FINAL SIP REPORT -ADITHYA BALIGA

Table of Contents

1.1 INTRODUCTION...............................................................................................................................3

1.2 LITERATURE REVIEW........................................................................................................................4

1.3 SCOPE OF STUDY:............................................................................................................................7

1.3.1 BSE Sensex..............................................................................................................................23

2.0 RESEARCH METHODOLOGY...........................................................................................................40

2.1 OBJECTIVES OF STUDY:..............................................................................................................40

2.2 THE STUDY:................................................................................................................................40

Table 2.1: List of BSE 30 Index Companies as on March 31, 2010...................................................41

2.3 ASSUMPTIONS...........................................................................................................................42

2.4 HYPOTHESIS TESTING:...............................................................................................................43

3.0 DATA ANALYSIS AND INFERENCES.................................................................................................45

3.1 CORRELATION TESTS..................................................................................................................45

Table 3.1: Table showing the correlation test results for EPS, EVA, B.V, MVA & MPS.....................45

Table 3.2: Table showing correlation test results for FCF, Sales, EPS, B.V & MPS............................46

3.2 RESULTS OF HYPOTHESIS TESTING FOR CORRELATION COEFFICIENT........................................48

Table 3.3: Table showing hypothesis test results............................................................................48

3.3 EQUITY BETA:.............................................................................................................................50

3.3.1 EQUITY BETA CALCULATION.................................................................................................51

Table 3.4: Table showing Beta values for BSE 30 scrips...................................................................51

4.0 INDUSTRY OUTLOOK......................................................................................................................53

5.0 CONCLUSION.................................................................................................................................69

6.0 BIBLIOGRAPHY...............................................................................................................................70

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List of Abbreviations

EVA --------------------- Economic Value Added

MVA --------------------- Market Value Added

FCF --------------------- Free Cash Flow

B.V --------------------- Book Value

MPS --------------------- Market Price of Share

EPS -------------------- Earnings per Share

P/E -------------------- Price Earnings Multiple

WACC -------------------- Weighted Average Cost of Capital

PAT -------------------- Profits After Tax

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__________________________________________________________________________________

This study provides some insights regarding the behaviour of the share prices in the Indian

stock market, namely, the BSE. The results of the study reveal that the BSE Sensex

companies’ share prices move in accordance with share price as calculated using various

methods of valuation of shares i.e. accounting models and time adjusted models. One model

cannot itself explain the movement of share prices because some other variables also

influence the prices of shares in the stock market. The study also revealed existence of 9

companies in ‘BSE30’ index which display greater degree of volatility in comparison to the

sensex (companies with beta coefficient > 1). The underlying truth of value investing where

there should be correlation between Company’s Sales, Earnings and Intrinsic value are

displayed by 13 companies thus christening these companies as ‘THE JEWELS’ or value

companies in the words of Warren Buffet.

___________________________________________________________________________

1.1 INTRODUCTION

This study is directed towards finding out the movement of share prices of the BSE 30

companies in accordance to the various accounting and time-adjusted models of share

valuation. The market price of shares will be influenced by many variables and throwing

some light on these variables has been the prime focus of this study. The Sensex has shown

major proportions of volatility in the last few years, wherein, the market has witnessed

tremendous growth phase, the global turmoil, the correction phase defined in common terms

as the Normal phase, Recessionary phase and the recovery phase. There has been great ups

and downs in the earnings of the firm, their sales revenue and especially the market price of

shares. The accounting figures would have definitely showcased this turn-key effect on the

profits, EPS and overall value of the company. This study tries to find out if these changes in

the economy and the company’s operations have influenced the market price in the stock

exchange.

At the same time, the companies have been exposed to greater degree of systematic

risks. Measuring the sensitivity of company’s security returns to the market returns is also

essential for the company to determine the cost of equity which will help it to take profitable

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capital budgeting decisions. This study has calculated the beta values for the 30 companies in

the sensex. The beta coefficient is calculated on the basis of daily returns from 1 April 2010

to 30 June 2010.

This study has also focused upon the Warren Buffet’s prime theme of Value Investing

by taking into consideration the company’s sales, earnings and the intrinsic value of their

shares. Correlation test has been used to measure the association between these three

variables. This study has been done purely for academic purpose and it doesn’t provide ample

information for further research.

1.2 LITERATURE REVIEW

The investment community across the globe has now turned its attention on the

emerging stock markets. International Finance Corporation (IFC, 1992) that is a subsidiary of

the World Bank has identified ‘emerging markets’ as the financial markets of the developing

countries. The World Bank defines developing countries to have per capita GNP below

$7,620 at 1990 prices. Invariably, overall economic growth of any country is dependent on

the strong fundamentals of its financial markets, especially the stock markets. This fact is

amply proved if the pattern of foreign direct investment in the emerging markets is analyzed.

The foreign investment inflows have been directed towards those emerging markets whose

basic economic indicators are strong . A lot of academic studies have been undertaken which

focus on the relationship that exists between the overall economic growth and the growth of

the stock markets (Greenwood and Jovanovic, 1990; Atje and Jovanovic, 1993; Pagano,

1993; Levine and Zervos, 1998; and Rajan and Zingales, 1998).

Samuels and Yacout (1991), assert the nature of the emerging market in terms of

information availability as follows:

“Prices cannot be assumed to fully reflect all available information. It cannot be assumed that

investors will correctly interpret the information that is released. The corporation has greater

potential to influence its own stock market price and there is a greater possibility that its price

will move about in a manner not justified by the information available.”

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This paper examines the share price movements of the companies included in the BSE 30

index as on March 31, 2010 by applying correlation test. The analysis has been done for 20

quarter periods of five years, i.e., 2005-2006,2006-2007, 2007-2008, 2008-2009 and 2009-

2010 taking the sample of share prices from April 1 to March 31.

Markets are also classified as emerging based on the process followed by them for

framing policies relating to the growth of the stock markets. Many emerging markets have

made drastic changes at policy levels to fuel the growth of the equity markets. This change

was on account of realizing the inherent defects in relation to the functioning and regulation

of the equity markets. Added to this, the credit squeeze felt on account of the reluctance of

the international lenders to provide funds, forced the governments to ensure the optimum

allocation of capital by improving the operational and informational efficiency of the stock

markets. Even though the measures were adopted on account of the various situational

pressures, the equity markets in these emerging markets have witnessed tremendous growth

in terms of size and volume.

Studies by Mckinnon (1973); Shaw (1973); Fry (1982); and Cho (1988) indicated that

in order to have the best allocation of scarce capital, it is necessary to improve the efficiency

of the equity markets. Emerging markets have been facing certain inherent limitations that

restricts their growth and development. These restrictions include very high transaction cost,

information asymmetry reflected in inequitable access to the information, non-availability of

free information to all the participants, political uncertainties and possibility of reversal of

policies relating to liberalization. However, the deregulated emerging markets have not been

able to improve the operational and informational efficiency of the equity markets.

Therefore, the speculators have been able to earn supernormal profits in these markets

due to the failure to provide a level playing field to all the participants in terms of timeliness

and accessibility of information. The regulatory framework is either missing or ineffective to

stop insider trading in these markets. Markets tend to move more by speculation and herd

behaviour rather than with fundamentals and relevant information. This has attracted the

attention of academicians, practitioners and policymakers who are concerned about the level

of informational efficiency prevailing in these markets. If the markets are efficient, the prices

will move in a random fashion and it will be difficult for any participant in the stock market

to predict the prices with great accuracy.

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India is considered as one of the fastest emerging markets in the world. It has a well

established stock market with a long history of organized trading in securities. The various

reform initiatives have led to spectacular growth of the markets in terms of market

capitalization, turnover and number of deals. This has brought forth the question of the

efficiency of the stock markets in India and where the markets in India stand in terms of

efficiency as compared to the developed nations, with which the country has been trying to

integrate its markets. Secondly, India is moving from a mixed economy to essentially an

economy where private sector has a major role to play in the development of the country. In

such a situation, stock markets have to essentially discharge their role of a capital resource

allocator. This allows optimum utilization of capital resources for economic development and

(Verma et al., 2000). Baumol (1965) writes about the role of stock markets:

“First, they offer guidance to business management-information on the current cost of

capital which is so important in determining the level of investment which is appropriate for

the firm to undertake. Second, the securities markets offer the advantage of accessibility to

vast number of capitalists, many of whom possess only miniscule amounts of money and yet

who in their aggregate have command over vast quantities of wealth. Third, the markets offer

a simple mechanism for transfer of funds that imposes only a minimum of administrative

effort upon the lender. Fourth, markets offer him an easily understood evaluation of the

borrowing firm as indicated by the market price of its securities and by movements in the

magnitude of that price.

Finally, it imparts a measure of liquidity to long-term investments that permits these

instruments to be sold at a price that yields a lower rate of return than would otherwise be

required.”

However, the dominant presence of stock markets by itself does not guarantee

resource allocation. The markets have to be efficient in order to discharge the function of

resource allocation in an effective manner. This paper examines the share price movements of

the Indian Stock Markets by applying the tests on the share prices of various companies

included in the BSE 30 index on the basis of various approaches of valuation of a firm.

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1.3 SCOPE OF STUDY:

The stock market in India comprises of several indexes which has some standard

portfolios included as per the nature of the security. The following are some of the indexes

that are present in the Indian stock market.

S&P CNX Nifty

S&P CNX Nifty is a well diversified 50 stock index accounting for 22 sectors of the

economy. It is used for a variety of purposes such as benchmarking fund portfolios, index

based derivatives and index funds.

S&P CNX Nifty is owned and managed by India Index Services and Products Ltd. (IISL),

which is a joint venture between NSE and CRISIL. IISL is India's first specialised company

focused upon the index as a core product. IISL has Marketing and licensing agreement with

Standard & Poor's (S&P), who world leaders are in index services.

The total traded value for the last six months of all Nifty stocks is approximately 50%

of the traded value of all stocks on the NSE

Nifty stocks represent about 62% of the Free Float Market Capitalization as on

Mar 31, 2010.

Impact cost of the S&P CNX Nifty for a portfolio size of Rs.2 crore is 0.10%

S&P CNX Nifty is professionally maintained and is ideal for derivatives trading

CNX Nifty Junior

The next rung of liquid securities after S&P CNX Nifty is the CNX Nifty Junior. It may

be useful to think of the S&P CNX Nifty and the CNX Nifty Junior as making up the 100

most liquid stocks in India.

As with the S&P CNX Nifty, stocks in the CNX Nifty Junior are filtered for liquidity, so they

are the most liquid of the stocks excluded from the S&P CNX Nifty. The maintenance of the

S&P CNX Nifty and the CNX Nifty Junior are synchronised so that the two indices will

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http://www.nse-india.com/content/indices/ind_nifty.htm

http://www.nseindia.com/content/indices/ind_niftymaintenance.htm

http://www.nseindia.com/content/indices/ind_ic_2007.csv

http://www.nseindia.com/content/indices/ind_iisl.htm

http://www.nseindia.com/content/indices/ind_indexfunds.htm

http://www.nseindia.com/content/indices/ind_niftytrading.htm

http://www.nseindia.com/content/indices/ind_niftytrading.htm

http://www.nseindia.com/content/indices/ind_niftylist.csv

always be disjoint sets; i.e. a stock will never appear in both indices at the same time. Hence

it is always meaningful to pool the S&P CNX Nifty and the CNX Nifty Junior into a

composite 100 stock index or portfolio.

CNX Nifty Junior represents about 12 % of the Free Float Market Capitalization as on

Dec 31, 2009.

The traded value for the last six months of all Junior Nifty stocks is approximately

15% of the traded value of all stocks on the NSE

Impact cost for CNX Nifty Junior for a portfolio size of Rs.50 lakhs is 0.13%

CNX IT Index

Information Technology (IT) industry has played a major role in the Indian economy

during the last few years. A number of large, profitable Indian companies today belong to the

IT sector and a great deal of investment interest is now focused on the IT sector. In order to

have a good benchmark of the Indian IT sector, IISL has developed the CNX IT sector index.

CNX IT provides investors and market intermediaries with an appropriate benchmark that

captures the performance of the IT segment of the market.

Companies in this index are those that have more than 50% of their turnover from IT related

activities like IT Infrastructure , IT Education and Software Training , Telecommunication

Services and Networking Infrastructure, Software Development, Hardware Manufacturer’s,

Vending, Support and Maintenance.

The total traded value for the last six months of CNX IT Index stocks is approximately

83.39% of the traded value of the IT sector. CNX IT Index stocks represent about 80.33% of

the total market capitalization of the IT sector as on March 31, 2009.

The total traded value for the last six months of all CNX IT Index constituents is

approximately 8.59% of the traded value of all stocks on the NSE. CNX IT Index

constituents represent about 6.97% of the total market capitalization as on March 31, 2009.

Methodology

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The index is a market capitalisation weighted index with its base period being December

1995 and the base date and base value being January 1, 1996 and 1,000 respectively.

The Base Value of the index is being revised from 1000 to 100 w.e.f. 28 May 2004.

Selection Criteria

Selection of the index set is based on the following criteria :

1. Company's market capitalisation rank in the universe should be less than 500.

2. Company's trading frequency should be at least 90% in the last six months.

3. Company should have a positive net worth.

4. A company which comes out with a IPO will be eligible for inclusion in the index, if

it fulfils the normal eligibility criteria for the index for a 3 month period instead of a 6

month period.

CNX Bank Index

The Indian banking Industry has been undergoing major changes, reflecting a number

of underlying developments. Advancement in communication and information technology

has facilitated growth in internet-banking, ATM Network, Electronic transfer of funds and

quick dissemination of information. Structural reforms in the banking sector have improved

the health of the banking sector. The reforms recently introduced include the enactment of the

Securitization Act to step up loan recoveries, establishment of asset reconstruction

companies, initiatives on improving recoveries from Non-performing Assets (NPAs) and

change in the basis of income recognition has raised transparency and efficiency in the

banking system. Spurt in treasury income and improvement in loan recoveries has helped

Indian Banks to record better profitability. In order to have a good benchmark of the Indian

banking sector, India Index Service and Product Limited (IISL) has developed the CNX Bank

Index.

CNX Bank Index is an index comprised of the most liquid and large capitalised Indian

Banking stocks. It provides investors and market intermediaries with a benchmark that

captures the capital market performance of Indian Banks. The index will have 12 stocks from

the banking sector which trade on the National Stock Exchange.

