary data obtained through various mediums like

weekly circulars, the Internet, Business magazines, Newspaper, etc.

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Chapter II

OBJECTIVES OF STUDY

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OBJECTIVE OF THE STUDY

To understand the importance of fundamental and technical analysis and its benefits as an

investment avenue.

To understand technical analysis and its usage in Equity market.

To understand calculations to be made in Fundamental analysis.

To compare and evaluate the performance of two different companies of telecom sector

on the basis of risk, return and volatility.

To suggest the companies which are out performers and laggards.

Finally to suggest an ideal situation of company in which risk will be distributed and will

earn higher rate of return.

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Chapter III

COMPANY PROFILE

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INDIAINFOLINE LTD.

India Infoline is a one-stop financial services shop (Equity, Commodity, Mutual Funds, General

Insurance, Life Insurance), most respected for quality of its advice, personalized service and

cutting-edge technology. Keeping with its tradition of personalized service, India Infoline

provides customized and integrated equity solutions to Investors like you.

IndiaInfoline is one of the best brands amongst Indian domestic broking houses enjoying

an unmatched & unparalleled brand recall. Financially sound with an excellent track

record of consistent market growth in all key buisness segments.

The India Infoline group, comprising the holding company, India Infoline Ltd and its

wholly owned subsidiaries offers the entire gamut of investment products. The India

Infoline group has a significant presence across the country with over 596 branches in

over 345 cities across India.

It also undertakes equity Research which is acknowledged by none other than Forbes as “

Best of the Web “ & “ must read for investors in Asia “.

The group has memberships on BSE and NSE for equity trading, depository participant

with NSDL and CDSL and commodities trading with MCX and NCDX

Infoline group, comprising the holding company, India Infoline Ltd and its

subsidiaries, straddles the entire financial services space with offerings ranging

from Equity research, Equities and derivatives trading, Commodities trading,

Portfolio Management Services, Mutual Funds, Life Insurance, Fixed deposits,

Government bonds and other small savings instruments to loan products and

Investment banking. India Infoline also owns and manages the websites,

www.India Infoline.com and www.5paisa.com .

India Infoline Ltd, being a listed entity, is regulated by SEBI (Securities and

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Exchange Board of India). It undertakes equities research which is acknowledged

by none other than Forbes as 'Best of the Web' and 'a must read for investors in

Asia'. India Infoline's research is available not just over the internet but also on

international wire services like Bloomberg (Code: IILL), Thomson First Call and

Internet Securities where it is amongst the most read Indian brokers.

VISION of IndiaInfoline:

It’s VISION IS TO BE THE MOST RESPECTED COMPANY IN THE

FINANCIAL SERVICES SPACE.

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FINANCIAL SERVICES SPACE.

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India Infoline Group :

The India Infoline group, comprising the holding company, India Infoline

Limited and its wholly-owned subsidiaries, straddle the entire financial services

space with offerings ranging from Equity research, Equities and derivatives

trading, Commodities trading, Portfolio Management Services, Mutual Funds, Life

Insurance, Fixed deposits, GoI bonds and other small savings instruments to loan

products and Investment banking.

India Infoline also owns and manages the websites www.indiainfoline.com and

www.5paisa.com

The company has a network of 596 branches spread across 345 cities and

towns. It has more than 500,000 customers.

India Infoline Media and Research Services Limited :

The content services represent a strong support that drives the broking,

commodities, mutual fund and portfolio management services businesses.

Revenue generation is through the sale of content to financial and media

houses, Indian as well as global.

India Infoline Commodities Limited :

India Infoline Commodities Pvt Limited is engaged in the business of

commodities broking. Our experience in securities broking empowered us with

the requisite skills and technologies to allow us offer commodities broking as a

contra-cyclical alternative to equities broking. We enjoy memberships with the

India Infoline Group :The India Infoline group, comprising the holding company, India InfolineLimited and its wholly-owned subsidiaries, straddle the entire financial services space with offerings ranging from Equity research, Equities and derivatives trading, Commodities trading, Portfolio Management Services, Mutual Funds, Life Insurance, Fixed deposits, GoI bonds and other small savings instruments to loan products and Investment banking.

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India Infoline also owns and manages the websites www.indiainfoline.com and www.5paisa.comThe company has a network of 596 branches spread across 345 cities andtowns. It has more than 500,000 customers.

India Infoline Media and Research Services Limited :The content services represent a strong support that drives the broking,commodities, mutual fund and portfolio management services businesses.Revenue generation is through the sale of content to financial and mediahouses, Indian as well as global.

India Infoline Commodities Limited :India Infoline Commodities Pvt Limited is engaged in the business ofcommodities broking. Our experience in securities broking empowered us withthe requisite skills and technologies to allow us offer commodities broking as acontra-cyclical alternative to equities broking. We enjoy memberships with theMCX and NCDEX, two leading Indian commodities exchanges, and recentlyacquired membership of DGCX.

India Infoline Marketing & Services :

India Infoline Marketing and Services Limited is the holding company of India

Infoline Insurance Services Limited and India Infoline Insurance Brokers

Limited.

(a) India Infoline Insurance Services Limited is a registered Corporate Agent

with the Insurance Regulatory and Development Authority (IRDA). It is the

largest Corporate Agent for ICICI Prudential Life Insurance Co Limited, which

is India's largest private Life Insurance Company. India Infoline was the first

corporate agent to get licensed by IRDA in early 2001.

(b) India Infoline Insurance Brokers Limited India Infoline Insurance Brokers

Limited is a newly formed subsidiary which will carry out the business of

Insurance broking. We have applied to IRDA for the insurance broking licence

and the clearance for the same is awaited. Post the grant of license, we propose to also

commence the general insurance distribution business.

India Infoline Investment Services Limited :

Consolidated shareholdings of all the subsidiary companies engaged in loans

and financing activities under one subsidiary. Recently, Orient Global, a

Singapore-based investment institution invested USD 76.7 million for a 22.5%

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stake in India Infoline Investment Services. India Infoline

Investment Services Private Limited consists of the following step-down

subsidiaries.

(a) India Infoline Distribution Company Limited (distribution of retail loan

products)

(b) Moneyline Credit Limited (consumer finance)

(c) India Infoline Housing Finance Limited (housing finance)

IIFL (Asia) Private Limited :

IIFL (Asia) Private Limited is wholly owned subsidiary which has been

incorporated in Singapore to pursue financial sector activities in other Asian

markets. Further to obtaining the necessary regulatory approvals, the company has been initially

capitalized at 1 million Singapore dollars.

India Infoline Organization Flowchart:

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RESEARCH

World class research reports, sector reports and update, corporate news, announcements,

Technical stocks Ideas on trader terminal, SMS (paid service), fundamental investment ideas in 20

Territorial

Manager

Territorial

Manager

HRHR Sales Manager

Sales Manager

Sales Manager

Sales Manager

Sales Manager

Sales Manager

Team Leader

Team Leader

Team Leader

Team Leader

Team Leader

Team Leader

Relationship Manager

Relationship Manager

Relationship Manager

Relationship Manager

Relationship Manager

Relationship Manager

Large Cap, Mid Cap, Small Cap, result updates, Daily market strategies (DMS), Weekly wrap,

Daily Derivatives Strategy, Daily Market watch (DMV) and Online recommendations.

