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SUMMER TRAINING PROJECT

ON

FUNDAMENTAL ANALYSIS AND ITS APPLICATION

AT

INDIABULLS

Submitted in partial fulfillment of the requirement for the degree of

MASTERS OF BUSINESS ADMINISTRATION

OF

Punjab Technical UniversityJalandhar

(SESSION 2010-2011)

SUBMITTED BY: PROJECT ADVISOR

Rahul Pathania


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Chapter-

No.

CONTENT PAGE

NO.


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DECLARATION 3

ACKNOWLEDGMENT 4

ABSTRACT 5

1 INTRODUCTION 6

2 COMPANY PROFILE 14

2.1 PRODUCTS AND SERVICES OFFERED BY INDIABULLS 16

2.2 INDIABULLS EQUITY ANALYSIS 17

2.3 SWOT ANALYSIS OF INDIABULLS 34

2.4 ANALYSIS OF THE SURVEY 36

3 RESEARCH METHODOLOGY 40

3.1 SCOPE 42

3.2 LIMITATIO NS 42

4 WORK DONE DURING TRAINING PERIOD 435 DATA ANALYSIS & INTERPRETATION 45

6 FUNDAMENTAL ANALYSIS 56

6.1 ECONOMIC ANALYSIS 63

6.2 INDUSTRY ANALYSIS 67

6.3 INFOSYS TECHNOLOGIES LTD. 79

6.3.1 CASH FLOW STATEMENT 83

6.3.2 BALANCE SHEET 846.3.3 RATIO ANALYSIS 85

6.3.4 HISTORICAL DATA 86

7 RECOMMENDATIONS AND CONCLUSION 94

7.1 REFERENCES 97

7.2 ANNEXURE 98

LIST OF TABLES


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Tableno.

Particulars Page no.

Table 1 How did you come to know about your stock broking firm? 46

Table 2 What is annual family income? 47

Table 3 What is your preference avenue for investment? 48

Table 4 You are more interested in? 49

Table 5 How do you trade? 50

Table 6 On what basis do you buy a scrip? 51

Table 7 What is the value of your portfolio? 52

Table 8 Are you satisfied with the services of the current broker firm? 53

Table 9If some other broker firm promises you to provide better

services will you shift to that firm?

54

LIST OF FIGURES


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Fig. no. Particulars Pageno.

Fig. no. 1 How did you come to know about your stock broking firm? 46

Fig. no. 2 What is annual family income? 47

Fig. no. 3 What is your preference avenue for investment? 48

Fig. no. 4 You are more interested in? 49

Fig. no. 5 How do you trade? 50

Fig. no. 6 On what basis do you buy a scrip? 51

Fig. no. 7 What is the value of your portfolio? 52

Fig. no. 8 Are you satisfied with the services of the current broker firm? 53

Fig. no. 9If some other broker firm promises you to provide better

services will you shift to that firm?

54

Fig. no. 10 Occupation of investor 34

Fig. no. 11 Market share of each brokerage firm 35

Fig. no.12 Income of investors surveyed 36

Fig. no. 13 Value of portfolio investors surveyed 37

DECLARATION


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I, RAHUL PATHANIA, a student of M.B.A., QUEST INFOSYS GROUP OF Institute

of Management and Technology, Mohali, hereby declare that the project report

entitled Fundamental Analysis and its Application is my original work and result of

my own efforts.

This has not been submitted in part or full towards any other degree or diploma.

(Rahul Pathania)

M.B.A.


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ACKNOWLEDGEMENT

Preservation, inspiration and motivation have always played a key role in the success of any

venture. In the present world of competition and success, training is like a bridge between

theoretical and practical working; willingly I prepared this particular Project. First of all I

would like to thank the supreme power, the almighty god, who is the one who has always

guided me to work on the right path of my life. I would like to thank Mr. Goldy Aggarwal

for granting me permission to under take the training in their esteemed organization.

I express my sincere thanks to & others faculty members ofM.B.A. department, for the

valuable suggestion and making this project a real successful.

I also thanks to Mr. Rahul Gupta (Branch manager)and Mr. Jagjit Singh (Relation-ship

manager) for his time-to-time guidance and support in completing the project. I also thank

the other staff ofINDIABULLS who devoted their valuable time by helping me to complete

my project.