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The total traded value for the last six months of CNX Bank Index stocks is approximately

96.46% of the traded value of the banking sector. CNX Bank Index stocks represent about

87.24% of the total market capitalization of the banking sector as on March 31, 2009.

The total traded value for the last six months of all the CNX Bank Index constituents is

approximately 15.26% of the traded value of all stocks on the NSE. CNX Bank Index


Methodology

The index is a market capitalization weighted index with base date of January 01, 2000,

indexed to a base value of 1000.

Selection Criteria

Selection of the index set is based on the following criteria:

1. Company's market capitalisation rank in the universe should be less than 500

2. Company's turnover rank in the universe should be less than 500

3. Company's trading frequency should be at least 90% in the last six months.

4. Company should have a positive net worth.

5. A company which comes out with an IPO will be eligible for inclusion in the index, if

it fulfils the normal eligibility criteria for the index for a 3 month period instead of a 6

month period.

CNX Infrastructure Index

It is well recognized that quality infrastructure is one of the most important necessities for

unleashing high and sustained growth.

Government outlay for infrastructure has increased significantly over the years. Clearly,

infrastructure has been a focus area. Over the years, not only have the outlays for budgetary

expenditure towards the infrastructure sector been increasing, but private investment is also

being encouraged. Earlier, the emphasis was on bringing in more and more projects, now the

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emphasis also includes encouraging financial products suited for infrastructure.

To meet the financial needs of this public-private partnership, it is necessary to promote

standards and raise capital in the most efficient and cost-effective manner while ensuring

long-term sustainability. Recognizing the needs of the market, IISL has developed CNX

Infrastructure Index to capture the performance of the companies in the infrastructure sector.

CNX Infrastructure Index will include companies belonging to Telecom, Power, Port, Air,

Roads, Railways, shipping and other Utility Services providers.

The 25-stock CNX Infrastructure Index represents about 78.77% of the market capitalization

and 77.07% of aggregate turnover of the companies forming part of the Infrastructure Sector

Universe for the last six months (period ending March 31, 2009).

The total traded value for the last six months of all CNX Infrastructure Index constituents is

approximately 25.26% of the traded value of all stocks on the NSE. CNX Infrastructure Index


Methodology

The index is a market capitalization weighted index with base date of January 1, 2004,

indexed to a base value of 1000.

Selection Criteria


1. Company's market capitalisation rank in the universe should be less than 500

2. Company's turnover rank in the universe should be less than 500.

3. Company should have a positive Net worth.

4. A company, which comes out with an IPO, will be eligible for inclusion in the index,

if it fulfils the normal eligibility criteria for the index for a 3 month period instead of a

6 month period.

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5. The constituents should be available for trading in the derivatives segment (Stock

Futures & Options market) on NSE.

CNX Realty Index

Real estate sector in India is witnessing significant growth. Recent dynamics of the

market reflected the opportunity of creating wealth across real estate companies, as proven by

recent listings of real estate companies resulting into prominent growth in public funds and

private equity.

The main growth thrust is coming due to favorable demographics, increasing purchasing

power, existence of customer friendly banks & housing finance companies, professionalism

in the real estate sector and favourable reforms initiated by the government to attract global

investors.

Further necessitated by the thrust of redevelopment of old buildings, building townships and

redeveloping mill lands, one can witness plenty of opportunities in real estate sector backed

by favourable tax regime. IISL has developed the CNX Realty Index to synergize these

emerging opportunities along with their Index expertise creating new investment avenues for

investors.

The CNX Realty Index represents about 85.26% and 87.66% of the full market capitalization

and total turnover of the last six month for the period March 31, 2009 of the Real estate

sector Universe respectively.

The total traded value for the last six months of all CNX Realty Index constituents is

approximately 7.38% of the traded value of all stocks on the NSE. CNX Realty Index

constituents represent about 1.47% of the total market capitalization (Full Market

Capitalisation) as on March 31, 2009.

Methodology

The index is a Free Float methodology based weighted index with base date of December 29,

2006, indexed to a base value of 1000.

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Selection Criteria


1. Constituent should be a Real Estate Company.

2. Company's market capitalization rank in the universe should be among the top 500.

3. Company’s turnover rank in the universe should be in the top 500.

4. Company should have a positive Net worth.

5. A company, which comes out with an IPO, will be eligible for inclusion in the index,

if it fulfils the normal eligibility criteria for the index for a 1-month period.

CNX 100

CNX 100 is a diversified 100 stock index accounting for 35 sector of the economy.

CNX 100 is owned and managed by India Index Services & Products Ltd. (IISL). Which is a

joint venture between CRISIL & NSE? IISL is India’s first specialized company focused

upon the index as core products. IISL has a licensing & marketing agreement with Standard

& Poor’s (S&P), who are leaders in index services.

CNX 100 represents about 73.3% of the Free Float market capitalization as on Sept

30, 2009.

The average traded value for the last six months of all CNX100 stocks is

approximately 70.1 % of the traded value of all stocks on the NSE.

Impact cost for CNX 100 for a portfolio size of Rs. 3 crore is 0.18%.

India VIX

Volatility Index is a measure of market’s expectation of volatility over the near term.

Volatility is often described as the “rate and magnitude of changes in prices” and in finance

often referred to as risk. Volatility Index is a measure, of the amount by which an underlying

Index is expected to fluctuate, in the near term, (calculated as annualised volatility, denoted

in percentage e.g. 20%) based on the order book of the underlying index options.

India VIX is a volatility index based on the NIFTY Index Option prices. From the best bid-

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ask prices of NIFTY Options contracts, a volatility figure (%) are calculated which indicates

the expected market volatility over the next 30 calendar days. India VIX uses the

computation methodology of CBOE, with suitable amendments to adapt to the NIFTY

options order book using cubic spines, etc.

S&P CNX Defty

Almost every institutional investor and off-shore fund enterprise with an equity

exposure in India would like to have an instrument for measuring returns on their equity

investment in dollar terms. To facilitate this, a new index the S&P CNX Defty-Dollar

Denominated S&P CNX Nifty has been developed. S&P CNX Defty is S&P CNX Nifty,

measured in dollars.

Salient Features

Performance indicator to foreign institutional investors, off-shore funds, etc.

Provides an effective tool for hedging Indian equity exposure.

Impact cost of the S&P CNX Nifty for a portfolio size of Rs.2 crore is 0.16%

Provides fund managers an instrument for measuring returns on their equity

investment in dollar terms.

Calculation of S&P CNX Defty

Computations are done using the S&P CNX Nifty index calculated on the NEAT trading

system of NSE and INR-USD exchange rate that is based on the real time polled data feed.

S&P CNX Defty = S&P CNX Nifty at time t * Exchange rate as on base date

Exchange rate at time t

Calculation of closing value of S&P CNX Defty

Closing value of S&P CNX Defty is computed by considering average of INR-USD polled

data values (exchange rate) of last 30 minutes of the market.14

http://nse-india.com/content/indices/ind_nifty.htm

Closing value of = Closing value of S&P CNX Nifty * Exchange rate as on base date

S&P CNX Defty Average of exchange rate of last 30 minutes of the market

Specifications of S&P CNX Defty:

Base date: 03 November 1995

Base S&P CNX Defty Index Value: 1000

S&P CNX Nifty Value as on Base date: 1000

Exchange rate as on base date: 34.65

Adjustment factor as on Base date:1.00

S&P CNX 500

The S&P CNX 500 is India’s first broadbased benchmark of the Indian capital

market. The S&P CNX 500 represents about 92.57% of total market capitalisation and about

91.17% of the total turnover on the NSE as on Sept 30, 2009.

The S&P CNX 500 companies are disaggregated into 72 industry indices viz. S&P CNX

Industry Indices. Industry weightages in the index reflect the industry weightages in the

market. For e.g. if the banking sector has a 5% weightage in the universe of stocks traded on

NSE, banking stocks in the index would also have an approx. representation of 5% in the

index.

CNX Midcap

The medium capitalised segment of the stock market is being increasingly perceived as an

attractive investment segment with high growth potential. The primary objective of the CNX

Midcap Index is to capture the movement and be a benchmark of the midcap segment of the

market.

Method of Computation

CNX Midcap is computed using free float market capitalization weighted method w.e.f.

February 26, 2010, wherein the level of the index reflects the free float market value of all the

stocks in the index relative to a particular base period. The method also takes into account

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constituent changes in the index and importantly corporate actions such as stock splits, rights,

etc without affecting the index value.

Base Date and Value

The CNX Midcap Index has a base date of Jan 1, 2003 and a base value of 1000

Criteria for Selection of Constituent Stocks

The constituents and the criteria for the selection judge the effectiveness of the index.


All the stocks, which constitute more than 5% market capitalization of the universe

(after sorting the securities in descending order of market capitalization), shall be

excluded in order to reduce the skewness in the weightages of the stocks in the

universe.

After step (a), the weightages of the remaining stocks in the universe is determined

again.

After step (b), the cumulative weightage is calculated.

After step (c) companies which form part of the cumulative percentage in ascending

order unto first 75 percent (i.e. up to 74.99 percent) of the revised universe shall be

ignored.

After, step (d), all the constituents of S&P CNX Nifty shall be ignored.

From the universe of companies remaining after step (e) i.e. 75th percent and above,

first 100 companies in terms of highest market capitalization, shall constitute the

CNX Midcap Index subject to fulfilment of the criteria mentioned below.

Trading Interest

All constituents of the CNX Midcap Index must have a minimum listing record of 6 months.

In addition, all candidates for the Index are also evaluated for trading interest, in terms of

volumes and trading frequency.

Financial Performance

All companies in the CNX Midcap Index have a minimum track record of three years of 16

operations with a positive net worth.

Others

A company which comes out with a IPO will be eligible for inclusion in the index, if it

fulfills the normal eligibility criteria for the index for a 3 month period instead of a 6 month

period.

* CNX Midcap Index was computed using market capitalization weighted method from the

launch date till February 25, 2010.

Nifty Midcap 50

The medium capitalized segment of the stock market is being increasingly perceived

as an attractive investment segment with high growth potential. The primary objective of the

Nifty Midcap 50 Index is to capture the movement of the midcap segment of the market. It

can also be used for index-based derivatives trading.

Method of computation

Nifty Midcap 50 is computed using free float market capitalisation weighted method, wherein

the level of the index reflects the total market value of all the stocks in the index relative to a

particular base period. The method also takes into account constituent changes in the index

and importantly corporate actions such as stock splits, rights, etc without affecting the index

value.

Base Date and Value

The Nifty Midcap 50 Index has a base date of Jan 1, 2004 and a base value of 1000.

Criteria for Selection of Constituent Stocks

The constituents and the criteria for the selection judge the effectiveness of the index.

Selection of the index set is, inter alia, based on the following criteria:

Stocks with average market capitalization ranging from Rs.1000 Crore to Rs.5000

Crore at the time of selection.

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Stocks which are not part of the derivatives segment are excluded.

Stocks which are forming part of the S&P CNX NIFTY index are excluded.

Other statistics:

Nifty Midcap 50 stocks represent about 6.50 % of the total market capitalization as on

March 31, 2010.

The traded volume for the last six months of all Nifty Midcap 50 stocks is

approximately 10% of the traded volume of all stocks on the NSE.

* Nifty Midcap 50 Index was computed using market capitalization weighted method from

the launch date till February 25, 2010.

BSE Mid-Cap and BSE Small-Cap Index

BSE introduced the new index series called 'BSE MID-Cap' index and 'BSE Small-

Cap' index to track the performance of companies with relatively smaller market

capitalization.

BSE-500 Index - represents more than 93% of the listed universe. Companies with large

market capitalization bias the movement of BSE-500 index. This necessitated construction of

a separate indicator to capture the trend in companies with lower market capitalization. Over

the years, BSE Mid-Cap and BSE Small-Cap indices have proven to be a great utility to the

investing community.

The general guidelines for selection of constituents in BSE Mid-Cap & BSE Small-Cap Index

are as follows:

1. Trading Frequency: The scrip should have been traded on 60% of the trading days in

the last three months

2. Eligible universe shall comprise of companies aggregating 98.5% of average market

capitalization

3. This list shall be categorixed under large-cap, mid-cap and small-cap segment based

on 80%-15%-5% market capitalization coverage respectively

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4. BSE Mid-Cap Index shall comprise of scrips that gives market capitalization coverage

between 80% & 95% from the list derived as per point no.3 above

5. BSE Small-Cap Index shall comprise of scrips that gives market capitalization

coverage between 95% & 100% from the list derived as per pont no.3 above

6. Quarterly review of these indices shall be carried out as per the above criteria subject

to a buffer of 3%

BSE-100 Index

Introduction

A broad-based index, the BSE-100 was formerly known as the BSE National index.

This Index has 1983-84 as the base year and was launched in 1989. In line with the shift of

the BSE Indices to the globally accepted Free-Float methodology, BSE-100 was shifted to

Free-Float methodology effective from April 5, 2004. The method of computation of Free-

Float index and determination of free-float factors is similar to the methodology for

SENSEX.

Base Year

The financial year 1983-84 has been chosen as the base year. The price stability during that

year and proximity to the index series were the main consideration for choice of 1983-84 as

the base year. The base value was fixed at 100 points.

Dollex-100

BSE also calculates a dollar-linked version of SENSEX and historical values of this

index are available since its inception. (For more details click 'Dollex series of BSE indices')

BSE-100 index - Scrip Selection Criteria

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The general guidelines for selection of constituents in BSE-100 are as follows:


the last three months. Exceptions can be made for extreme reasons like scrip

suspension etc.

2. Final Rank: The scrip should figure in the top 200 companies listed by final rank. The

final rank is arrived at by assigning 75% weightage to the rank on the basis of three-

month average full market capitalization and 25% weightage to the liquidity rank

based on three-month average daily turnover & three-month average impact cost.

3. Industry/Sector Representation: Scrip selection would generally take into account a

balanced sectoral representation of the listed companies in the universe of BSE.

4. Track Record: In the opinion of the BSE Index Committee, the company should have

an acceptable track record.

BSE-200 Index

Background

Over the years, the number of companies listed on BSE continued to register a

phenomenal increase; from 992 in to over 3,200 companies by March 1994, with combined

market capitalization rising from Rs.5,421 crore to Rs. 3,98,432 crore as on 31st March,

1994.

Though SENSEX (1978-79=100) was serving the purpose of quantifying the price

movements as also reflecting the sensitivity of the market in an effective manner, the rapid

growth of the market necessitated compilation of a new broad-based index series reflecting

the market trends in a more effective manner and providing a better representation of the

increased equity stocks, market capitalization as also to the new industry groups. As such,

BSE launched on 27th May 1994, two new index series-BSE-200 and Dollex-200.