BACK OFFICE

Web and application based online back office, centralized data

processing.

Contract notes through e-mails and courier.

Online ledger accounts, DP accounts, trade information.

Trade with the Best Stay Ahead of the Rest.

Trade online, over the phone or at our branches.

Dedicated, expert Relationship Managers.

Internationally acclaimed research.

Trade in shares, derivatives and commodities.

Apply for Online IPO’s & Mutual Funds on our home page www.5paisa.com or

www.indiainfoline.com

TT ADVANCE LOOKS ( TRADING SOFTWARE) OF IIFL

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22

Chapter IV

INTRODUCTION

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INTRODUCTION

FINANCIAL MARKETS:

A financial market can be defined as the market in which financial assets are created or transferred.

Financial assets represents represent a claim to the payments of a sum of money sometime in the future

and/or periodic payment in the form of interest or dividend. Financial Market performs an important

function of mobilization of savings and channeling them into the most productive uses. The participants

in the financial markets are financial institutions, agents, brokers, dealers, borrowers, lenders, savers and

others who are inter-linked by the laws, contracts and communication networks.

Financial markets consist of Primary and Secondary Markets. The Primary markets deal in new

financial claims and securities and hence are known as new issue markets. The secondary market

deals in securities already issued, existing or outstanding. Financial markets are also classified as

Money and Capital Markets. Money markets deals with transactions in short-term instruments

(with period of maturity one year or less, e.g. treasury bills), while capital market deals with

transactions in long-term instruments (with period of maturity above one year, e.g. corporate

debentures and government bonds). On the basis of the type of the financial claim, financial

markets are classified as Debt and Equity markets. By the timing of delivery, financial markets

are classified as Cash or Spot markets and Forward or Future market.

Financial Instruments Categorization

Financial instruments can be categorized by "asset class" depending on whether they are Equity

Based (reflecting ownership of the issuing entity) or Debt Based (reflecting a loan the investor

has made to the issuing entity). If it is debt, it can be further categorised into Short Term (less

than one year) or Long Term.

Foreign Exchange instruments and transactions are neither debt nor equity based and belong in

their own category

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Categorization in Matrix

Asset Class

Instrument Type

Securities Other cashExchange-

traded derivatives

OTC derivatives

Debt (Long Term)>1 year

Bonds LoansBond futuresOptions on

bond futures

Interest rate swapsInterest rate caps and floors

Interest rate optionsExotic instruments

Debt (Short Term)<=1 year

Bills, e.g. T-BillsCommercial paper

DepositsCertificates of

deposit

Short term interest rate

futuresForward rate agreements

Equity Stock N/AStock optionsEquity futures

Stock optionsExotic instruments

Foreign Exchange N/ASpot foreign

exchangeCurrency futures

Foreign exchange optionsOutright forwards

Foreign exchange swapsCurrency swaps

Some instruments defy categorization into the above matrix, for example

repurchase agreements.

Potential of the India Financial Market :

India Financial Market helps in promoting the savings of the economy - helping to adopt an

effective channel to transmit various financial policies. The Indian financial sector is well-

developed, competitive, efficient and integrated to face all shocks. In the India financial market

there are various types of financial products whose prices are determined by the numerous

buyers and sellers in the market. The other determinant factor of the prices of the financial

products is the market forces of demand and supply. The various other types of Indian markets

help in the functioning of the wide India financial sector.

The classification of Financial Markets can be summarized as follows:

o Money Marketo Debt Marketo Forex Marketo Capital Market

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MON

EY MARKETS:

Money markets can be defined as a market for short term money and financial assets that are

near substitutes for money (any financial assets that can be quickly converted into money with

minimum transaction cost). One more important function of this market is to channel savings

into short term productive investments like working capital. Money market aids banking,

operates as a medium of integration between sub markets, promotes maintaining of minimum

reserve in the form of cash and liquidity and controls the interest rates.

DEBT MARKET:

Traditionally debt instruments are known for generating a predetermined income for a given

period of time, other than in cases of default. Hence they are also known as fixed income

instruments. The debt markets in advanced are significantly larger and deeper than equity

markets. But in India, the trend is just the opposite. The development of debt market in India has

not been as remarkable as in the equity market. However the debt markets in India have

undergone a considerable change in the last few years. Characterized by regulated interest rates,

limited players and lack of trading earlier, the markets have become more integrated and less

regulated. The debt market in India is divided into two categories:

o Government securities market consisting of Central Government and State Government

securities.

o Bond market consisting of FI bond, PSU bonds and Corporate bonds/debentures.

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FINANCIAL marketmama

MARKETMONEY MARKET FOREX MARKET CAPITAL MARKET DEBT MARKET

FOREIGN EXCHANGE MARKET:

Foreign exchange or Forex market is the one where a country’s currency is traded for another.

The rate at which one currency is converted to another is known as the rate of exchange. Forex

market is the largest financial market in the world having a daily turn over of couple of trillion

dollars. The key participants in the forex market are importers (who need foreign currency to pay

off their imports), exporters (who want to convert their foreign currency receipts into domestic),

traders (who make a market in the foreign currency), foreign exchange brokers (who bring

together buyers and sellers), speculators (who tries to profit from exchange rate movements) and

portfolio managers who buy and sell foreign currency. Speculative transactions account for more

than 95% of the turnover on the Forex markets.

Capital Market

A Capital Market is a market for securities (debt or equity), where business enterprises

(companies) and governments can raise long-term funds. It is defined as a market in which

money is provided for periods longer than a year[1], as the raising of short-term funds takes place

on other markets (e.g., the money market). The capital market includes the stock market (equity

securities) and the bond market (debt). Financial regulators, such as the UK's Financial Services

Authority (FSA) or the U.S. Securities and Exchange Commission (SEC), oversee the capital

markets in their designated jurisdictions to ensure that investors are protected against fraud,

among other duties.

Capital markets may be classified as primary markets and secondary markets. In primary

markets, new stock or bond issues are sold to investors via a mechanism known as underwriting.

In the secondary markets, existing securities are sold and bought among investors or traders,

usually on a securities exchange, over-the-counter, or elsewhere.

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Stock Exchange:

A place, whether physical or electronic, where stocks, bonds, and/or derivatives in listed

companies are bought and sold. A stock exchange may be a private company, a non-profit, or a

publicly-traded company (some exchanges have shares that trade on their own floors). A stock

exchange provides a regulated place where brokers and companies may meet in order to make

investments on neutral ground. The concept traces its roots back to medieval France and the Low

Countries, where agricultural goods were traded for cash or debt. Most countries have a main

exchange and many also have smaller, regional exchanges. A stock exchange is also called a

bourse or simply an exchange.

EQUITY MARKET

Equity is defined as stock or any other security representing an ownership interest in a company

listed on the stock exchange.