The equity shares of 200 selected companies from the specified and non-specified lists of

BSE were considered for inclusion in the sample for `BSE-200'. The selection of companies

was primarily been done on the basis of current market capitalization of the listed scrips.

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Moreover, the market activity of the companies as reflected by the volumes of turnover and

certain fundamental factors were considered for the final selection of the 200 companies.

Choice of Base Year

The financial year 1989-90 was chosen as the base year because of the price stability

exhibited during that year and due to its proximity to the current period.

Dollex-200

BSE also calculates a dollar-linked version of BSE-200 index and historical values of this

index are available since its inception. (For more details click 'Dollex series of BSE indices')

BSE-200 index - Scrip Selection Criteria




suspension etc.






balanced sectoral representation of the listed companies in the universe of BSE.



BSE-500 Index

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http://www.bseindia.com/about/abindices/dollex1.asp

Bombay Stock Exchange Limited constructed a new index, christened BSE-500,

consisting of 500 scrips w.e.f. August 9, 1999. The changing pattern of the economy and that

of the market were kept in mind while constructing this index.

BSE-500 index represents nearly 93% of the total market capitalization on BSE. BSE-500

covers all 20 major industries of the economy. In line with other BSE indices, effective

August 16, 2005 calculation methodology was shifted to the free-float methodology.

Selection of the Base Year and Base Index Value:

The base date was fixed after a detailed analysis of the relative volatility of BSE-200, the

index closest to BSE-500, over the last 8 years. The coefficient of variation of BSE-200 for

1998-99 was one of the lowest in this period. Hence, 1998-99 was chosen as the base year,

and within this, February 1, 1999 was selected as the base date for its proximity to the current

period. The base value was fixed at 1000 points in order to keep the index comparable with

other similar indices.

BSE-500 index - Scrip Selection Criteria:




suspension etc.






balanced representation of the listed companies in the universe of BSE.



22

BSE IPO Index

Introduction

BSE introduced the new index series - BSE IPO index to track the current primary

market conditions in the Indian capital market and measure the growth in investor’s wealth

within a period of two years after listing of a company subsequent to successful completion

of initial public offering (IPO).

Robust growth of the Indian economy, 6.7% in 2008-09, and the expectation of higher

growth in the future are expected to boost the primary market. For this and other reasons, it

was an appropriate time to introduce to the market an indicator that will track primary market

conditions in the Indian capital market.

BSE on August 24, 2009 announced the launch of BSE IPO index to track the value of

companies for two years after listing subsequent to successful completion of their initial

public offering (IPO).

BSE continued to introduce index innovations with the launch of the IPO index, by

introducing ceiling (capping) on weightings of index constituents. Market capitalisation

weightings of index constituents is limited to 20%. If a constituent’s market capitalization

results in a higher weighting, the company’s weight is suitably adjusted to ensure that all

constituents are restricted to 20% in the index. However, between any rebalancing, weightage

of any index constituent can exceed 20%.

Criteria governing BSE IPO Index:

1. Company seeking listing on the Exchange after completion of IPO shall be considered

eligible for inclusion in the index. Follow-on public issue shall be considered

ineligible for inclusion in the index

2. A scrip must have minimum free-float market capitalisation of Rs. 100 crores on first

day of listing

3. A scrip will be included in the index on third day of its listing subject to fulfillment of

minimum free-float market capitalisation criteria stated above

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4. A scrip will be excluded from the index on second Monday of the month after

completion of two years of listing

5. At all time minimum of 10 scrips shall be maintained in the index. In case, there are

less than 10 companies on account of possible exclusion after two years, the exclusion

of such company shall be delayed till such time new inclusion is made in the index

6. Maximum weight of any scrip shall be capped at 20%. The constituent weightage

shall be reviewed at the time of inclusion/ exclusion of a scrip and on monthly

rebalancing. However, between any rebalancing, weightage of any index constituent

can exceed 20%

1.3.1 BSE Sensex

BSE Sensex or Bombay Stock Exchange Sensitivity Index is a value-weighted

index composed of 30 stocks that started January 1, 1986. The Sensex is regarded as the pulse

of the domestic stock markets in India. It consists of the 30 largest and most actively traded

stocks, representative of various sectors, on the Bombay Stock Exchange. These companies

account for around fifty per cent of the market capitalization of the BSE. The base value of

the sensex is 100 on April 1, 1979, and the base year of BSE-SENSEX is 1978-79.

At regular intervals, the Bombay Stock Exchange (BSE) authorities review and modify its

composition to be sure it reflects current market conditions. The index is calculated based on

a free-float capitalization method; a variation of the market cap method. Instead of using a

company's outstanding shares it uses its float, or shares that are readily available for trading.

The free-float method, therefore, does not include restricted stocks, such as those held by

promoters, government and strategic investors.

Initially, the index was calculated based on the ‘full market capitalization’ method. However

this was shifted to the free float method with effect from September 1, 2003. Globally, the

free float market capitalization is regarded as the industry best practice.

As per free float capitalization methodology, the level of index at any point of time reflects

the free float market value of 30 component stocks relative to a base period. The Market

Capitalization of a company is determined by multiplying the price of its stock by the number

of shares issued by the company. This Market capitalization is multiplied by a free float

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http://en.wikipedia.org/wiki/Free_float

http://en.wikipedia.org/wiki/Bombay_Stock_Exchange

http://en.wikipedia.org/wiki/Stock_market_index

http://en.wikipedia.org/wiki/Stock_market_index

factor to determine the free float market capitalization. Free float factor is also referred as

adjustment factor. Free float factor represent the percentage of shares that are readily

available for trading.

The Calculation of Sensex involves dividing the free float market capitalization of 30

companies in the index by a number called Index divisor. The Divisor is the only link to

original base period value of the Sensex. It keeps the index comparable over time and is the

adjustment point for all Index adjustments arising out of corporate actions, replacement of

scrips, etc.

The index has increased by over ten times from June 1990 to the present. Using information

from April 1979 onwards, the long-run rate of return on the BSE Sensex works out to be

18.6% per annum, which translates to roughly 9% per annum after compensating

for inflation.

The following 30 companies help in the computation of Sensitivity Index(SENSEX) on daily

basis:

ASSOCIATED CEMENT COMPANIES LIMITED

The Associated Cement Companies Limited(ACC) is Indian company in cement

manufacturing business. It is registered office is called Cement House. It is located on

Maharishi Karve Road, Mumbai. It is blue chip company. The stock price of company

contributes in calculating BSE Sensex.

The management control of company was taken over by Swiss cement major Holcim in 2004.

On 1 September 2006 the name of The Associated Cement Companies Limited was changed

to ACC Limited. The company is only cement company to get Superbrand status in India.

BHARAT HEAVY ELECTRICALS LIMITED

Bharat Heavy Electricals Limited (BHEL) is one of the oldest and largest state-owned

engineering and manufacturing enterprise in India in the energy-related and infrastructure

sector which includes Power, Railways, Telecom, Transmission and Distribution, Oil and

Gas sectors and many more. It is the 12th largest power equipment manufacturer in the 25

http://en.wikipedia.org/wiki/Inflation

world. BHEL was established more than 50 years ago, ushering in the indigenous Heavy

Electrical Equipment industry in India. The company has been earning profits continuously

since 1971-72 and paying dividends since 1976-77. 73% of the total power generated in India

is produced by equipment manufactured by BHEL.

It is one of India's nine largest Public Sector Undertakings or PSUs, known as the Navratnas

or 'the nine jewels'.

BHARTI AIRTEL LIMITED

Bharti Airtel Limited formerly known as Bharti Tele-Ventures LTD (BTVL) is an

Indian company offering telcomunnication services in 18 countries. It the largest cellular

service provider in India, with more than 137 million subscriptions as of June 2010. Bharti

Airtel is the world's third largest, single-country mobile operator and fifth largest telecom

operator in the world in terms of subscriber base. It also offers fixed line services and

broadband services. It offers its telecom services under the Airtel brand and is headed by

Sunil Bharti Mittal. The company also provides telephone services and broadband Internet

access (DSL) in over 96 cities in India. It also acts as a carrier for national and international

long distance communication services. The company has a submarine cable landing station at

Chennai, which connects the submarine cable connecting Chennai and Singapore.

It is known for being the first mobile phone company in the world to outsource

everything except marketing and sales. Its network (base stations, microwave links, etc.) is

maintained by Ericsson and Nokia Siemens Network, business support by IBM and

transmission towers by another company. Ericsson agreed for the first time, to be paid by the

minute for installation and maintenance of their equipment rather than being paid up front.

This enables the company to provide pan-India phone call rates of Rs. 1/minute

(U$0.02/minute).

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

Enterprise and Digital TV. The mobile business offers services in 18 countries across the

Indian Subcontinent and Africa. The Telemedia business provides broadband, IPTV and

telephone services in 89 Indian cities. The Digital TV business provides Direct-to-Home TV

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services across India. The Enterprise business provides end-to-end telecom solutions to

corporate customers and national and international long distance services to telcos.

Globally, Bharti Airtel is the 3rd largest in-country mobile operator by subscriber base,

behind China Mobile and China Unicom. In India, the company has a 30.7% share of the

wireless services market. In January 2010, company anonced that Manoj Kohli, Joint

Managing Director and current Chief Executive Officer of Indian and South Asian

operations, will become the Chief Executive Officer of the International Business Group

from 1 April 2010. He will be overseeing Bharti's overseas business. Current Dy. CEO,

Sanjay Kapoor, will replace Manoj Kohli and will be the CEO, effective from 1 April 2010.

DELHI LAND AND FINANCE LIMITED

DLF Limited or DLF (Delhi Land and Finance) is the India's biggest real estate

developer based in New Delhi, India. The DLF Group was founded by Raghuvendra Singh in

1946. DLF developed residential colonies in Delhi such as Shivaji Park ( which was actually

its first one), Rajouri Garden, Krishna Nagar, South Extension, Greater Kailash, Kailash

Colony and Hauz Khas. In 1957, with the passage of Delhi Development Act, the local

government assumed control of real estate development in Delhi and banned private real

estate developers.

As a result DLF began acquiring land at relatively low cost outside the area controlled

by the Delhi Development Authority, in the district of Gurgaon, in the adjacent state of

Haryana. In the mid-1970s, the company started developing DLF City project at Gurgaon. Its

upcoming plans include hotels, infrastructure and special economic zones-related

development projects.

The company is currently headed by Indian billionaire Kushal Pal Singh. Kushal Pal

Singh, according to the Forbes listing of richest billionaires in 2009, now stands as the 98th

richest man in the world and the world's richest property developer. The company's US$ 2

billion IPO in July, 2007 created India's biggest IPO in history. In July 2007, DLF announced

its first quarter results ending 30 June 2007. The company reported a turnover of Rs. 3,120.98

Crore and PAT at Rs. 1,515.48 Crore.

GRASIM INDUSTRIES:

27

Grasim Industries Limited is a Aditya Birla Group company that started in 1948 and which

started as a textile manufacturer. Since then Grasim has successfully diversified into Viscose

Staple Fiber (VSF), cement, sponge iron and chemicals

HDFC BANK LTD

HDFC Bank Ltd. is a major Indian financial services company based in Mumbai,

incorporated in August 1994, after the Reserve Bank of India allowed establishing private

sector banks. The Bank was promoted by the Housing Development Finance Corporation, a

premier housing finance company (set up in 1977) of India. HDFC Bank has 1,725 branches

and over 4,232 ATMs, in 779 cities in India, and all branches of the bank are linked on an

online real-time basis. As of September 30, 2008 the bank had total assets of INR 1006.82

billion. For the fiscal year 2008-09, the bank has reported net profit of Rs.2,244.9 crore, up

41% from the previous fiscal. Total annual earnings of the bank increased by 58% reaching at

Rs.19,622.8 crore in 2008-09.

HERO HONDA MOTORS LIMITED

Hero Honda Motors Limited, based in Delhi, India is a joint venture between the Hero

Group of India and Honda of Japan. It has been referred to as the world's biggest

manufacturer of 2-wheeled motorized vehicles since 2001, when it produced 1.3 million

motorbikes in a single year. During the fiscal year 2008-09, the company has sold 3.28

million bikes and the net profit of the company stood at Rs. 1281.7 crore, up 32% from the

previous fiscal year.

The company's most popular model is the Hero Honda's Splendor, which is the

world's largest-selling motorcycle, selling more than one million units per year.

HINDALCO INDUSTRIES

Hindalco Industries is world's largest Aluminium manufacturing Company and is a

subsidiary of the Aditya Birla Group. It is run by one of the world's youngest billionaires, Mr.

K.M. Birla. The company has annual sales of $ 5 billion and employs 13,675 people and is

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listed on Forbes 2000. A metals powerhouse with a turnover of US$ 14 billion, Hindalco is

the world's largest aluminium rolling company and one of the biggest producers of primary

aluminium in Asia.

HINDUSTAN UNILEVER LIMITED

Hindustan Unilever Limited (HUL) is India's largest fast moving consumer goods

company, touching the lives of two out of three Indians with over 20 distinct categories in

home & personal care products and food & beverages. They endow the company with a scale

of combined volumes of about 4 million tonnes and sales of over Rs. 13,000 crores. HUL is

also one of the country's largest exporters; it has been recognised as a Golden Super Star

Trading House by the Government of India.

HUL was formed in 1933 as Lever Brothers India Limited and came into being in

1956 as Hindustan Lever Limited through a merger of Lever Brothers, Hindustan Vanaspati

Mfg. Co. Ltd. and United Traders Ltd.. It is headquartered in Mumbai, India and has an

employee strength of over 15,000 employees and contributes for indirect employment of over

52,000 people. The company was renamed in June 2007 to “Hindustan Unilever Limited”.

In 2007, Hindustan Unilever was rated as the most respected company in India for the

past 25 years by Businessworld, one of India’s leading business magazines. The rating was

based on a compilation of the magazines annual survey of India’s Most Reputed Companies

over the past 25 years. HUL is the market leader in Indian consumer products with presence

in over 20 consumer categories such as soaps, tea, detergents and shampoos amongst others

with over 700 million Indian consumers using its products. It has over 35 brands. Sixteen of

HUL’s brands featured in the ACNielsen Brand Equity list of 100 Most Trusted Brands

Annual Survey (2008). According to Brand Equity, HUL has the largest number of brands in

the Most Trusted Brands List. It’s a company that has consistently had the largest number of

brands in the Top 50 and in the Top 10 (with 4 brands).