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Capital Market SegmentsCapital Market SegmentsSEBI

Primary Markets Secondary Markets

I.P.O.- Debt / Eq

Rights Issue

Convertible Deb

Book Building

Issue thro Stock Ex

Cash Markets

BSE

NSE

OTCEI

Others

Derivatives

BSE

NSE

An equity share is a right to a share in the profits of a Company. If you want a share in the

company's profits, you can do so by buying an equity share.

Perhaps, the best way to create wealth, it is a means to achieve returns that beats inflation by a

wide margin.

Stock Market / Equity Market:   

Basic information on equity investing

Equity investment refers to buying a piece of a company. You do this by buying shares in that

company.

Equity investment refers to buying a piece of a company. You do this by buying shares in that

company. There are two ways to acquire shares in a company: from the primary market, where

you buy a company's share when it first issues shares (or equity). This first share offering is

called an initial public offering (IPO). Or, you could buy equity in the secondary market, which

is the stock exchange.

When you buy or sell equity on a stock exchange, you have to do the transaction through an

exchange-certified broker/brokerage firm, who will now act as your agent whenever you want to

buy or sell equity.

Equity investments are high-risk high-return propositions. There is scope for serious erosion of

capital as well as considerable appreciation. This depends on many factors such as performance

of the company, general market conditions, state of the economy and so on...

In an investment portfolio, the equity portion represents one end of the risk-return spectrum, the

high end. No other investment tool gives you this much scope for capital appreciation.

Equity investment costs

The charges applicable on equity investments are Brokerage, demat, security transaction tax,

Service tax and education cess

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Brokerage charges: You pay a nominal one-time account-opening fee and then brokerage

charges for every purchase and sale transaction undertaken thereafter.

 Demat charges: These are charges levied for maintaining your demat account. These charges

include periodical charges for account maintenance, transaction charges for each debit and credit

of shares, and other incidental charges.

 Payment of Securities Transaction Tax (STT): You pay the STT while buying or selling equity.

 Payment of Service Tax (ST) and Education Cess (EC): You pay ST and EC, at present levied

together at a 12.24% rate, as a percentage of brokerage due to the broker

Tax structure on income from equity investment

Dividends received are tax free. Equity investments are subject to short term capital gains

(STCG) and long term capital gain (LTCG) also, as the case may be

Dividend received on stock is free from tax for the investor. This is the good news. However,

you do have to pay short-term capital gains tax on any capital gains you might make in the short

term ('short term defined as any period less that one year)

Thus gains from selling equity shares that have been purchased and sold within a year are taxed

at 11.22% (10 per cent tax + 2 per cent education cess + 10 per cent surcharge, if applicable).

There is no tax on long-term capital gains.

 All this is over and above the 12.24% service tax you pay on brokerage charges every time you

transact business in equity, i.e., buy and sell shares. In addition, you have to pay Securities

Transaction Tax (STT) on sale and purchase transactions of shares.

 The STT rate for delivery-based transactions is 0.125% of the transaction value for both buyers

and sellers. For non-delivery based transactions, the STT is 0.025% of the transaction value.

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Market risks: The risk of market collapse; or that you have invested at the peak of a particular

stock. Which means chances are returns on that investment could be minimal at best or worse,

will run at a loss.

Benefits of stock market volatility

Have you ever thought that stock market volatility can help you? Well, you may not think so, but

it can really boost up your stocks! Many investors when they foray wonder what to do when the

stock market falls. They sell or just sit on the fence and wait for the downward trend to cave in.

The irony is that they actually begin to invest when the stock market is on the higher side.

It is quite strange as it goes against the normal approach. People tend to buy stuff when it is

cheap while in stocks people purchase stocks when the market is on a higher side. Such a

concept is known as the heard mentality, which indicates that since the market is ascending

everybody is thinking that it will rise all the more and begin purchasing.

If you are an experienced investor, you will not be getting into such an odd thing, you will be

applying something very different instead. You will be purchasing when the market is collapsing

and that will be against the market, which is also called contrarian theory.

As you are constructing your portfolio for the long term you don’t need to be bothered about the

present stock market falls. Every descending movement is a prospect for you to choose the stock.

Dollar cost averaging is an alternate way to view it. You will choose some more of the stock

every time the stock hits a low as overall price of holding will get minimized. This is the

advantage of stock market instability which is usually detested by many.

The key aspect that you need to be careful about while employing the stock market volatility for

your advantage is the fact that you need to do a decent research and analysis before venturing

into a particular stock. You should pick a stock that you consider is good enough to be held for a

minimum of ten years and will earn you money after the decade. Defensive stocks will usually

not come in this group.

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Patience plays an important role in a long term investment. Besides, greediness should be

avoided and an investor should be ready to quit a stock in case it fails to deliver.

Don’t panic when things go awry. You can still turn the tide in your favor with prudence and

caution.

Risks inherent in equity investing

The risk factor in equity investments is appreciably higher than fixed income securities such as

fixed deposits or National Saving Certificates, or post office monthly income schemes.

Like any avenue of investment (except those whose returns are guaranteed by

the government, like the PPF), equity investing comes with risk. In fact, the risk factor in equity

investments is appreciably higher than fixed income securities such as fixed deposits or National

Saving Certificates (NSC), or post office monthly income schemes.

 Company stocks are susceptible to risks, and these risks are carried forward to your investments

as well. Here are a few:

Business risks: The risks associated with the prosperity of a business and the demand for its

products. There is always a risk that buyer profile or habits might change suddenly and a

company's product goes from being the rage to an also-ran.

Financial risks: The skill with which a company's finances are managed to ensure that it has an

optimum level of debt, equity, reserves, etc. If a company's financials are ineptly handled, even

in the short term, chances are that the ineptness will show up as a run on the stock in the future.

Industry risk: Changes in technology, regulations, vogue, etc. can affect the performance of an

industry sector as a whole, and a company stock of that sector might take the fall along with all

its other competitors in that sector.

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Management risks: The level of corporate governance, management skills and vision

determines the long term health of a company. Short term, ad hoc management decisions to ramp

up profit sheets invariably leads to long-term grief for that company.

Exchange rate risks: These factors affect a company but are outside its control, such as a

sudden strengthening of the rupee that might affect exports, having adverse effect on an export-

oriented company's stock.

Systemic risk:

Before setting out to invest in stocks, an individual should understand and learn about all sorts of

risks. There isn’t any investment without risk. It’s something that can’t be taken lightly.

Purchasing a stock means taking on risk. That’s the way it works. People take risk in order to be

rewarded eventually. Some win and some lose as they trade. It is essential that you know the key

risks, which you will have to face as a trader.

Knowing and understanding main risks allows you to offset forces, which are obstructive to the

costs of your shares and reduce the outcome of those forces on your investments’ success.

Systemic risk is the unavoidable outcome of working within any system. In such a case, the stock

market is the system. Traders could possibly safeguard against certain risks, however they cannot

safeguard against systemic risk. Therefore, involvement in the markets comprises implicit

approval of its systemic risk.

Systemic risk can involve stock market crunch with extensive outcomes. As it is said ‘A rising

tide floats all boats’. Inward tides definitely raise the whole stock market. Nevertheless the self-

same tide can also recoil and can leave the whole stock market deserted. Hedging is an effective

tool to offset the risk when the latter takes place.

So, as you know all about risks, you can work out its solution as well. It’s very important that

you know how to act in times of financial trouble and avoid making big losses.

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Chapter V

RESEARCH METHODOLOGY

34

RESEARCH METHODOLOGY:

Research as a means for gaining knowledge can be carried out either arbitrarily or in a systematic

fashion. It is described as a “PURPOSIVE INVESTIGATION”. Research is a systematic,

controlled, empirical and critical investigation of hypothetical propositions about the presumed

relationship among natural phenomenon. Formulation of hypothesis may in itself be a topic of

research. At times research focuses itself on descriptive rather than on casual or experimental

aspects.

OBJECTIVES OF RESEARCH

It helps to better understanding of the study conducted.

It aids in purposive planning at different levels and enables testing of alternative

approaches to an issue of an interest.

It helps in developing new tools, theories and concepts to make the study more effective.

Data Sources:

Primary Data

I. Discussions with experts & customers.

Secondary Data

I. Period ended performance

II. Data from internet sites

III. Data from weekly magazines

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Collecting the Data:

In dealing with any real life problem it is often found that data at hand are inadequate and hence,

it becomes necessary to collect data are appropriate. There are several ways of collecting the

appropriate data, which differ considerably in context of money costs, time and other resources

at the disposal of the researcher.

Primary data can be collected either through discussions or through survey. If the researcher

collects information through discussions, he will get right prediction for future requirement.

Through discussions

Through schedule

Researcher should select one of these methods of collecting the data taking into consideration the

nature of investigation, objective and scope of the inquiry, financial resources, available time and

the desired degree of accuracy.

Method adopted:

Discussion Method:

The researcher and the experts do come in contact with each other if this method of survey is

adopted. Questions are asked to the experts witch covers all aspects of the same subject. It is the

most extensively used method in various economic and business surveys.

Questions to be asked must be prepared very carefully so that it may prove to be effective in

collecting the relevant information.

Justification for the method used:

The first advantage of using this method is the personal contact with the experts. This was most

important, as we wanted to collect the information which required for completion of exercise

seriously. This was ensured during this method.

The main advantage of this discussion method was that it had no close-ended questions and also

the numbers of questions were not fixed. Interviewer feels very freely at the time of interview, he

doesn’t have any type of restriction for answers.

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Chapter VI

DATA ANALYSIS

37

DATA ANALYSIS

Fundamental Analysis

Fundamental analysis is a method of valuation of stocks from the economic and financial

analysis to predict the price movements of shares.

The most important information can be analyzed solid financial reporting and non-financial

information, for example, estimates of the growth in demand for competing products,

industrial comparisons, and the whole economy.

Basic Strategy

For the fundamentalists, the market share price tends to its intrinsic value. If the intrinsic

value of the population is higher than the current market price, the investor buys the

population, and whether the intrinsic value of the population was below the market price of

the sale of shares to investors.

To start doing fundamentalists study of present and future health of the economy as a whole.

In this step, you should try to determine the direction and level of interest rates.

After analyzing the economy as a whole, companies are considered individually. They must

analyze the factors that make us a competitive advantage in its sector, such as management

experience, the history of activity, growth potential, low-cost producer etc.

I. Sector Analysis:

The Indian telecommunications industry is the world's fastest growing telecommunications

industry, with 688.38 Million telephone (landlines and mobile) subscribers and 652.42 Million

mobile phone connections as of July 2010 It is also the second largest telecommunication

network in the world in terms of number of wireless connections after China. The Indian Mobile

subscriber base has increased in size by a factor of more than one-hundred since 2001 when the

38

number of subscribers in the country was approximately 5 million to 652.42 Million in July

2010.

A large population, low telephony penetration levels, and a rise in consumers' income and

spending owing to strong economic growth have helped make India the fastest-growing telecom

market in the world. The first operator is the state-owned incumbent BSNL. BSNL was created

by corporatization of the erstwhile DTS (Department of Telecommunication Services), a

government unit responsible for provision of telephony services. Subsequently, after the

telecommunication policies were revised to allow private operators, companies such as

Vodafone, Bharti Airtel, Tata Indicom, Idea Cellular, Aircel and Loop Mobile have entered the

space. See major operators in India. In 2008-09, rural India outpaced urban India in mobile

growth rate.

39

The following table gives details regarding the subscriber base of each Mobile

Service Provider in India as of 31 July 2010

Operator Subscriber base Market Share

Bharti Airtel 139,220,882 21.34%

MTNL 5,255,444 0.81%

BSNL 73,781,448 11.31%

Reliance

Communications113,315,831 17.37%

Aircel 43,296,659 6.64%

Sistema 5,582,683 0.86%

Loop 2,947,288 0.45%

Unitech 6,873,798 1.05%

Idea 70,748,936 10.84%

Etisalat 30,023 0.005%

Videocon 2,777,396 0.43%

Stel 1,423,043 0.22%

Tata Teleservices 74,850,220 11.47%

HFCL Infotel 851,887 0.13%

Vodafone 111,465,260 17.08%

All India 652,420,798 100%

40

II. Company research :

Idea Cellular Limited was incorporated in 1995. The company is among the top four mobile

telephony players in India with an 11 per cent all-India subscriber’s market share. More

importantly, it ranks third in terms of wireless revenue market share at 12.7 per cent. Idea ranks

second with 20.8 per cent revenue market share in nine service areas where it holds 900MHz

spectrum and which derive 48 per cent of industry's gross revenues (based on gross revenues for

UAS and mobile licenses only, for December 2009 quarter, as released by TRAI).

Idea holds 16 per cent stake in Indus Towers, a joint venture with other telecom majors Bharti

Airtel and Vodafone. Indus Towers is the world's largest tower company with over one lakh

towers. In 2007, Idea was listed on the National Stock Exchange (NSE) and the Bombay Stock

Exchange (BSE).

Idea enjoys a market leadership position in many of its operational areas. It offers GPRS on all

its operating networks for all categories of subscribers, and was the first company in India to

commercially launch the next generation EDGE technology in Delhi in 2003. As a pioneer in

technology deployment, it has been at the forefront through the adoption of bio fuels to power its

base stations, and by employing satellite connectivity to reach inaccessible rural areas in Madhya

Pradesh.

41

Airtel comes to you from Bharti Airtel Limited, one of Asia’s leading integrated telecom

services providers with operations in 19 countries across Asia and Africa. Bharti Airtel since its

inception, has been at the forefront of technology and has pioneered several innovations in the

telecom sector.

The company is structured into four strategic business units - Mobile, Telemedia, Enterprise and

Digital TV. The mobile business offers services in India, Sri Lanka and Bangladesh. The

Telemedia business provides broadband, IPTV and telephone services in 89 Indian cities. The

Digital TV business provides Direct-to-Home TV services across India. The Enterprise business

provides end-to-end telecom solutions to corporate customers and national and international long

distance services to telcos.

III. Financial Research:

You should be aware of the company’s Financials in which you are investing. Some basic ratio

like PE and EPS should be known.

It is the process of analyzing the characteristics of company in order to estimate its value.