Hindustan Unilever's distribution covers over 1 million retails outlets across India

directly and its products are available in over 6.3 million outlets in India, i.e., nearly 80% of

the retail outlets in India. It has 39 factories in the country. Two out of three Indians use the

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company’s products and HUL products have the largest consumer reach being available in

over 80 per cent of consumer homes across India.

The Anglo-Dutch company Unilever owns a majority stake (52%) in Hindustan

Unilever Limited. HUL was one of the eight Indian companies to be featured on the Forbes

list of World’s Most Reputed companies in 2007

HOUSING DEVELOPMENT FINANCE CORPORATION LIMITED

Housing Development Finance Corporation Limited or HDFC, founded 1977 by Ravi

Maurya and Hasmukhbhai Parekh, is an Indian NBFC, focusing on home mortgages. HDFC's

distribution network spans 243 outlets that include 49 offices of HDFC's distribution

company, HDFC Sales Private Limited.

In addition, HDFC covers over 90 locations through its outreach programmes.

HDFC's marketing efforts continue to be concentrated on developing a stronger distribution

network. Home loans are also Sharcket through HDFC Sales, HDFC Bank Limited and other

third party Direct Selling Agents (DSA).

To cater to non-resident Indians, HDFC has an office in London and Dubai and

service associates in Kuwait, Oman, Qatar, Sharjah, Abu Dhabi, Al Khobar, Jeddah and

Riyadh in Saudi Arabia.

ICICI BANK

ICICI Bank (formerly Industrial Credit and Investment Corporation of India) is a

major banking and financial services organization in India. It is the 2th largest bank in India

and the largest private sector bank in India by market capitalization. The bank also has a

network of 2,016 branches (as on 31 March 2010) and about 5,219 ATMs in India and

presence in 18 countries, as well as some 24 million customers (at the end of July 2007).

ICICI Bank offers a wide range of banking products and financial services to corporate and

retail customers through a variety of delivery channels and specialization subsidiaries and

affiliates in the areas of investment banking, life and non-life insurance, venture capital and

asset management. (These data are dynamic.) ICICI Bank is also the largest issuer of credit

cards in India. ICICI Bank's shares are listed on the stock exchanges at Kolkata and

30

Vadodara, Mumbai and the National Stock Exchange of India Limited; its ADRs trade on the

New York Stock Exchange (NYSE).

The Bank is expanding in overseas markets and has the largest international balance sheet

among Indian banks. ICICI Bank now has wholly-owned subsidiaries, branches and

representatives offices in 19 countries, including an offshore unit in Mumbai. This includes

wholly owned subsidiaries in Canada, Russia and the UK (the subsidiary through which the

HiSAVE savings brand is operated), offshore banking units in Bahrain and Singapore, an

advisory branch in Dubai, branches in Belgium, Hong Kong and Sri Lanka, and

representative offices in Bangladesh, China, Malaysia, Indonesia, South Africa, Thailand, the

United Arab Emirates and USA. Overseas, the Bank is targeting the NRI (Non-Resident

Indian) population in particular.

ICICI reported a 1.15% rise in net profit to Rs. 1,014.21 crore on a 1.29% increase in

total income to Rs. 9,712.31 crore in Q2 September 2008 over Q2 September 2007. The

bank's CASA ratio increased to 30% in 2008 from 25% in 2007.

ICICI Bank is one of the Big Four Banks of India, along with State Bank of India, Axis Bank

and HDFC Bank — its main competitors.

INFOSYS TECHNOLOGIES LIMITED

Infosys Technologies Limited is an information technology services company

headquartered in Bangalore, India. Infosys is one of the largest IT companies in India with

113,796 employees (including subsidiaries) as of 2010. It has offices in 22 countries and

development centres in India, China, Australia, UK, Canada and Japan.

ITC LTD

ITC Limited, is an Indian conglomerate with a turnover of US $ 6 billion. It ranks

third in pre-tax profit among India's private sector corporations. The company has its

registered office in Kolkata.

The company ( formerly known as Imperial Tobacco Company of India Limited ) is

currently headed by Yogesh Chander Deveshwar. It employs over 20,000 people at more than

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60 locations across India and is listed on Forbes 2000. ITC Limited completes 100 years on

24th August, 2010.

JAIPRAKASH ASSOCIATES

The Jaiprakash (Jaypee) Group is a diversified infrastructural industrial conglomerate

in India. Its founder is Jaiprakash Gaur. The oldest company in the group is Jaiprakash

Associates.

LARSEN & TOUBRO

Larsen & Toubro (L&T), is a multinational conglomerate company headquartered in

Mumbai, India.

L&T has an international presence, with a global spread of offices, factories and

offices located around the country, further supplemented by a comprehensive marketing and

distribution network.

MAHINDRA & MAHINDRA LIMITED

Mahindra & Mahindra Limited is part of the Mahindra Group, an automotive, farm

equipment, financial services, trade and logistics, automotive components, after-market, IT

and infrastructure conglomerate. The company was set up in 1945 in Ludhiana as Mahindra

& Mohammed. Later, after the partition of India, Malik Ghulam Muhammad returned to

Pakistan and became that nation's first finance minister. Hence, the name was changed from

Mahindra & Mohammed to Mahindra & Mahindra in 1948.

Initially set up to manufacture general-purpose utility vehicles, Mahindra & Mahindra

(M&M) was first known for assembly under licence of the iconic Willys Jeep in India. The

company later branched out into manufacture of light commercial vehicles (LCVs) and

agricultural tractors, rapidly growing from being a manufacturer of army vehicles and tractors

to an automobile major with a growing global market. At present, M&M is the leader in the

utility vehicle (UV) segment in India with its flagship UV, the Scorpio (known as the

Mahindra Goa in Italy). M&M is India's largest SUV maker.

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Mahindra & Mahindra has controlling stakes in REVA electric and has submitted

letter of intent for South Korea's SsangYong Motor Company.

MARUTI SUZUKI INDIA LIMITED

Maruti Suzuki India Limited is a publicly listed automaker in India. It is the largest

automobile manufacturer in South Asia. Suzuki Motor Corporation of Japan holds a majority

stake in the company. It was the first company in India to mass-produce and sell more than a

million cars. It is largely credited for having brought in an automobile revolution to India. It

is the market leader in India and on 17 September 2007, Maruti Udyog Limited was renamed

Maruti Suzuki India Limited. The company's headquarters are located in Delhi.

NTPC LTD

NTPC Limited (Formerly National Thermal Power Corporation) is the largest state-

owned power generating company in India. Forbes Global 2000 for 2009 ranked it 317th in

the world. It is an Indian public sector company listed on the Bombay Stock Exchange

although at present the Government of India holds 84.5%(after divestment the stake by Indian

government on 19october2009) of its equity. With a current generating capacity of 31134

MW, NTPC has embarked on plans to become a 75,000 MW company by 2017. It was

founded on November 7, 1975.

NTPC's core business is engineering, construction and operation of power generating

plants and providing consultancy to power utilities in India and abroad.

The total installed capacity of the company is 31134 MW (including JVs) with 15

coal based and 7 gas based stations, located across the country. In addition under JVs, 3

stations are coal based & another station uses naphtha/LNG as fuel. By 2017, the power

generation portfolio is expected to have a diversified fuel mix with coal based capacity of

around 53000 MW, 10000 MW through gas, 9000 MW through Hydro generation, about

2000 MW from nuclear sources and around 1000 MW from Renewable Energy Sources

(RES). NTPC has adopted a multi-pronged growth strategy which includes capacity addition

through green field projects, expansion of existing stations, joint ventures, subsidiaries and

takeover of stations.

33

NTPC has been operating its plants at high efficiency levels. Although the company

has 18.79% of the total national capacity it contributes 28.60% of total power generation due

to its focus on high efficiency. NTPC’s share at 31 Mar 2001 of the total installed capacity of

the country was 24.51% and it generated 29.68% of the power of the country in 2008-09.

Every fourth home in India is lit by NTPC. 170.88BU of electricity was produced by its

stations in the financial year 2005-2006. The Net Profit after Tax on March 31, 2006 was

INR 58,202 million. Net Profit after Tax for the quarter ended June 30, 2006 was INR 15528

million, which is 18.65% more than for the same quarter in the previous financial year.

2005).

Pursuant to a special resolution passed by the Shareholders at the Company’s Annual

General Meeting on September 23, 2005 and the approval of the Central Government under

section 21 of the Companies Act, 1956, the name of the Company "National Thermal Power

Corporation Limited" has been changed to "NTPC Limited" with effect from October 28,

2005. The primary reason for this is the company's foray into hydro and nuclear based power

generation along with backward integration by coal mining. (NTPC) is in the 138th position

in Fortune 500 in 2009.

OIL AND NATURAL GAS CORPORATION LIMITED

Oil and Natural Gas Corporation Limited (ONGC) (incorporated on 23 June 1993) is

a state-owned oil and gas company in India. It is a Fortune Global 500 company ranked

152nd, and contributes 77% of India's crude oil production and 81% of India's natural gas

production. It is the highest profit making corporation in India. It was set up as a commission

on 14 August 1956. Indian government holds 74.14% equity stake in this company.

ONGC is one of Asia's largest and most active companies involved in exploration and

production of oil. It is involved in exploring for and exploiting hydrocarbons in 26

sedimentary basins of India. It produces about 30% of India's crude oil requirement. It owns

and operates more than 11,000 kilometres of pipelines in India.

RELIANCE COMMUNICATIONS

Reliance Communications, formerly known as Reliance Infocomm, along with

Reliance Telecom and Flag Telecom, is part of Reliance Communications Ventures

34

(RCoVL).Reliance Communications Limited founded by the late Shri Dhirubhai H Ambani

(1932-2002) is the flagship company of the Reliance Anil Dhirubhai Ambani Group. The

Reliance Anil Dhirubhai Ambani Group currently has a net worth in excess of Rs. 64,000

crore (US$ 13.6 billion), cash flows of Rs. 13,000 crore (US$ 2.8 billion), net profit of Rs.

8,400 crore (US$ 1.8 billion).The Equity Shares of RCOM are listed on Bombay Stock

Exchange Limited and National Stock Exchange Limited. The Global Depository Receipts

and Foreign Currency Convertible Bonds are listed on Luxembourg Stock Exchange and

Singapore Stock Exchange respectively.

RELIANCE INDUSTRIES LIMITED

Reliance Industries Limited is India's largest private sector conglomerate company by

market value, with an annual turnover of US$ 44.6 billion and profit of US$ 3.6 billion for

the fiscal year ending in March 2010 making it one of India's private sector companies, being

ranked at 264th position in the Fortune Global 500 (2009) and at the 126th position in the

Forbes Global 2000 list (2010).

Reliance was founded by the Indian industrialist Dhirubhai Ambani in 1966. Ambani

has been a pioneer in introducing financial instruments like fully convertible debentures to

the Indian stock markets. Ambani was one of the first entrepreneurs to draw retail investors to

the stock markets. Critics allege that the rise of Reliance Industries to the top slot in terms of

market capitalization is largely due to Dhirubhai's ability to manipulate the levers of a

controlled economy to his advantage. Though the company's oil-related operations form the

core of its business, it has diversified its operations in recent years. After severe differences

between the founder's two sons, Mukesh Ambani and Anil Ambani, the group was divided

between them in 2006. In September 2008, Reliance Industries was the only Indian firm

featured in the Forbes's list of "world's 100 most respected companies".

RELIANCE INFRASTRUCTURE

Reliance Infrastructure, formerly known as Reliance Energy and prior to that as

Bombay Suburban Electric Supply (BSES), is a company under the Reliance Anil Dhirubhai

Ambani Group banner, one of India's largest conglomerates. The company is headed by Anil

Ambani. The company's corporate headquarters is situated in Sector 24, Noida. The company

35

is the sole distributor of electricity to consumers in the suburbs of Mumbai. It also runs power

generation, transmission and distribution businesses in other parts of Maharashtra, Goa and

Andhra Pradesh. Reliance Energy plans to increase its power generation capacity by adding

16,000 MW with investments of $13 billion.

STATE BANK OF INDIA

State Bank of India (SBI) is the largest state-owned banking and financial services

company in India, by almost every parameter - revenues, profits, assets, market

capitalization, etc. The bank traces its ancestry to British India, through the Imperial Bank of

India, to the founding in 1806 of the Bank of Calcutta, making it the oldest commercial bank

in the Indian Subcontinent. The Government of India nationalized the Imperial Bank of India

in 1955, with the Reserve Bank of India taking a 60% stake, and renamed it the State Bank of

India. In 2008, the Government took over the stake held by the Reserve Bank of India.

SBI provides a range of banking products through its vast network of branches in

India and overseas, including products aimed at NRIs. The State Bank Group, with over

16,000 branches, has the largest banking branch network in India. With an asset base of $260

billion and $195 billion in deposits, it is a regional banking behemoth. It has a market share

among Indian commercial banks of about 20% in deposits and advances, and SBI accounts

for almost one-fifth of the nation's loans.

SBI has tried to reduce over-staffing by computerizing operations and "golden

handshake" schemes that led to a flight of its best and brightest managers. These managers

took the retirement allowances and then went on to become senior managers in new private

sector banks. The State bank of India is the 29th most reputed company in the world

according to Forbes.

State Bank of India is the largest of the Big Four Banks of India, along with ICICI

Bank, Punjab National Bank and Canara Bank — its main competitors.

STERLITE INDUSTRIES INDIA LIMITED

Sterlite Industries India Ltd. (SLT) is a subsidiary of Vedanta Resources plc, a

diversified and integrated metals and mining group.

36

The company engages primarily in the production of copper in India. Its products

include copper cathodes; and cast copper rods, including 11 mm and 12 mm rods used in the

transformer industry, and 8 mm rods used by the wires and cables industry with applications

in housing wires, electrical cables, and telecom cables. The company also engages in the

mining of bauxite, and the production of aluminum conductors and various aluminum

products, as well as in the mining of zinc ore, and in the manufacture of zinc ingots and lead

ingots. In addition, Sterlite Industries produces various chemical products, such as sulfuric

acids, phosphoric acids, phospho gypsum, hydro fluo silicic acids, and granulated slag.

Further, the company involves in trading gold, as well as in paper business. It markets its

copper products directly to original equipment manufacturers and traders. The company is

based in Mumbai, India. The company’s main operating subsidiaries are Hindustan Zinc

Limited for its zinc and lead operations; Copper Mines of Tasmania Pty Limited for its

copper operations in Australia; and Bharat Aluminium Company Limited for its aluminium

operations. The company is entering into the commercial power generation business by

setting up a large scale 2,400 MW coal based independent thermal power plant in Jharsuguda,

Orissa and a wind energy project at Karnataka, Gujarat and Maharashtra, totaling 110.4 MW.

Post completion of these projects, the company will have a total wind power capacity of

148.8 MW.

SUN PHARMACEUTICAL INDUSTRIES LIMITED

Sun Pharmaceutical (or Sun Pharmaceutical Industries Limited) is an international

pharmaceutical company based in Mumbai, India. It makes many generic and brand name

drugs that are distributed in the United States, Europe, Asia and worldwide. Sun

manufactures both pharmaceuticals and active pharmaceutical ingredients (API), in essence,

ingredients to be used in finished pharmaceutical products. Its products are in several

therapeutic areas, including psychiatry, neurology, cardiology, diabetology, gastroenterology,

respiratory, and orthopedics.

TATA CONSULTANCY SERVICES

Tata Consultancy Services (TCS) is a software services and consulting company

headquartered in Mumbai, India. TCS is the largest provider of information technology and

37

business process outsourcing services in Asia. The company is listed on the National Stock

Exchange and Bombay Stock Exchange of India.

TCS is a flagship subsidiary of one of India's largest and oldest conglomerate company, the

Tata Group, which has interests in areas such as energy, telecommunications, financial

services, manufacturing, chemicals, engineering, materials, government and healthcare.

TATA MOTORS LIMITED

Tata Motors Ltd is a multinational corporation headquartered in Mumbai, India. Part

of the Tata Group, it was formerly known as TELCO (TATA Engineering and Locomotive

Company). Tata Motors has a consolidated revenue of USD 16 billion after the acquisition of

British automotive brands Jaguar and Land Rover in 2008.

It is India's largest company in the automobile and commercial vehicle sector with

upwards of 70% cumulative market share in the domestic commercial vehicle segment, and

had a 0.81% share of the world market in 2007 according to OICA data. The OICA ranked it

as the 1

9th largest automaker, based on figures for 2007 and the second largest manufacturer

of commercial vehicles in the world. The company is the world’s fourth largest truck

manufacturer, and the world’s second largest bus manufacturer. In India Tata ranks as the

leader in every commercial vehicle segment, and is in the top 3 makers of passenger cars.

Tata Motors is also the designer and manufacturer of the iconic Tata Nano, which at INR

100,000 (ex-factory) or approximately USD 2300, is the cheapest production car in the world.

Established in 1945, when the company began manufacturing locomotives, the

company manufactured its first commercial vehicle in 1954 in a collaboration with Daimler-

Benz AG, which ended in 1969. Tata Motors is a dual-listed company traded on both the

Bombay Stock Exchange, as well as on the New York Stock Exchange. Tata Motors in 2005,

was ranked among the top 10 corporations in India with an annual revenue exceeding INR

320 billion.

In 2004 Tata Motors bought Daewoo's truck manufacturing unit, now known as Tata

Daewoo Commercial Vehicle, in South Korea. It also acquired Hispano Carrocera SA, now a

38

fully-owned subsidiary. In March 2008, it acquired the Jaguar Land Rover (JLR) business

from the Ford Motor Company, which also includes the Daimler and Lanchester brands and

the purchase was completed on 2 June 2008.

Tata Motors has auto manufacturing and assembly plants in Jamshedpur, Pantnagar,

Lucknow, Ahmedabad, Sanand and Pune in India, as well as in Argentina, South Africa and

Thailand.

TATA POWER

Started as the Tata Hydroelectric Power Supply Company in 1911, it is an

amalgamation of two entities: Tata Hydroelectric Power Supply Company and Andhra Valley

Power Supply Company (1916). Today Tata Power Company Limited is India’s largest

private sector electricity generating company with an installed generation capacity of over

2670 MW. The Company is a pioneer in the Indian power sector. Tata Power has a presence

in thermal, hydro, solar and wind areas of power generation, transmission and retail. The

founders of Tata Power pioneered the generation of electricity in India with the

commissioning of India’s first large hydro-electric project in 1915 in Bhivpuri and Khopoli,

Karjat.

TATA STEEL

Tata Steel, formerly known as TISCO and Tata Iron and Steel Company Limited, is

the world's seventh largest steel company, with an annual crude steel capacity of 31 million

tonnes. It is the largest private sector steel company in India in terms of domestic production.

Ranked 258th on Fortune Global 500, it is based in Jamshedpur, Jharkhand, India. It is part of

Tata Group of companies. Tata Steel is also India's second-largest and second-most profitable

company in private sector with consolidated revenues of Rs 1,32,110 crore and net profit of

over Rs 12,350 crore during the year ended March 31, 2008.

Its main plant is located in Jamshedpur, Jharkhand, with its recent acquisitions, the

company has become a multinational with operations in various countries. The Jamshedpur

plant contains the DCS supplied by Honeywell. The registered office of Tata Steel is in

Mumbai. The company was also recognized as the world's best steel producer by World Steel

39

Dynamics in 2005. The company is listed on Bombay Stock Exchange and National Stock

Exchange of India, and employs about 82,700 people (as of 2007).

WIPRO LTD

Wipro Limited is a giant information technology services corporation headquartered

in Bangalore, India. According to the 2008–09 revenue, Wipro is one of the largest IT

services company in India and employs more than 108,071 people worldwide as of March

2010. It has interests varying from information technology, consumer care, lighting,

engineering and healthcare businesses. Azim Premji is the Chairman of the board.

2.0 RESEARCH METHODOLOGY

2.1 OBJECTIVES OF STUDY:1. To determine the share price of the companies using accounting and time adjusted

models.

2. To find out the movement of share prices as calculated using various models in

accordance with the market price of shares.

3. To find the risk-factor of the companies based on their daily volatility of share prices

in comparison with the Sensitivity Index (SENSEX).

4. To identify the companies which add value to your investments rather than

speculative returns.

2.2 THE STUDY:It is a descriptive study. It deals with studying the behaviour of share prices included

in the study over a period of five years, to find out whether the market prices of the shares of

these companies move in accordance with the values determined by various approaches used

for valuation of any firm such as Intrinsic Value approach, Economic Value Added (EVA)

40

approach, Market Value Added (MVA) approach, the Discounted Cash Flow (DCF) model

and so on.

It is also an analytical research. It makes use of the facts or information already

available to make a critical evaluation of the material. The facts are derived from the financial

statements of the company for 20 quarters totally covering the period for 5 years.

The prime statistical test used is the correlation test. The correlation determines the

presence of dependence in successive price changes. The following hypotheses have been

formulated:

Ho: There is no association between EPS & MPS.

Ho: There is no association between EVA & MPS.

Ho: There is no association between Book Value & MPS.

Ho: There is no association between DCF & MPS.

Ho: There is no association between MVA & MPS.

Ho: There is no association between Sales & EPS.

Ho: There is no association between EPS & Book Value.

Ho: There is no association between Sales & Book Value.

The sample used for testing hypotheses consists of quarterly average of weighted average

prices of all the companies included in the BSE 30 index as on March 31, 2010.

Table 2.1: List of BSE 30 Index Companies as on March 31, 2010Sl. No

Company Name Sl. No Company Name

1 ACC LTD 16 MAHINDRA & MAHINDRA LTD

2 BHARAT HEAVY ELECTRICALS LTD.

17 MARUTI SUZUKI INDIA LIMITED

3 BHARTI AIRTEL LTD. 18 NTPC LTD.

4 DLF Ltd. 19 ONGC CORPN

5 GRASIM INDUSTRIES LTD 20 RELIANCE COMMUNICATIONS LTD.

41

6 HDFC BANK LTD 21 RELIANCE INDUSTRIES LTD.

7 HERO HONDA MOTORS LTD 22 RELIANCE INFRASTRUCTURE LTD

8 HINDALCO INDUSTRIES LTD 23 STATE BANK OF INDIA

9 HINDUSTAN UNILEVER LTD. 24 STERLITE INDUSTRIES.

10 HOUSING DEVELOPMENT FIN.CORPN.LTD

25 SUN PHARMACEUTICAL INDS LTD.

11 ICICI BANK LTD. 26 TATA CONSULTANCY SERVICES LIMITED

12 INFOSYS TECHNOLOGIES LTD. 27 TATA MOTORS LTD.

13 ITC LTD. 28 TATA POWER CO. LTD.

14 JAIPRAKASH ASSOCIATES LIMITED

29 TATA STEEL LIMITED.

15 LARSEN & TOUBRO LTD. 30 WIPRO LTD.

2.3 ASSUMPTIONSFor the purpose of simplifying the process of calculations, the following assumptions are

being made without which the results and their interpretations hold no validity of precision

and accuracy.

1. Since the data are calculated at the end of the year, the average of weighted average

prices of the share for each quarter is used for the calculation of P/E ratio.

2. The reciprocal of P/E ratio is considered as an indicator for capitalisation rate.

3. Operating profits are assumed to be the Net Operating Profits to ease the calculations

of EVA.

4. In case of a Bank or a financial institution, Profits after Tax are assumed to be the

Operating Profits.

5. To determine the EVA, Capitalisation rate is treated as WACC.

6. To generalise the cost of capital, the market return is calculated for each quarter and a

value little higher than the market return is taken into consideration to be the cost of

capital for each firm. In case of the market showing negative return, a constant of 7%

is assumed to be the Cost of Capital as it equals the rate of return assured to be paid

on a government bond.

42

FORMULAE USED

1. Book Value = Net Worth No. of Equity Shares

2. P/E Ratio = MPSEPS

3. Cap. Rate = 1PE Ratio

4. Market Cap = PAT Cap. Rate

5. MVA = Market value of firm – Market value of debt

6. MVA/Share = MVA No. of Equity Shares

7. EVA = Net Operating Profits – (Total Capital x WACC)

8. EVA/Share = EVA No. of Equity Shares

9. FCF = Cash Flow (1 + k)n

2.4 HYPOTHESIS TESTING:The test of hypothesis for the existence of a linear relationship between two variables

x & y involves the determination of sample correlation co-efficient r. This test of linear

relationship between x & y is the same as determining whether there is any significant

correlation between them. For determining the correlation, population correlation coefficient

ρ is hypothesised to be equal to zero. The population correlation coefficient ρ measures the

degree of association between two variables in a population of interest. The null and alternate

hypotheses are expressed under.

43

Two-tailed test:

H0 : ρ = 0 (No correlation between variable x & y)

H1 : ρ ≠ 0 (Correlation exists between variable x & y)

One-tailed test:

H0 : ρ = 0 and H1 : ρ > 0 (or ρ < 0)

The t-test statistic for testing the null hypothesis is given by:

t =

Where r = sample correlation coefficient

n = sample size

The t-test statistic follows t-distribution with n - 2 degrees of freedom.

Decision rule: The calculated value of t-test statistic is compared with its table value at n – 2

degrees of freedom and level of significance to arrive at a decision as follows:

One tailed hypothesis Two tailed hypothesis

If calculated value > table value, reject

H0

Otherwise accept H0

If calculated value > table value, reject

H0

Otherwise accept H0

44

3.0 DATA ANALYSIS AND INFERENCES

3.1 CORRELATION TESTS

Table 3.1: Table showing the correlation test results for EPS, EVA, B.V, MVA & MPS

COMPANY EPS & MPS

EVA & MPS

B.V & MPS

MVA & MPS

ACC LTD 0.531 0.594 0.195 0.997BHARAT HEAVY ELECTRICALS LTD. 0.340 0.342 0.343 1.000BHARTI AIRTEL LTD. 0.777 0.848 0.534 1.000DLF Ltd. 0.767 0.880 -0.754 1.000GRASIM INDUSTRIES LTD 0.769 0.866 0.205 0.996HDFC BANK LTD 0.829 0.696 0.836 0.979HERO HONDA MOTORS LTD 0.489 0.910 0.276 1.000HINDALCO INDUSTRIES LTD 0.281 0.153 0.475 0.773HINDUSTAN UNILEVER LTD. 0.053 0.573 0.372 1.000HOUSING DEVELOPMENT FIN. CORPN. LTD 0.751 0.818 0.742 0.606ICICI BANK LTD. 0.504 0.726 -0.043 0.831INFOSYS TECHNOLOGIES LTD. -0.072 0.239 -0.148 1.000ITC LTD. 0.900 0.994 0.862 1.000JAIPRAKASH ASSOCIATES LIMITED -0.091 0.313 0.292 0.972LARSEN & TOUBRO LTD. 0.120 0.570 0.373 1.000MAHINDRA & MAHINDRA LTD 0.367 0.754 0.222 0.972MARUTI SUZUKI INDIA LIMITED 0.883 0.945 0.644 0.999NTPC LTD. 0.509 0.921 0.860 0.994ONGC CORPN 0.412 0.640 0.142 0.998RELIANCE COMMUNICATIONS LTD. -0.107 0.111 -0.111 0.949RELIANCE INDUSTRIES LTD. 0.736 0.845 0.685 0.987RELIANCE INFRASTRUCTURE LTD 0.429 0.442 0.324 0.992STATE BANK OF INDIA 0.570 0.802 0.767 0.500

45

STERLITE INDUSTRIES. 0.636 0.673 0.388 0.966SUN PHARMACEUTICAL INDS LTD. 0.606 0.252 0.855 0.998TATA CONSULTANCY SERVICES LIMITED 0.717 0.760 -0.453 1.000TATA MOTORS LTD. 0.546 0.763 -0.163 0.976TATA POWER CO. LTD. 0.089 0.556 0.718 0.995TATA STEEL LIMITED. 0.430 0.627 0.069 0.853WIPRO LTD. 0.154 0.493 -0.112 0.994

Table 3.2: Table showing correlation test results for FCF, Sales, EPS, B.V & MPS

COMPANY FCF & MPS

Sales & EPS

EPS & B.V

Sales & B.V

ACC LTD 0.576 0.718 0.607 0.934BHARAT HEAVY ELECTRICALS LTD. 0.386 0.577 0.503 0.359BHARTI AIRTEL LTD. 0.832 0.764 0.900 0.902DLF Ltd. 0.738 0.878 -0.761 -0.693GRASIM INDUSTRIES LTD 0.686 0.832 0.696 0.942HDFC BANK LTD 0.864 0.911 0.975 0.869HERO HONDA MOTORS LTD 0.487 0.459 0.945 0.317HINDALCO INDUSTRIES LTD 0.318 -0.391 0.939 -0.593HINDUSTAN UNILEVER LTD. 0.063 -0.246 0.892 0.174HOUSING DEVELOPMENT FIN. CORPN. LTD 0.828 0.771 0.762 0.950ICICI BANK LTD. 0.512 0.396 0.061 0.177INFOSYS TECHNOLOGIES LTD. 0.074 0.302 0.773 0.710ITC LTD. 0.883 -0.664 0.995 -0.628JAIPRAKASH ASSOCIATES LIMITED -0.053 -0.283 0.372 -0.689LARSEN & TOUBRO LTD. 0.172 0.360 -0.155 -0.515MAHINDRA & MAHINDRA LTD 0.467 0.536 0.205 0.778MARUTI SUZUKI INDIA LIMITED 0.866 0.678 0.564 0.946NTPC LTD. 0.556 0.684 0.687 0.957ONGC CORPN 0.640 0.208 -0.301 0.379RELIANCE COMMUNICATIONS LTD. -0.107 -0.532 1.000 -0.542RELIANCE INDUSTRIES LTD. 0.848 0.081 0.471 0.249RELIANCE INFRASTRUCTURE LTD 0.501 0.561 0.566 0.903STATE BANK OF INDIA 0.667 0.856 0.753 0.897STERLITE INDUSTRIES. 0.624 -0.238 0.713 -0.704SUN PHARMACEUTICAL INDS LTD. 0.758 0.862 0.563 0.601TATA CONSULTANCY SERVICES LIMITED 0.717 -0.582 0.223 0.608TATA MOTORS LTD. 0.554 0.354 0.051 0.630TATA POWER CO. LTD. 0.242 0.292 0.298 0.727TATA STEEL LIMITED. 0.557 0.124 -0.204 0.816

46

WIPRO LTD. 0.212 0.726 0.847 0.906

Inference:

16 companies out of 30 companies show a higher degree of positive correlation

between the Earnings and the Market Price signifying the impact of company’s

after-tax profits in direct relation to the market price prevailing in the market at 5%

level of significance.