1. Cash flow statement.

2. Income statement.

3. Balance sheet.

You must have a clear idea of the shares you want to purchase, based on your investment

objective, risk appetite, and the fundamental parameters of the share (stock). Some fundamental

parameters are the earning per share (EPS) and the price to earning-per-share ratio (PE). The

EPS is found by dividing the profit after tax by the outstanding number of shares in the market.

Basically, do not just rely on recommendations received from your broker, friend, lover or

anyone else. You can use these as a starting point, but ensure that you do your own independent

bit of digging before you invest.

42

Some expressions of fundamental analysis

1- EPS

The proportion of company profits for each outstanding common share. The amount is calculated

by dividing the number of shares of common shares. For example, a company that earned $ 10

million last year and 10 million shares to report earnings per share of $ 1

2- P/E ratio (price / EPS)

Also known as “other income”, stock price divided by earnings per share. P / E ratio could either

reported gains of recent years, or use analysts forecasts next year result. P / E gives investors an

idea of how much they pay for the company to win.

3- Dividend

Dividend is the sum of the benefits that the company pays for people who own shares in the

company. If the company gets an advantage, some of this money often get them back into

society, and urged retained earnings, and some of them be paid to shareholders as dividends.

4- Value

The carrying value of the asset or group of assets, sometimes at the price they were originally

purchased (original cost), in many cases equal to the purchase price.

5- Growth Stocks

Analysts estimate the profitability of the company capital, net income and capital division of the

company. To classify as an increase in stocks, analysts expect that at least 15% return on capital.

43

6- Adjusted EPS

Adjusted EPS is calculated when there is Bonus issue, Right Issue or Share Split.

Calculated as - EPS*Bonus adjustment Factor

Tip is if you feel a stock price is high, do not buy it. Only buy stocks that have scope for

appreciation.

Yet another tip do not try to time purchases, as a matter of course. While seismic upheavals in

the stock market will give you obvious signs to either buy or sell, do not rely only on timing the

markets. This will turn you into a speculator rather than an investor.

And lastly, if your research shows that the prospects of the company you own stock in do not

look rosy in the long term, get rid of the stock. Do not hesitate to liquidate your portfolio even

before your targeted time horizon if you think that it isn't worth it. In the end, it is your money,

and above all, you must be comfortable in keeping it invested.

44

IDEA          (Rs.crore)  

Common size- Balance Sheet

           Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06

Sources of fundsOwner's fund

Equity share capital 3,299.84 3,100.10 2,635.36 2,592.86 2,259.53

Share application money 44.45 18.23 3.76 - -

Preference share capital - - - - 483

Reserves & surplus 8,112.95 8,176.09 906.91 -413.71 -1,574.00

Loan fundsSecured loans 5,988.61 5,564.93 5,454.43 3,539.77 1,470.75

Unsecured loans 537.81 2,014.43 1,060.33 710.74 1,444.85

Total 17,983.65 18,873.78 10,060.79 6,429.66 4,084.14

Uses of fundsFixed assets

Gross block 22,834.40 15,562.75 12,791.22 8,229.61 3,975.11

Less : revaluation reserve - - - - -Less : accumulated depreciation 7,907.34 4,739.86 3,123.83 2,637.18 1,157.63

Net block 14,927.06 10,822.89 9,667.39 5,592.43 2,817.48

Capital work-in-progress 462.58 1,721.82 941.13 506.52 95.91

Investments 2,755.13 4,928.81 569.93 13.83 307.03

Net current assetsCurrent assets, loans & advances 3,881.90 4,994.96 1,674.14 2,550.93 1,637.35Less : current liabilities & provisions 4,043.02 3,594.69 2,791.81 2,234.05 773.63

Total net current assets -161.12 1,400.27 -1,117.67 316.88 863.72Miscellaneous expenses not written - - - - -

Total 17,983.65 18,873.78 10,060.79 6,429.66 4,084.14

45

Income statement for Idea March’10 March’ 09 March’08  March’07  March’06 Sales Turnover 2,007.07 4,366.40 6,719.99 9,857.08 11,850.24Excise Duty 0 0 0 0 0Net Sales 2,007.07 4,366.40 6,719.99 9,857.08 11,850.24Other Income 5.2 27.64 184.17 401.8 383.83Stock Adjustments -0.01 -1.2 0 -0.05 0Total Income 2,012.26 4,392.84 6,904.16 10,258.83 12,234.07Expenditure        Raw Materials 0.04 4.06 0.01 18.92 0.02Power & Fuel Cost 37.86 109.46 224.4 533.54 942.27Employee Cost 115.08 251.43 332.88 458.46 561.17Other Manufacturing Expenses 626.41 1,388.33 2,643.43 4,022.86 5,187.63Selling and Admin Expenses 439.02 959.34 974.08 1,621.90 1,823.48Miscellaneous Expenses 18.22 38.69 53.87 82.76 91.58Preoperative Exp Capitalised -0.04 -0.08 0 0 0Total Expenses 1,236.59 2,751.23 4,228.67 6,738.44 8,606.15  Mar '06 Mar '07 Mar '08 Mar '09 Mar '10

Operating Profit 770.47 1,613.97 2,491.32 3,118.59 3,244.09PBDIT 775.67 1,641.61 2,675.49 3,520.39 3,627.92Interest 308.25 478.26 695.85 1,206.35 982.44PBDT 467.42 1,163.35 1,979.64 2,314.04 2,645.48Depreciation 262.88 563.67 756.85 1,096.72 1,366.61Other Written Off 84.66 108.14 119.91 146.13 184.59Profit Before Tax 119.88 491.54 1,102.88 1,071.19 1,094.28Extra-ordinary items 8.61 5.23 13.97 15.68 91.61PBT (Post Extra-ord Items) 128.49 496.77 1,116.85 1,086.87 1,185.89Tax 2.9 6.99 72.5 85.65 115.08Reported Net Profit 125.6 502.06 1,044.36 1,001.21 1,053.66Total Value Addition 1,236.54 2,747.16 4,228.66 6,719.52 8,606.12Preference Dividend 0 0 0 0 0Equity Dividend 0 0 0 0 0Corporate Dividend Tax 0 0 0 0 0Per share data (annualised)        Shares in issue (lakhs) 22,595.27 25,928.61 26,353.61 31,000.95 32,998.38Earning Per Share (Rs) 0.56 1.94 3.96 3.23 3.19Equity Dividend (%) 0 0 0 0 0Book Value (Rs) 3.03 8.4 13.44 36.37 34.59

46

BHARTI AIRTEL

Common size- Balance Sheet (Rs crore)

  Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06

Sources of funds

Owner's fund

Equity share capital 1,898.77 1,898.24 1,897.91 1,895.93 1,893.88

Share application money 186.09 116.22 57.63 30 12.13

Preference share capital - - - - -

Reserves & surplus 34,650.19 25,627.38 18,283.82 9,515.21 5,437.42

Loan funds

Secured loans 39.43 51.73 52.42 266.45 2,863.37

Unsecured loans 4,999.49 7,661.92 6,517.92 5,044.36 1,932.92

Total 41,773.97 35,355.48 26,809.71 16,751.95 12,139.72

Uses of funds

Fixed assets

Gross block 44,212.53 37,266.70 28,115.65 26,509.93 17,951.74

Less : revaluation reserve 2.13 2.13 2.13 2.13 2.13

Less : accumulated depreciation 16,187.56 12,253.34 9,085.00 7,204.30 4,944.86

Net block 28,022.84 25,011.23 19,028.52 19,303.51 13,004.75

Capital work-in-progress 1,594.74 2,566.67 2,751.08 2,375.82 2,341.25

Investments 15,773.32 11,777.76 10,952.85 705.82 719.7

Net current assets

Current assets, loans & advances 9,225.08 10,466.63 8,439.38 5,406.81 3,338.88

Less : current liabilities & provisions 12,842.00 14,466.89 14,362.33 11,042.67 7,272.80

Total net current assets -3,616.92 -4,000.26 -5,922.95 -5,635.86 -3,933.92

Miscellaneous expenses not written - 0.09 0.2 2.66 7.94

Total 41,773.97 35,355.48 26,809.71 16,751.95 12,139.72

Income Statement of          

47

Airtel

Particulars Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06

Income          

Operating income 35,609.54 34,048.32 25,761.11 17,851.61 11,259.12

Expenses          

Material consumed 313.63 281.65 33.85 22.08 67.4

Manufacturing expenses 11,882.41 8,627.13 7,339.01 5,017.27 3,299.73

Personnel expenses 1,401.66 1,397.54 1,297.88 1,076.95 734.2

Selling expenses 2,404.91 2,210.43 1,842.51 1,126.34 804.15

Adminstrative expenses 5,982.64 8,608.03 4,588.53 3,351.31 2,315.91

Expenses capitalised -293.31 -269.25 - - -

Cost of sales 21,691.93 20,855.54 15,101.78 10,593.96 7,221.40

Operating profit 13,917.61 13,192.78 10,659.34 7,257.65 4,037.72

Other recurring income 148.98 235.99 266.91 101.7 40.75

Adjusted PBDIT 14,066.60 13,428.77 10,926.24 7,359.35 4,078.47

Financial expenses 283.35 434.16 393.43 282.07 236.81

Depreciation 3,890.08 3,206.28 3,166.58 2,353.30 1,432.34

Other write offs 207.84 178.82 266.07 137.8 127.39

Adjusted PBT 9,685.32 9,609.50 7,100.16 4,586.17 2,281.93

Tax charges 1,177.87 321.78 632.43 566.79 273.68

Adjusted PAT 8,507.45 9,287.72 6,467.73 4,019.39 2,008.25

Non recurring items 969.48 -1,497.74 -162.87 3.92 -13.81

Other non cash adjustments -50.78 -46.15 -60.67 9.92 17.64

Reported net profit 9,426.15 7,743.84 6,244.19 4,033.23 2,012.08

Earnigs before appropriation 27,928.98 19,541.05 11,778.12 5,489.61 1,225.65

Equity dividend 379.79 379.65 - - -

Preference dividend - - - - -

Dividend tax 64.54 64.52 - - -

Retained earnings 27,484.65 19,096.89 11,778.12 5,489.61 1,225.65

48

Chapter VII

FINDINGS

49

FINDINGS

IDEA : PERFORMANCE CHART

AIRTEL:PERFORMANCE CHART

50

Fundamental Analysis

RATIOS:

1. ADJUSTED EARNINGS PER SHARE- Adjusted EPS

EPS = PAT

No of shares outstanding

Adjusted EPS = Bonus Adjustment factor * EPS

INTERPRETATION:

For Airtel from March 2006 to 2009 it has grown. There was a split in 2009-2010 a result of

which adjusted EPS has come to 22.4

For Idea there is a tremendous increase in adjusted EPS from March ’06 to ’10.

51

2. PRICE EARNINGS RATIO- P/E Ratio

Price earnings Ratio= Market Price of an Equity

Earning per share(EPS)

Sr Company Last Price Change % Chg CEPS * EPS * P/E

1 Idea Cellular 72.10 -1.05 -1.44 7.04 2.90 24.86

2 Bharti Airtel 337.95 4.55 1.36 33.07 22.83 14.80

Industry P/E is 17.00

INTERPRETATION:

In comparison of Industry Average P/E Idea appears to be expensive and Airtel appears to be

cheap.

3. PRICE TO BOOK VALUE RATIO- P/BV Ratio

PRICE TO BOOK VALUE RATIO = Market Price

Book Value per share

PRICE TO BOOK VALUE RATIO for Idea = 69

1.95

= 34.59

52

4. DEBT / EQUITY RATIO

Debt to Equity Ratio = Long Term Debt

Shareholder’s Fund

Debt to Equity Ratio for Idea(March,2010) = 6526.42

11457.24

= 0.57

INTERPRETATION:

In comparison of Industry Average P/E Idea appears to be expensive and Airtel appears to be

cheap.

53

5. RETURN ON EQUITY- (ROE)

Return on Equity = Profit After Tax(PAT)

Net Worth

Return on Equity for Idea march 2010 = 1053.65 = 8.95

11457.24

INTERPRETATION:

For Idea it was continuously increasing from March 2006 to 2008 efficiently. But due to heavy

collapse in market the return on equity came down very quickly in March 2009 & stabilized by

March 2010 with slight growth.

Idea will grow fast in the coming one year. There is great support of RS. 100/- if idea cellular

crossed Rs. 100/- & there is no limitation to its profit.

As Airtel was in developing stage in March developing stage in March 2006 &it took peak till

2007. But it did not collapse with stock market in 2008 due to two reasons:

1. It was overpriced.

2. Acquisition in other countries.

It kept growing & was overpriced in 2009. Little correction was showed in 2010.

And in future more correction is to be expected.

54

6. RETURN ON CAPITAL EMPLOYED- (ROCE)

Return on Capital Employed = Earnings before Interest & Tax (EBIT)

Cost of Equity (COE)

Sample Calculation,

ROCE for IDEA (March, 2010) = 1168.73+(-206.32) = 8.400%

11457.24

INTERPRETATION:

Idea has a potential to as ROCE is less (7.48). they should improve their profitability.

Airtel’s performance is stable over the years reflecting ROCE in the range of 22% to 29%.

55

7. DIVIDEND PER EQUITY

Dividend per Equity Share=Dividend Paid on Total Share

No. of Share

INTERPRETATION:

Idea has not gained sufficient profits so we can not predict any dividend payout.

Airtel was in huge profits in 2009 and 2010 so it gave dividend to shareholder. Company has

good outlook in future.

56

8. DIVIDEND PAYOUT RATIO

Dividend Payout Ratio = Dividend Per Share *100

EPS

INTERPRETATION:

Idea is underperformed .

In Airtel there is a decrease in Adjusted PAT from Rs.9287.72 Cr. in March 2009 to Rs.8507 Cr

in Mar 2010. It has been reflected in dividend payout ratio there is an approximately 18% down

fall.

57

Technical Analysis:

A method of evaluating future security prices and market directions based on statistical analysis

of variables such as trading volume, price changes, etc., to identify patterns.

Analysis applied to the price action of the market to develop trading decisions, irrespective of

fundamental factors.