22 out of 30 companies show greater degree of positive correlation between the

MPS and Economic Value Added at 95% confidence level. The inference drawn from

the above is that these firms have increasing revenue due to the rise in operating

activities which has reflected itself in the increasing operating profit margins or

vice versa.

Only 10 companies show strong positive association between the Book value &

MPS indicating over the period of 20 quarters, most of the times, the shares of

these companies were over-priced in comparison to its intrinsic worth.

17 companies have association between their free cash flows and MPS. Mere

accounting profits won’t help the firm to take advantages of various investment

avenues for which they require cash. Borrowing proves to be a costly source of

raising finance in comparison to retention of profits. The actual cash flows

represent a positive news to the shareholders in terms of company being able to

pay cash dividends or retain the profits to invest in other opportunities to give

multiplies returns to its shareholders which is actually the prime objective of a

company i.e. Shareholder’ wealth maximisation.

On the whole, it cannot be stated that a single variable is influencing the share

prices in the market. For instance, a company’s earnings might have increased over

a few years. But at the same time, to invest in avenues, the company might have

resolved to fresh issue of equity shares. The increased earnings will not reflect itself

on the EPS as it is tend to decline due to the increase in the number of equity

47

shares. Yet the MPS may show a positive reaction due to the impact of growing

revenues and after-tax profits.

The rising amounts of economic value added per share may indicate an increase in

the operating efficiency, where in a firm may pose huge amounts of EBDIT. But the

changes in the after-tax profits after deducting various financial charges like

payment of interest, etc may show a drastic downward trend. This may be due to

the increase in secured borrowings or debt borrowings. Hence, the EVA/Share

cannot be alone taken into account to study the influence of variables on MPS.

Book value is an indicator of a company’s future earning potential because it

considers the earning capacity of the assets available within the business and every

business utilises its assets to earn revenues and hence, as a rule of thumb, the book

value and the market value should perfectly correlate with each other. But in

reality, it doesn’t happen so. The market is driven by the moods, emotions and

temperament of the investors, and hence, the prices of the shares of these

companies tend to get over-inflated or otherwise due to the frequent change in

demand-supply conditions of these shares.

3.2 RESULTS OF HYPOTHESIS TESTING FOR CORRELATION COEFFICIENT

Table 3.3: Table showing hypothesis test resultsCOMPANY EPS &

MPSEVA & MPS

B.V & MPS

MVA & MPS

FCF & MPS

Sales & EPS

EPS & B.V

Sales & B.V

ACC LTD Yes Yes - Yes Yes Yes Yes Yes

BHARAT HEAVY ELECTRICALS LTD.

- - - Yes - Yes Yes -

BHARTI AIRTEL LTD. Yes Yes Yes Yes Yes Yes Yes Yes

DLF Ltd. Yes Yes Yes Yes Yes Yes Yes Yes

GRASIM INDUSTRIES LTD Yes Yes - Yes Yes Yes Yes Yes

HDFC BANK LTD Yes Yes Yes Yes Yes Yes Yes Yes

HERO HONDA MOTORS Yes Yes - Yes Yes Yes Yes -

48

LTD

HINDALCO INDUSTRIES LTD

- - Yes Yes - - Yes Yes

HINDUSTAN UNILEVER LTD.

- Yes - Yes - - Yes -

HOUSING DEVELOPMENT FIN. CORPN. LTD

Yes Yes Yes Yes Yes Yes Yes Yes

ICICI BANK LTD. Yes Yes - Yes Yes - - -

INFOSYS TECHNOLOGIES LTD.

- - - Yes - - Yes Yes

ITC LTD. Yes Yes Yes Yes Yes Yes Yes Yes

JAIPRAKASH ASSOCIATES LIMITED

- - - Yes - - - Yes

LARSEN & TOUBRO LTD. - Yes - Yes - - - Yes

MAHINDRA & MAHINDRA LTD

- Yes - Yes Yes Yes - Yes

MARUTI SUZUKI INDIA LIMITED

- Yes - Yes Yes Yes - Yes

NTPC LTD. Yes Yes Yes Yes Yes Yes Yes Yes

ONGC CORPN - Yes - Yes Yes - - -

RELIANCE COMMUNICATIONS LTD.

- - - Yes - Yes Yes Yes

RELIANCE INDUSTRIES LTD. Yes Yes Yes Yes Yes - Yes -

RELIANCE INFRASTRUCTURE LTD

- - - Yes Yes Yes Yes Yes

STATE BANK OF INDIA Yes Yes Yes Yes Yes Yes Yes Yes

STERLITE INDUSTRIES. Yes Yes Yes Yes - Yes Yes

SUN PHARMACEUTICAL INDS LTD.

Yes - Yes Yes Yes Yes Yes Yes

49

TATA CONSULTANCY SERVICES LIMITED

Yes Yes Yes Yes Yes Yes - Yes

TATA MOTORS LTD. Yes Yes - Yes Yes - - Yes

TATA POWER CO. LTD. - Yes Yes Yes - - - Yes

TATA STEEL LIMITED. - Yes - Yes Yes - - Yes

WIPRO LTD. - Yes - Yes - Yes Yes Yes

Note: The cells with ‘Yes’ indicate the presence of association between the variables.

The greatest value investor of all times, Mr. Warren Buffet, chairman of Berkshire

Hathaway states a simple way of choosing an investment which provides value

rather than speculative profits. Choosing a company to invest involve finding the

presence of the direct relationship between 3 variables – Sales, Earnings and

Intrinsic Worth/ Book Value.

A company whose sales are increasing significantly will show a positive association

with its earnings. The more perfect the association, better the company to invest.

Similarly, the increasing earnings will reflect itself in the increasing intrinsic value

of its shares. Thus, it requires an almost perfect correlation between sales, earnings

and book value in deciding whether to invest in the company or not. For some other

reasons, the market price is usually not equal to the intrinsic value of the share.

It is tending to be either under-priced or over -priced. When the management feels

that its shares are under-priced, they split their shares from shares of face value of

Rs. 10 to Rs. 5, Rs. 2 or Re. 1. Thus they try to maintain the equilibrium between

the market price of the share and its true value by either stock split or reverse split

approach.

Using the above stated hypothesis, only 13 companies out of the 30 companies in

the BSE 30 index show association between the sales, earnings and the intrinsic

worth. The rest of the companies show associations in either one or two cases.

Those 13 companies provide a good avenue for value investing and hence prove to

be strong breeding grounds for long term investments.

50

3.3 EQUITY BETA: The risk pertaining to a company can be divided into 2 types:

1. Systematic Risk or non-diversifiable risk.

2. Unsystematic Risk or diversifiable risk.

Systematic risk refers to the risk which arises due to the fluctuations in the economy. Hence it

is not under the control of the company. Thus, it cannot be diversified.

Unsystematic risk, on the other hand, are within the control of business. The risk arising due

to the operating activities i.e. operating leverage can be diversified by the business firms.

Various factors determine the beta of a company. They are:

1. Nature of Business – influenced by the fluctuations in business cycle, vis-a-vis.

growth phase and correction phase.

2. Operating Leverage – the more than proportionate change in EBIT to a given change

in sales in the presence of fixed operating costs.

3. Financial Leverage – the more than proportionate change in PAT/EAT to a given

change in EBIT in the presence of fixed financial costs.

The following formula can be used to estimate the beta of a company:

Direct Method:

βj = Corjm σj / σm

In practice, the following regression equation is used in the determination of beta:

Rj = α + βj Rm + ej

3.3.1 EQUITY BETA CALCULATION

Table 3.4: Table showing Beta values for BSE 30 scripsCompany Previous

BetaPrevious r2 Current Beta Current r2

ACC LTD 0.76 0.33 0.34 0.01

BHARAT HEAVY ELECTRICALS LTD. 0.97 0.6 0.49 0.25

BHARTI AIRTEL LTD. 0.78 0.27 0.36 0.03

51

DLF Ltd. 1.62 0.54 1.08 0.41

GRASIM INDUSTRIES LTD 0.69 0.31 0.09 0.00

HDFC BANK LTD 0.79 0.56 0.60 0.31

HERO HONDA MOTORS LTD 0.62 0.28 0.26 0.04

HINDALCO INDUSTRIES LTD 1.32 0.47 1.40 0.39

HINDUSTAN UNILEVER LTD. 0.36 0.13 0.33 0.06

HOUSING DEVELOPMENT FIN. CORPN. LTD

1.16 0.62 0.67 0.30

ICICI BANK LTD. 1.46 0.7 1.27 0.49

INFOSYS TECHNOLOGIES LTD. 0.68 0.37 0.53 0.22

ITC LTD. 0.57 0.25 0.59 0.20

JAIPRAKASH ASSOCIATES LIMITED 1.59 0.61 1.09 0.30

LARSEN & TOUBRO LTD. 1.28 0.71 0.60 0.19

MAHINDRA & MAHINDRA LTD 1.07 0.42 0.74 0.15

MARUTI SUZUKI INDIA LIMITED 0.71 0.31 0.25 0.03

NTPC LTD. 0.62 0.4 0.22 0.07

ONGC CORPN 0.78 0.4 0.32 0.03

RELIANCE COMMUNICATIONS LTD. 1.33 0.5 1.28 0.25

RELIANCE INDUSTRIES LTD. 1.1 0.67 0.74 0.29

RELIANCE INFRASTRUCTURE LTD 1.4 0.58 1.24 0.34

STATE BANK OF INDIA 1.17 0.64 0.81 0.27

STERLITE INDUSTRIES. 1.33 0.51 1.37 0.42

SUN PHARMACEUTICAL INDS LTD. 0.36 0.09 -0.02 0.00026

TATA CONSULTANCY SERVICES LIMITED 0.79 0.38 0.60 0.15

TATA MOTORS LTD. 1.23 0.36 1.53 0.52

TATA POWER CO. LTD. 0.78 0.44 0.63 0.26

TATA STEEL LIMITED. 1.41 0.49 1.33 0.44

52

WIPRO LTD. 0.82 0.38 0.68 0.23

Inference:

9 companies out of 30 display Beta factor more than one showing more volatile returns in

comparison with the market returns. The reasons for the same is the change in the market

movement from correction phase towards growth phase and increase in the earning

capacity of the business directly related to the rise in the operating activities which has lead

to the increase in the fixed operating expenses of the firm, hence increase in the operating

leverage.

4.0 INDUSTRY OUTLOOKAUTOMOBILE

The Automotive Industry in India is one of the largest industries and a key sector of

the economy. In a year, the country manufactures about 2.6 million cars making up an

identifiable chunk in the world’s annual production of about 73 million cars in a year.

Starting its journey from the day when the first car rolled on the streets of Mumbai in 1898,

the Indian automobile industry has demonstrated a phenomenal growth to this day. The

Indian automotive industry started to boost from 1991with the government’s de-licensing of

the sector and subsequent opening up for 100 per cent FDI through automatic route.

India's automobile exports have consistently grown and reached $4.5 billion in 2009, with

United Kingdom being India's largest export market followed by Germany, Netherlands and

South Africa. In recent years, India has emerged as a leading center for the manufacture of

small cars. Hyundai, the biggest exporter from the country, now ships more than 250,000 cars

annually from India. Apart from shipments to its parent Suzuki, Maruti Suzuki also

manufactures small cars for Nissan, which sells them in Europe. Nissan will also export small

cars from its new Indian assembly line. During the early stages of its development, Indian

automobile industry heavily depended on foreign technologies. However, over the years, the

manufacturers in India have started using their own technology evolved in the native soil.

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The thriving market place in the country has attracted a number of automobile manufacturers

including some of the reputed global leaders to set their foot in the soil looking forward to

enhance their profile and prospects to new heights. India's strong engineering base and

expertise in the manufacturing of low-cost, fuel-efficient cars has resulted in the expansion of

manufacturing facilities of several automobile companies like Hyundai Motors, Nissan,

Toyota, Volkswagen and Suzuki. Tata Motors exports its passenger vehicles to Asian and

African markets, and is in preparation to launch electric vehicles in Europe in 2010.

On account of its huge market potential, a very low base of car ownership in the country

estimated at about 25 per 1,000 people, and a rapidly surging economy, the nation is firmly

set on its way to become an outsourcing platform for a number of global auto companies. The

firm is also planning to launch an electric version of its low-cost car Nano in Europe and the

U.S. Mahindra & Mahindra is preparing to introduce its pickup trucks and small SUV models

in the U.S. market. Bajaj Auto is designing a low-cost car for the Renault Nissan Automotive

India, which will market the product worldwide. Renault Nissan may also join domestic

commercial vehicle manufacturer Ashok Leyland in another small car project. While the

possibilities are impressive, there are challenges that could thwart future growth of the Indian

automobile industry. Since the demand for automobiles in recent years is directly linked to

overall economic expansion and rising personal incomes, industry growth will slow if the

economy weakens.