Fibonacci, moving averages or candlestick charts. These are some of the basic tools of technical

analysis. Technical investors believe that all information about a given population can be

transformed into part of the review of its past and current statistics, as the trend of stock trading

volume and stock price chart (Chart value of shares changed over time). Then, mathematically

analyzed the behavior of graphics and use of statistical analysis can identify trends indicate that

the future behavior of prices.

There are three basic assumptions of technical analysis. The first is that stock prices reflect all

that you need to know; so that technical analysts believe that the main factors and market

psychology is already at a price in the price. Secondly, technical analysis suggests that the stock

price moves in trends. This means that following the trend of further development, are more

likely to continue in the same direction as against him.

Lastly, technical analysis, is largely based on the assumption that the historic nature as to

repeat it. In other word, this means that investors usually react more or less equally to similar

events in the market.

Although it may seem simple, there are almost an infinite number of mathematical methods and

tools of technical analysis. Most technicians will first try to determine the overall trend of price

changes, to determine whether this trend upwards or downwards. The mathematical model

describing such as moving averages, oscillators and other indicators are a tool with which

technical investor for the purposes of this analysis.

Then, investors are beginning to understand the smallest detail in the trend and see if there is

support or opposition to this trend. For example, the upward trend with support for the volume of

trade can be a good indicator of share prices continue to rise. This may be a good time to buy

58

shares. On the other hand, if there is strong resistance against the upward trend, this is a good

time to sell the stock.

Technical analysis is not easy and certainly not absolute. In addition to technical investors want

to know more details. They also want to know, for example, the particular form of graphic

design, but they can be considered as a form of head, shoulder, cup or even a pen.

There are many debates both in academia and the private world on the ability of these methods in

order to beat the market methods. Studies typically show that technical analysis does not work in

the long run, but it is much harder to prove that in the short term, since many of the technical

analysis of the findings are not conclusive.

Approaches of Technical Analysis

Supports & Resistances

Pivot Analysis

Trend Channel Supports & Resistances

Trend line theory

Fibonacci method

GANN Theory

Bollinger Band

Patterns

Continuation and Reversal

Market Indicators

Volume indicators

Momentum indicators

Supports & Resistances

Pivot Analysis Calculation:

Pivot Point = (H+L+C)/3

Resistance Level 1 = (2*PP)-L

Support Level 1 = (2*PP)-H

Resistance Level 2 = (PP-S1) + R1

59

Support Level 2 = PP - (R1 - S1)

Resistance Level 3 = H + 2*(PP - L)

Support Level 3 = L - 2*(H - PP)

Midpoint calculations:

M1= (S2+S1)/2

M2= (S1+PP)/2

M3 = (R1+PP)/2

M4 = (R2+R1)/2

Reading Stock Charts

Online trading is growing by leaps and bounds.   Its no surprise, since advances in technology

give the average individual the ability to learn how to read stock charts and make their own

decisions on which stocks to purchase and when to sell.     You too can get in on the investment

game. With just a little know-how, you can soon be reading the daily stock report and choosing

stocks to invest in.   When you have the power to affect your financial future, why wait?

Technical analysis is the term for reading stock charts.   Essentially, this analysis is a method of

forecasting the future price movements using price/volume movement history. Technical

analysis is not 100% accurate in forecasting financials, but it is a highly valuable tool for finding

high reward, low risk trade opportunities.   While it may sound like jibberish for the newbie,

learning how to read stock charts is something anyone can learn to do.

Your first step in understanding how to read stock charts is to understand what a chart is and

what it can do.   A chart is just a sequence of prices and values plotted over a period of time. On

the vertical axis of a chart is the price; with time being represented on the horizontal access.

Time is plotted oldest to newest from right to left. Any security (stock, option, commodity, or

future) with price data over a period of time can be charted to form an analysis.

Stocks Charts Explained

In order to really delve confidently into investing, there are some things that you will need to

become familiar with.   The daily stock report is one thing that will be a part of your routine if

60

you re serious about investing.   You will likely want to learn how to read stock charts in order to

determine how you want to spend your investing dollars.

Of course, you re probably somewhat familiar with the daily stock report.   It s the segment of

the news that we tend to tune out on.   Why?   Because too many Americans are not investing

their money.   When you realize how simple buying and selling stocks really is, you ll want to

get in the game right away.

In days past, our mothers and fathers invested money through a professional trader.   No average

Joe would dream of stepping into the chaos that is the trading floor.   Now, thanks to the power

of the internet, the market has become accessible to everyone who is interested in learning its

happenings. Now, you can learn how to read stock charts right at your home computer.   It can

get easier than that.

So why do you need to read stock charts and follow the daily stock report to begin with?  

Simply because reading charts allows you to easily determine what the majority is doing.  

Learning how to read a stock chart and analyze it properly will help you know what stocks are

worth investing in and which are just too risky.

Stock charts are useful in any form; but as an added benefit, charts come in various scopes and

sizes. One chart can track trends by the hour, focusing on a single stock.  This type of chart is

especially valuable to the day trader who needs to keep a constant eye on happenings.   Another

chart might go to the other extreme, displaying the performance of the Dow index over several

decades.  This type of chart allows financial planners to project average annual returns over long

periods of time.

Because interactive charts are often available on the web, you can likely set up customized charts

to analyze yourself.  This makes researching possible investments much easier.  If you re not

sure where to start, you can first look into a stock trading course that will teach you the lingo of

the market as well as tips and tricks traders use.

61

When you re ready to start looking at stock charts, some of the questions you can ask are:

What stage is the stock in?

Is the stock experiencing an uptrend or a downtrend?

How strong is the trend the stock is in?

Is the chart smooth or all over the place?

As you can see, reading stock charts is not something that comes naturally.  You will want to

learn how to read a stock chart from a professional instructor or trader who can make sure you

gain a clear understanding of how to best perform your analysis.  Because of the rewards you can

earn from buying and selling stocks, any investment in learning how to do it right is well worth

it.

CHARTS:

A chart is simply a graphical representation of a series of prices over a set time frame.

A chart may show a stock's price movement over a one-year period, where each point on the

graph represents the closing price for each day the stock is traded.

Types of charts :

1. Line chart.

2. Bar chart.

3. Candlestick chart.

4. Point and figure.

1.Line Charts

Supported by most charting software, Line Charts are used often.  However, this type of stock

chart shows only one piece of trading information.   A line chart can be structured to show you

any one of the following items:  The Open, Close, High or Low of the trading time frame you are

62

searching. This is what makes them easy to use.  While ease of use is nice, once you learn how to

read stock charts, you may desire more information than what a line chart can offer you.

It represents only the closing prices over a set period of time. The line is formed by connecting

the closing prices over the time frame.

Line charts do not provide visual information of the trading range for the individual points such

as the high, low and opening prices. Example of line chart.

2.Bar Charts

When you begin to need more than one piece of the puzzle at a time, a bar chart may give you

just what you need.  Bar charts include all standard trading information.  This means you will get

opening price, closing price, highs and lows all at a glance.  Bar charts, while they give you more

than one piece of information at a time, are easy to read once you have a basic grasp on how to

read stock charts.

The chart is made up of a series of vertical lines that represent each data point.

This vertical line represents the high and low for the trading period, along with the closing

price.

The close and open are represented on the vertical line by a horizontal dash.

Example of bar chart:63

3.Candlestick Charts

Sitting right next to bar charts on the popularity table is the candlestick chart.  The candlestick

chart, like the bar chart, contains opening and closing prices as well as the highs and lows of the

time period you are searching.  Candlestick charts show whether the bar closed higher than it

opened (an upward candlestick) or closed lower than it opened (a downward candlestick).   By

looking at the highs and lows of a candlestick chart, you can easily determine the range of the

bar; the distance between the high and the low.

The information here is the very basic of the stock charts that help traders go about their day to

day business.  By learning how to read stock charts such as these, you can take a step toward

securing your financial future.

The candlestick chart is similar to a bar chart, but it differs in the way that it is visually

constructed.

Similar to the bar chart, the candlestick also has a thin vertical line showing the period's trading

range.

The difference comes in the formation of a wide bar on the vertical line, which illustrates the

difference between the open and close.

Example of candlestick chart:

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Trends

Trend: general direction of stock

Uptrend: higher highs, higher lows

Down trend: lower lows, lower highs

Trend length

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1. Short term (less than a month)

2. Medium term (Between 1 and 3 month)

3. Long term ( 1 yr)

Volume

1. Amount of shares that trade hands between seller and buyers

2. Price movements more significant when volume is above average

Why Volume is Important

Volume is an important aspect of technical analysis because it is used to confirm trends and chart

patterns.

Any price movement up or down with relatively high volume is seen as a stronger sense of

continuation of pattern

Chart patterns:

A chart pattern is a distinct formation on a stock chart that creates a trading signal, or a sign of

future price movements.

Analyst use these patterns to identify current trends and trend reversals and to trigger buy and

sell signals.

There are two types of chart patterns:66

1] Continuous chart patterns

A continuation pattern signals that a trend will continue once the pattern is complete.

Continuation pattern is nothing but continuation of the trend.

A cup and handle chart is a bullish continuation pattern in which the upward trend has paused

but will continue in an upward direction once the pattern is confirmed.

1. Triangles.

Ascending

,

Descending

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2. Symmetric

Flags & Pennants.

1. GAP Theory.

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2] Reversal chart patterns

A reversal pattern signals that a prior trend will reverse upon completion of the pattern.

Head and shoulders

Head and shoulders is a reversal chart pattern that when formed, signals that the security is likely

to move against the previous trend.

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MOVING AVERAGE:

Simple Moving Average (SMA) and the Exponential Moving Average (EMA).

SMA is formed by computing the average (mean) price of a security over a specified number

of periods. While it is possible to create moving averages from the Open, the High, and the Low

data points, most moving averages are created using the closing price.

EMA in order to reduce the lag in simple moving averages, technicians often use exponential

moving averages (also called exponentially weighted moving averages).

Method of evaluating securities by analyzing statistics generated by

Market activity

Past Prices

Volume

Do not attempt to measure intrinsic value.

Instead look for patterns and indicators on charts to determine future performance.

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Study of Supply and demand.

Assumptions on which T.A. based:

1. Market discount everything.

2. Prize moves in trend.

3. History tends to repeat itself.

Most agree that technical analysis is much more effective when combined with fundamental

analysis.

COMPARISON CHART OF IDEA WITH INDEX AND SECTOR

IDEA technical analysis from 8 th June till 29 th Sept

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GRAPH FOR IDEA

INTERPRETATION:

As Idea is not a large cap. And its market share is very low thus less trade takes place in idea as

compare to other telecom stocks but due to new policies of TRAI it’s expected that the stock

price of this script will come down for the short term but we are bullish in telecom for a long

term (2 months for short term & 1 year for bullish)

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Airtel technical analysis from 8th June till 29th Sept

INTERPRETATION:

With the movement of stock price over the period we can see that Airtel is the Market Performer.

COMPARISON CHART OF AIRTEL WITH INDEX AND SECTOR

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GRAPH FOR AIRTEL

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INTERPRETATION:

As Airtel has a large market share and it is a large cap. Company thus lots of trading take place

for this script. This script the largest traded in telecom sector but due to new policies of TRAI

this stock is also bearish for short term but this script is very bullish for the long term (2 months

for short term & 1 year for bullish)

Chapter VIII

LIMITATIONS OF PROJECT

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Limitations of project

I had to work with the existing model for company analysis which the organization was

using and therefore I could not experiment with the other ways of company analysis.

My project was concern with single sector which eliminates the benefits from

diversification of investment

Limitations of fundamental and technical analysis are also concerned to the project.

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Chapter IX

RECOMMENDATIONS

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RECOMMENDATIONS:

%Change from March 2006 to March 2010

RATIO IDEA AIRTEL

Adjusted EPS 507.81% 111.32%

P/BV Ratio 1041.58% 1138.73%

Debt to equity Ratio (80%) (81.96%)

Return on Equity (46.85%) (15.13%)

ROCE (53.74%) 14.47%

We project a 28% subscriber CAGR over the next two years even as rev/min is likely to

touch a low of 40p. However, wireless tariff is likely to stabilize in H2 FY11 and rev/min

could see an upward tick next year. This would support 15% revenue CAGR over FY10-

12 along with stable operating margin.

Moreover, VAS share for Idea at 12.4% is better than that of Bharti Airtel which would

provide an incremental uplift to ARPUs via targeted 3G offerings. However, the recent

rally in stock price provides little valuation headroom as Idea now trades at 16x FY12

earnings. Retain Market Performer with a 9-month target price of Rs 69.

The 2.3% drop in ARPUs in Q1 FY11 was the smallest such decline since Q3 FY09,

driven by robust MOU growth. Moreover, newer players are more likely to focus on

revenue market share after unleashing a fierce price war which has commoditized voice

tariffs with little difference amongst operators. In its post earnings call, management

hinted that Zain has enough headroom to improve its current 27.5% EBIDTA margin as

integration with Bharti is likely to be completed within the next few months. The stock

currently trades at ~17x FY12 PER which supports our positive stance on the company;

retain BUY.

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Chapter X

CONCLUSION

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CONCLUSION

Telecom Industry is about to witness strong upswings in near future to take advantage of

the swing investors should focus their investments in IDEA and Bharti Airtel.

A detailed company analysis of IDEA and Airtel on basis of various aspects showed that the

company Idea has tremendous growth potential whereas Airtel is a current market leader.

Though there is no massive change in Idea share price, investors should hold the scripts as

the company is getting strong at technical chart.

Bharti Airtel is been the apple pie of the investors and will continue in that way by giving

good return. Stock seems to be expensive but further appreciation is expected in the value of

the stock.

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Chapter XI

BIBLIOGRAPHY

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BIBLIOGRAPHY

Websites:

www.indiainfoline.com

www.nseindia.com

www.moneycontrol.com

www.valueresearchonline.com

www.investopedia.com

www. bseindia.com

www.idea.com

www.bhartiairtel.com

Books :

Financial Management - I M Pandey

Technical Analysis – Charles D. Kirkpatrick.

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