At present, about 75 percent of India’s automobile industry is made up by small cars, with the

figure ranking the nation on top of any other country on the globe. Over the next two or three

years, the country is expecting the arrival of more than a dozen new brands making compact

car models.

Industry experts have visualized an unbelievably huge increase in these figures over the

immediate future. As a significant milestone in its progress, the monthly sales of passenger

cars in India exceeded 100,000 units in February 2009. The figures published by the Asia

Economic Institute indicate that the Indian automobile sector is set to emerge as the global

leader by 2012. In the year 2009, India rose to be the fourth largest exporter of automobiles

following Japan, South Korea and Thailand. Experts state that in the year 2050, India will top

the car volumes of all the nations of the world with about 611 million cars running on its

roads.

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There is also a boom in auto ancillary companies. India is an attractive outsourcing

destination for global auto companies because of its strong engineering skills and low costs.

Sourcing parts from India is 10-20% cheaper for US auto makers and about 50% cheaper for

their European counterparts. The Indian auto component industry is quite comprehensive

with around 500 firms in the organized sector producing practically all automotive

components; there are more than 10,000 firms total. India’s component industry now has the

capability to manufacture the entire range of auto-components, for example, engine parts,

drive, transmission parts, suspension and braking parts, electrical, body and chassis parts,

equipment, etc This industry grew by over 28 percent between 1995 and 1998, and has been

sustaining double digit growth, clocking 19 percent in 2007-08, and 20 percent in 2008-09.

The Government has prepared a ten-year Automotive Mission Plan (AMP) to draw a future

plan of action and remove obstacles in the way of competition, such as that required

infrastructure be put in place well in time to alleviate its constraining impact on the growth.

The plan envisages a tax holiday for the industry on investments exceeding $225,000, 100%

tax deductions of export profits, and deductions of 50% on foreign-exchange earnings. It also

calls for a one-stop clearance for foreign-direct-investment proposals in the sector and

deductions of 30% of net income for 10 years for new industrial undertakings. To bring down

the cost of power and fuel, which accounts for 6% of the manufacturing costs in the auto

sector, captive power generation would be encouraged to enable industries to access reliable,

quality and cost-effective power.

INFORMATION TECHNOLOGY

The Indian information technology (IT) industry has played a key role in putting India

on the global map. According to the annual report 2009-10, prepared by the Department of

Information Technology (DIT), the IT-BPO industry is expected to garner a revenue

aggregate of US$ 73.1 billion in 2009-10 as compared to US$ 69.4 billion in 2008-09,

growing at a rate of over 5 per cent. The report predicts that the Indian IT-BPO revenues may

reach US$ 225 billion in 2020.

According to DIT, the Indian software and services exports is expected to reach US$ 49.7

billion in 2009-10 as compared to US$ 47.1 billion in 2008-09, registering an increase of 5.5

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per cent in dollar terms. Further, the IT services exports is estimated to grow from US$ 25.8

billion in 2008-09 to US$ 27.3 billion in 2009-10, showing a growth of 5.8 per cent.

Moreover, according to a study by Springboard Research published in February 2010, the

Indian information technology (IT) market is expected to grow at around 15.5 per cent in

2010, on the back of growing investor confidence and favourable initiatives taken by the

government.

The data centre services market in the country is forecast to grow at a compound annual

growth rate (CAGR) of 22.7 per cent between 2009 and 2011, to touch close to US$ 2.2

billion by the end of 2011, according to research firm IDC India's report published in March

2010. The IDC India report stated that the overall India data centre services market in 2009

was estimated at US$ 1.39 billion.

As per a report by the Internet and Mobile Association of India (IAMAI) and market research

firm IMRB, the total number of Internet users in India reached 71 million in 2009. The

number of active users increased to 52 million in September 2009 from 42 million in

September 2008, registering a growth of 19 per cent year-on-year, stated the report.

According to IDC India, during January-March 2010, total PC sales in India reached

2,240,000 units registering a year-on-year increase of 33 per cent over the same period in

2009. Desktop PC sales witnessed a year-on-year increase of 18 per cent during January-

March 2010, over the corresponding period last year to reach 1,436,000 units. The sales of

Notebook computers also increased by 72 per cent year-on-year, clocking 803,000 shipments.

Outsourcing

India is a preferred destination for companies looking to offshore their IT and back-office

functions. It also retains its low-cost advantage and is a financially attractive location when

viewed in combination with the business environment it offers and the availability of skilled

people.

Future Investments in IT

• Between April 2000 and March 2010, the computer software and hardware sector

received cumulative foreign direct investment (FDI) of US$ 9,872.49 million, according to

the Department of Industrial Policy and Promotion.

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• The total investments of EMC Corporation, a leading global player of information

infrastructure solutions in India, will touch US$ 2 billion (over US$ 2.01 billion) by 2014.

• Syntel, an IT company, plans to invest around US$ 50 million in its global

development centre in Chennai.

• Russian IT security software provider, Kaspersky Lab, will be investing US$ 2

million in its India operations at Hyderabad during the next financial year.

Government Initiatives

• The government has constituted the Technical Advisory Group for Unique Projects

(TAGUP) under the chairmanship of Nandan Nilekani. The Group would develop IT

infrastructure in five key areas, which includes the New Pension System (NPS) and the

Goods and Services Tax (GST)

• The government set up the National Taskforce on Information Technology and

Software Development with the objective of framing a long term National IT Policy for the

country

• Enactment of the Information Technology Act, which provides a legal framework to

facilitate electronic commerce and electronic transactions

• Setting up of Software Technology Parks of India (STPIs) in 1991 for the promotion

of software exports from the country, there are currently 51 STPI centres where apart from

exemption from customs duty available for capital goods there are also exemptions from

service tax, excise duty, and rebate for payment of Central Sales Tax. But the most important

incentive available is 100 per cent exemption from Income Tax of export profits, which has

been extended till 31st March 2011

• Government is also setting up Information Technology Investment Regions (ITIRs).

These regions would be endowed with excellent infrastructure and would reap the benefits of

co-siting, networking and greater efficiency through use of common infrastructure and

support services

Moreover, according to NASSCOM government, IT spend was US$ 3.2 billion in 2009 and

is expected to reach US$ 5.4 billion by 2011. Further, according to NASSCOM, there is US$

9 billion business opportunity in e-governance in India. The Indian information technology 57

sector continues to be one of the sunshine sectors of the Indian economy showing rapid

growth and promise. According to a report prepared by McKinsey for NASSCOM called

'Perspective 2020: Transform Business, Transform India' released in May 2009, the exports

component of the Indian industry is expected to reach US$ 175 billion in revenue by 2020.

The domestic component will contribute US$ 50 billion in revenue by 2020. Together, the

export and domestic markets are likely to bring in US$ 225 billion in revenue, as new

opportunities emerge in areas such as public sector and healthcare and as geographies

including Brazil, Russia, China and Japan opt for greater outsourcing.

TELECOMMUNICATION

The Indian telecommunications industry is the world's fastest growing

telecommunications industry, with 706.37 Million telephone (landlines and mobile)

subscribers and 670.60 Million mobile phone connections as of Aug2010. 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 number of subscribers in the country was

approximately 5 million to 670.60 Million in Aug 2010.

As the fastest growing telecommunications industry in the world, it is projected that India

will have 1.159 billion mobile subscribers by 2013. Furthermore, projections by several

leading global consultancies indicate that the total number of subscribers in India will exceed

the total subscriber count in the China by 2013. The industry is expected to reach a size of

344,921 crore (US$78.3 billion) by 2012 at a growth rate of over 26 per cent, and generate

employment opportunities for about 10 million people during the same period. According to

analysts, the sector would create direct employment for 2.8 million people and for 7 million

indirectly. In 2008-09 the overall telecom equipments revenue in India stood at 136,833

crore (US$31.06 billion) during the fiscal, as against 115,382 crore (US$26.19 billion) a

year before.

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,

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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. In 2008-09, rural India outpaced urban India in mobile growth rate. Bharti

Airtel now is the largest telecom company in India.

India's mobile phone market is the fastest growing in the world, with companies adding some

20.31 million new customers in March 2010.

The total number of telephones in the country crossed the 688.38 million mark in July 31,

2010. The overall tele-density has increased to 58.17% in July 2010. Telecom Regulatory

Authority of India,Information note to the Press (Press Release No. 61 / 2007), 20 July 2010

In the wireless segment, 19 million subscribers have been added in July 2010. The total

wireless subscribers (GSM, CDMA & WLL (F)) base is more than 652.42 million now. The

wireline segment subscriber base stood at 35.96 million with a decline of 0.22 million in July

2010.

BANKING

The banking industry in India is sufficiently capitalized and regulated. The economic

and financial conditions here are better than in any other country. Liquidity, credit, and

market studies have proven Indian banks to be resilient. They have negotiated the downturn

in the global economy well.

The Reserve Bank of India (RBI) is the topmost body monitoring the Banking Industry. Any

shortcomings or discrepancies are dealt with by the RBI.

The banking industry in India is divided into scheduled and non-scheduled banks. 67,000

scheduled bank branches are located in India. They consist of cooperative banks and

commercial banks. The PSBs (Public Sector Banks) form the base of this sector in India.

They account for 78% of the assets in the banking sector. The Private Sector banking is

making headway. They are leading in mobile banking, phone banking, ATMs, and Internet

Banking sectors.

Sectors of the banking industry include investment banking, retail, and private banking.

Investment banking is a growing sector with more Indians looking to invest funds in mutual

funds and stocks rather than the traditional fixed deposits and schemes.

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Retail banking is when the bank deals with individual customers rather than corporations.

Services offered by these banks are normal savings, personal loans, checking accounts, and

debit/credit cards amongst others. This is also a growing sector as the drive for cashless

transactions is growing. More people are opting for debit and credit cards. Private banking is

where the personalized financial services are provided to individuals or corporations of high

worth.

All these sectors are showing immense growth prospects. Internet banking is also gaining

prominence. The phone banking sector is also gaining in popularity. Thus, the entire banking

sector is growing and offers immense potential.

This is why foreign banks are increasingly establishing their base in India. JP Morgan,

Standard Chartered, Bank of America, and many other international banks have established

centers in India to tap its potential.

FDI in this sector has been raised. 74% FDI via the automatic route is allowed in the private

sector banks. This means that the aggregate foreign investment in any private bank

considering all sources should be up to 74% of the paid-up capital. In the case of nationalized

banks, the Portfolio and FDI investment's maximum limit is 20%. This cap also applies to the

investment in state banks and other associated ones.

Even with the global recession, the investment in the banking industry is still prevalent

though the volume may have been reduced. FDI in India grew by 145% between 2006 and

2007 and by 46.6% during 2007-2008. The FDI in 2009 was down to 18.6%. However, with

the recession abating the investments are sure to rise.

The government is also encouraging foreign investment in this sector, as the entry of foreign

players will help the sector. FDI in Indian banking can lead to improved efficiency, better

capitalization, and improved adaptability. So the government is attracting FDI, FII, and NRIs

in this field.

Overall, the Indian banking industry has immense potential for further growth and expansion.

INFRASTRUCTURE

The country’s core sector, comprising six key infrastructure industries, accelerated by

5.1 per cent year-on-year in April 2010, compared with 3.7 per cent in April 2009, according

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to the data released by the Union Ministry of Commerce and Industry. The growth was

primarily led by an increase in the production of cement, which stood at 18.87 million tonnes

(MT), compared to 17.36 MT during April 2009.

Electricity production grew by 6 per cent in April 2010, as against 6.7 per cent in the same

month of the previous fiscal. Finished steel production registered a growth of 4.7 per cent

during the month, against a decline of 1.3 per cent in the corresponding period of 2009.

Among other industries, production of crude petroleum rose by 5.2 per cent, as against minus

3.1 per cent, while production of petro-products registered an increase of 5.3 per cent, as

compared to a contraction of 4.5 per cent during April 2009.

Infrastructure investment in India is set to grow dramatically. As per Union Minister for

Finance, Mr Pranab Mukherjee, India would require to develop a rupee-denominated long-

term bond market for funding the infrastructure sector that requires an investment of around

US$ 459 to US$ 500 billion by 2012.

Further, investment in the infrastructure sector is expected to be around US$ 425.2 billion

during the Eleventh Five Year Plan (2007-12), as against US$ 191.3 billion during the Tenth

Plan. Meanwhile, private investment into the sector is also projected to increase to US$ 157.3

billion in the Eleventh Plan, as compared to US$ 47.84 billion in the Tenth Plan. This

investment is likely to be fulfilled through public-private-partnership (PPP) projects that are

based on long-term concessions.

Clearance has been given to nine new investment proposals of around US$ 1.05 billion by the

State Level Single Window Clearance Authority (SLSWCA). Out of these nine proposals,

five were from the cement sector, two for setting up aluminium conductor units, and one each

for developing a petroleum coke plant and a maize processing unit.

Meanwhile, a committee on infrastructure under Prime Minister Dr Manmohan Singh will

conduct quarterly review of development of power, road, ports, civil aviation and railways

sectors, announced the Planning Commission of India recently. Further, the cabinet

committee on infrastructure (CCI) will handle specific infrastructure cases that may require

necessary policy correction or solving issues affecting projects.

Notably, truck sales, a key indicator of goods movement, registered a growth of 74 per cent

during May 2010, as per the data released by the Indian Foundation for Transport Research

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and Training (IFTRT). The increase in the demand for cargo transportation from the

agricultural and manufacturing sectors was one of the contributing factors in the increase in

the truck sales.

In order to develop eco-friendly infrastructure for new cities in the Delhi-Mumbai Industrial

Corridor (DMIC), Japan-based consultants such as Nikken Sekkei, Mitsubishi and IBM Japan

would work along with DMIDC and three state governments. The project, expected to be

completed by 2018, as per Mr Anand Sharma, Union Minister for Commerce and Industry is

“by far the world’s biggest infrastructure project.”

METALS AND MINERALS

Mining has provided the answer to the manufacturing and energy needs of the

humanity in the past century. Mining community around the world has contributed to the

enrichment of the world through industrial development. Minerals are valuable natural

resources being finite and non-renewable. They constitute the vital raw materials for many

basic industries and are a major resource for development.

Demand for minerals is expected to grow very fast, due to increasing levels of consumption,

infrastructure development, and growth of the economy. Management of mineral resources

has, therefore, to be closely integrated with the overall strategy of development and

exploitation of minerals is to be guided by long-term national goals and perspectives.

In India, 80% of mining is in coal and the balance 20% is in various metals and other raw

materials such as gold, copper, iron, lead, bauxite, zinc and uranium. India with diverse and

significant mineral resources is the leading producer of some of the minerals. India is not

endowed with all the requisite mineral resources. Of the 89 minerals produced in India, 4 are

fuel minerals, 11 metallic, 52 non-metallic and 22 minor minerals.

India is the largest producer of mica blocks and mica splittings; ranks third in the production

of coal & lignite, barytes and chromite; 4th in iron ore, 6th in bauxite and manganese ore,

10th in aluminium and 11th in crude steel. Iron-ore, copper-ore, chromite and or zinc

concentrates, gold, manganese ore, bauxite, lead concentrates, and silver account for the

entire metallic production. Limestone, magnesite, dolomite, barytes, kaolin, gypsum, apatite

& phosphorite, steatite and fluorite account for 92 percent of non-metallic minerals. The

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index of mineral production, excluding fuel and atomic minerals, (base year 1993-94=100)

for the year 2005-06 is expected to be 154.23 as compared to 153.48 in 2004-05.

FMCG

Fast Moving Consumer Goods (FMCG) goods are popularly named as consumer

packaged goods. Items in this category include all consumables (other than groceries/pulses)

people buy at regular intervals. The most common in the list are toilet soaps, detergents,

shampoos, toothpaste, shaving products, shoe polish, packaged foodstuff, household

accessories and extends to certain electronic goods. These items are meant for daily of

frequent consumption and have a high return.

The Indian FMCG sector is the fourth largest sector in the economy with a total market size

in excess of US$ 13.1 billion. It has a strong MNC presence and is characterized by a well

established distribution network, intense competition between the organized and unorganized

segments and low operational cost. Availability of key raw materials, cheaper labor costs and

presence across the entire value chain gives India a competitive advantage. The FMCG

market is set to treble from US$ 11.6 billion in 2003 to US$ 33.4 billion in 2015. Penetration

level as well as per capita consumption in most product categories like jams, toothpaste,

skincare, hair wash etc in India is low indicating the untapped market potential. Burgeoning

Indian population, particularly the middle class and the rural segments, presents an

opportunity to makers of branded products to convert consumers to branded products.

Growth is also likely to come from consumer 'upgrading' in the matured product categories.

With 200 million people expected to shift to processed and packaged food by 2010, India

needs around US$ 28 billion of investment in the food-processing industry.

CEMENT

Growth of the industry accelerated forthwith and majority of the industrialists

invested heavily in the industry with the awarded freedom. The industry started focusing on

export also to double the opportunity available for it in global markets. Today, the cement

manufacturers in India have transformed into leading Indian exporters of cement across the

world.

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The demand of cement in year 2009-2010 is expected to increase by 50 million tons despite

of the recession and decline in demand of housing sector. Against India's GDP growth of 7%,

the experts have estimated the cement sector to grow by 9 to 10 % in the current financial

year. Major Indian cement manufacturers and exporters have all made huge investments in

the last few months to increase their production capability. This heralds an optimistic outlook

for cement industry. The housing sector in India accounts for 50 % of the cement's demand.

And the demand is expected to continue. With the constant effort made by cement

manufacturers and exporters, India has become the second largest cement producer in the

world. Madras Cement Ltd., Associated Cement Company Ltd (ACC), Ambuja Cements Ltd,

Grasim Industries Ltd, and J.K Cement Ltd. are among few renowned names of the major

Indian cement companies.

PHARMACEUTICAL

The pharmaceutical industry in India is among the most highly organized sectors.

This industry plays an important role in promoting and sustaining development in the field of

global medicine. Due to the presence of low cost manufacturing facilities, educated and

skilled manpower and cheap labor force among others, the industry is set to scale new heights

in the fields of production, development, manufacturing and research. In 2008, the domestic

pharma market in India was expected to be US$ 10.76 billion and this is likely to increase at

a compound annual growth rate of 9.9 per cent until 2010 and subsequently at 9.5 per cent till

the year 2015.

• The pharma industry generally grows at about 1.5-1.6 times the Gross Domestic

Product growth

• Globally, India ranks third in terms of manufacturing pharma products by volume

• The Indian pharmaceutical industry is expected to grow at a rate of 9.9 % till 2010

and after that 9.5 % till 2015

• In 2007-08, India exported drugs worth US$7.2 billion in to the US and Europe

followed by Central and Eastern Europe, Africa and Latin America

• The Indian vaccine market which was worth US$665 million in 2007-08 is growing at

a rate of more than 20%

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• The retail pharmaceutical market in India is expected to cross US$ 12-13 billion by

2012

• The Indian drug and pharmaceuticals segment received foreign direct investment to

the tune of US$ 1.43 billion from April 2000 to December 2008

Government Initiatives

The government of India has undertaken several including policy initiatives and tax breaks

for the growth of the pharmaceutical business in India. Some of the measures adopted are:

• Pharmaceutical units are eligible for weighted tax reduction at 150% for the research

and development expenditure obtained.

• Two new schemes namely, New Millennium Indian Technology Leadership Initiative

and the Drugs and Pharmaceuticals Research Program have been launched by the

Government.

• The Government is contemplating the creation of SRV or special purpose vehicles

with an insurance cover to be used for funding new drug research

• The Department of Pharmaceuticals is mulling the creation of drug research facilities

which can be used by private companies for research work on rent

Pharma Export

In the recent years, despite the slowdown witnessed in the global economy, exports from the

pharmaceutical industry in India have shown good buoyancy in growth. Export has become

an important driving force for growth in this industry with more than 50 % revenue coming

from the overseas markets. For the financial year 2008-09 the export of drugs is estimated to

be $8.25 billion as per the Pharmaceutical Export Council of India, which is an organization,

set up by the Government of India. A survey undertaken by FICCI, the oldest industry

chamber in India has predicted 16% growth in the export of India's pharmaceutical growth

during 2009-2010.

TEXTILE

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The Indian textile industry contributes about 14 per cent to industrial production, 4

per cent to the country's gross domestic product (GDP) and 17 per cent to the country’s

export earnings, according to the Annual Report 2009-10 of the Ministry of Textiles. It

provides direct employment to over 35 million people and is the second largest provider of

employment after agriculture. According to the Ministry of Textiles, the cumulative

production of cloth during April’09-March’10 has increased by 8.3 per cent as compared to

the corresponding period of the previous year.

Moreover, total textile exports have increased to US$ 18.6 billion during April’09-

January’10, from US$ 17.7 billion during the corresponding period of the previous year,

registering an increase of 4.95 per cent in rupee terms. Further, the share of textile exports in

total exports has increased to 12.36 per cent during April’09-January’10, according to the

Ministry of Textiles.

As per the Index of Industrial Production (IIP) data released by the Central Statistical

Organisation (CSO), cotton textiles has registered a growth of 5.5 per cent during April-

March 2009-10, while wool, silk and man-made fibre textiles have registered a growth of 8.2

per cent while textile products including wearing apparel have registered a growth of 8.5 per

cent.

According to the Ministry of Textiles, technical textiles are an important part of the textile

industry. The Working Group for the Eleventh Five Year Plan has estimated the market size

of technical textiles to increase from US$ 5.29 billion in 2006-07 to US$ 10.6 billion in 2011-

12, without any regulatory framework and to US$ 15.16 billion with regulatory framework.

The Scheme for Growth and Development of Technical Textiles aims to promote indigenous

manufacture of technical textile to leverage global opportunities and cater to the domestic

demand.

Government Initiative

According to the Ministry of Textiles, investment under the Technology Upgradation Fund

Schemes (TUFS) has been increasing steadily. During the year 2009-10, 1896 applications

have been sanctioned at a project cost of US$ 5.23 billion. The cumulative progress as on

December 31, 2009, includes 27,477 applications sanctioned, which has triggered investment

of US$ 45.5 billion and amount sanctioned under TUFS is US$ 18.9 billion of which US$

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16.4 billion has been disbursed so far till the end of April, 2010. Moreover, in May 2010, the

Ministry of Textiles informed a parliamentary panel that it proposes to allocate US$ 785.2

million for the modernisation of the textile industry.

The Scheme for Integrated Textile Park (SITP) was approved in July 2005 to facilitate setting

up of textiles parks with world class infrastructure facilities. 40 textiles park projects have

been sanctioned under the SITP. According to the Minister of State for Textiles, Panabaaka

Lakshmi, under the SITP, a cumulative expenditure of US$ 204.3 million has been incurred

against allocation of US$ 220.7 million in the last three years.

In the Union Budget 2010-11 presented in February 2010, the Finance Minister made the

following announcements to benefit the textile industry:

• The central plan outlay for the industry has been enhanced to US$ 1.03 billion. Of this

US$ 521.4 million is for TUFS, US$ 76 million for SITP, US$ 80.2 million for handlooms,

US$ 69.3 million for handicrafts and US$ 98.4 million for sericulture.

• Allocation for textiles and jute industry is US$ 713.4 million.

• The total allocation for village and small enterprises sector which include handicrafts

and handlooms is US$ 210.3 million.

• US$ 31.5 million has been provided for development of mega clusters in handlooms,

handicrafts and power loom sectors.

• Customs duty at 4 per cent for import of readymade garments for retail sales has been

withdrawn.

• The micro small medium enterprises in textiles sector have been given full CENVAT

credit on capital goods in one installment in the year of receipt of such goods and the facility

of payment of excise duty in quarterly basis.

TWO WHEELER

India, is the second largest producer of two-wheelers in the world. In the last few

years, the Indian two-wheeler industry has seen spectacular growth. The country stands next

to China and Japan in terms of production and sales respectively.

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Majority of Indians, especially the youngsters prefer motorbikes rather than cars. Capturing a

large share in the two-wheeler industry, bikes and scooters cover a major segment. Bikes are

considered to be the favourite among the youth generation, as they help in easy commutation.

Large variety of two wheelers is available in the market, known for their latest technology

and enhanced mileage. Indian bikes, scooters and mopeds represent style and class for both

men and women in India. However, few Indian bike enthusiasts prefer high performance

imported bikes. Some of the most popular high-speed bikes are Suzuki Hayabusa, Kawasaki

Ninja, Suzuki Zeus, Hero Honda Karizma, Bajaj Pulsar and Honda Unicorn. These super

bikes are specially designed for those who have a zeal for speedy drive. Two wheelers have a

special place on the Indian roads. They are extremely popular and versatile not only as

passenger carriers but also as good carriers. It comes as no surprise when India is ranked as

the second largest two-wheeler market in the world.

In 2008-2009, more than 76 million two wheelers were manufactured in India. Domestic

sales of two-wheelers form a major chunk at 76% of total sales. Hero Honda and Bajaj Auto

are the leaders in the two wheeler market in India. In India, the two wheeler segment was the

first to secure export orders. Motorcycles segment dominates with an 80% market share. The

demand is huge for new and powerful variants. The 125cc motorbikes are finding favour with

majority of the motor cycle owners. Apart from the motorcycles that are traditionally used by

men, the scooterettes (60cc upwards) have also contributed towards a spurt in two-wheeler

sales. These allow the housewives, high-school and college going children, working women

and the elderly to be mobile. Then there are mopeds that are nothing but a sophisticated

motorized cycle.

The growing middle class population, prosperous rural India and the paucity of reliable

public transport system is leading to a large number of two wheelers added to the roads every

day. Indian roads in most cities, villages and towns are narrow. Two-wheelers allow people

to navigate such roads easily.

Fuel-efficiency is a huge advantage. With the cost of petrol increasing steadily, two-wheeler

makes the daily travel both affordable and convenient. Easy availability of auto finances at

attractive schemes has made a two-wheeler a must in most urban and rural homes.

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5.0 CONCLUSIONThe Indian economy is currently passing through important historical phase of

economic development. In the last decade or so, a number of policy initiatives were ushered

in covering all significant segments of the economy, including industry, trade, exchange rate,

foreign investment, and financial sector. These policy measures have influenced the

functioning of stock market and the behaviour of stock prices. Volatility in the stock market

has important bearing on the earnings of individual investors and the efficiency of stock

market in general for channelizing resources for its productive uses. This study provides

some insights regarding the behaviour of the share prices in the Indian stock market, namely,

the BSE. The results of the study reveal that the BSE Sensex companies’ share prices move

in accordance with share price as calculated using various methods of valuation of shares i.e.

accounting models and time adjusted models. One model cannot itself explain the movement

of share prices because some other variables also influence the prices of shares in the stock

market. The study also revealed existence of 9 companies in ‘BSE30’ index which display

greater degree of volatility in comparison to the sensex (companies with beta coefficient > 1).

The underlying truth of value investing where there should be correlation between

Company’s Sales, Earnings and Intrinsic value are displayed by 13 companies thus

christening these companies as ‘THE JEWELS’ or value companies in the words of Warren

Buffet. Thus, Indian stock market displays characteristic of great investment opportunities,

may it be in terms of value or speculative gains.

The study has been undertaken without the adjustment of some items in the balance

sheets. There is scope for improving upon the findings of this report. Free cash flow to equity

method of valuation of equity share has been excluded. The study has been done only for

academic purpose and developing a new study based on the information derived out of this

study wouldn’t be sufficient to draw specific conclusions regarding the use of the valuation

models to determine the movement of share prices in the stock exchange. The fact that the

market price of a share listed/traded in the stock exchange constitutes 15% in terms of

fundamental strength of the company whereas the rest 85% is purely dependant on the market

mood, sentiments and temperament of the investors and various players in the stock market

makes it difficult to accurately justify the results derived out of calculations.

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6.0 BIBLIOGRAPHY

Khan and Jain, M. Y., (32.1 – 32.25), Fourth edition, Financial Management, Tata McGraw Hill publishers.

Balsley. Heather, 12/12/2005, Using EVA to Align Management Incentives with Shareholders’ Interests, International Financial Management, Harvard Business Review.

Jensen. Michael. C, Just Say No to Wall Street: Putting A Stop to the Earnings Game, Harvard Business Review

WEBLIOGRAPHY

www.bseindia.com

www.moneycontrol.com

www.nseindia.com

www.valuenotes.com

www.myiris.com

www.hbs.com

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FINAL SIP REPORT -ADITHYA BALIGA