Last but not least, my sincere thanks to my parents and friends directly or indirectly

who helped me to bring this project into the final shape.

Rahul Pathania


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ABSTRACT

Share market fluctuates even Prime Minister Sneezes. This implies that there is not such hard

and fact rule which can be applied to remain always in profit. But if these indicators are

known to investors then it will certainly help to reduce the risk. Fundamental analysis helps

in reducing risk by giving a right to the performance of the shares. The project undertakes

detailed discussions on fundamental analysis . A survey was conducted to know rationale and

psychology of the investors. Project also gives me an insight how transactions are executed at

India Bulls.


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CHAPTER-I

INTRODUCTION


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INTRODUCTION

The project covers fundamental analysis of certain scrips that accounts for major share

in BSE-30 SENSEX. The shares that have been included cover almost each and every

sector of the Indian Economy. The shares have been selected on the basis of the market

capitalization and Beta (unsystematic risk) as on 21st March, 2008. The shares from a

particular sector which has more market capitalization and less Beta have been taken

and certain indicators have been applied to these shares.

STOCK MARKET IN INDIA

The emergence of stock market can be traced back to 1830. In Bombay, business

passed in the shares of banks like the commercial bank, the chartered mercantile bank,

the chartered bank, the oriental bank and the old bank of Bombay and shares of cotton

presses. In Calcutta, Englishman reported the quotations of 4%, 5%, 6% loans of East

India Company as well as the shares of the bank of Bengal in 1836. This list was a

further broadened in 1839 when the Calcutta newspaper printed the quotations of banks

like union bank and Agra bank. It also quoted the prices of business ventures like the

Bengal bonded warehouse, the Docking Company and the stoam tug company.

Between 1840 and 1850, only half a dozen brokers existed for the limited business. But

during the share mania of 1860-65, the number of brokers increased considerably. By

1860, the number of brokers was about 60 and during the exciting period of the

American Civil war, their number increased to about 200 to 250. the end of American

Civil war brought disillusionment and many failures and the brokers decreased in

number and prosperity. It was in those troublesome times between 1868 and 1875 that

brokers organized an informal association and finally as recited in the Indenture

constituting the Articles of Association of the Exchange. On or about ninth day of

July one thousand and eight hundred and seventy-five, a few native brokers doing

brokerage business in shares and stocks resolved upon forming in Bombay an

association for protecting the character, status and interest of native share and stock

brokers and providing a hall or building for the use of the members of such association.

As a meeting held in the broker Hall on the 5 th day of February, 1887, it was resolved

to execute a formal deal of association and to constitute the first managing committee

and to appoint the first trustees. Accordingly, the Articles of Association of the


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Exchange and the Stock Exchange was formally established in Bombay on 3rd day of

December, 1887. The Association is now known as The Stock Exchange.

The entrance fee for new member was Re.1 and there were 318 members on the list,

when the exchange was constituted. The numbers of members increased to 333 in 1896,

362 in 1916and 478 in 1920 and the entrance fee was raised to Rs.5 in 1877, Rs.1000 in

1896, Rs.2500 in 1916 and Rs. 48,000 in 1920. At present there are 23 recognized stock

exchanges with about 6000 stock brokers. Organization structure of stock exchange

varies.

14 stock exchanges are organized as public limited companies, 6as companies limited

by guarantee and 3 are non-profit voluntary organization. Of the total of 23, only 9

stock exchanges have beenpermanent recognition. Others have to seek recognition on

annual basis.

These exchange do not work of its own, rather, these are run by some persons and with

the help of some persons and institution. All these are own as functionaries on stock

exchange. These are

1. Stockbrokers

2. sub-broker

3. market makers

4. Portfolio consultants etc.

1.) Stockbrokers

Stock brokers are the members of stock exchanges. These are the persons who buy,

sell or deal in securities. A certificate of registration from SEBI is mandatory to act as a

broker. SEBI can impose certain conditions while granting the certificate of

registrations. It is obligatory for the person to abide by the rules, regulations and the

buy-law. Stock brokers are commission broker, floor broker, arbitrageur etc.

Detail of registered brokers

Total no. of

registered

brokers as on

31.03.2004

Addition

during the

year 2004-05

Cancellation/Surrender

of memberships

Total no. of

registered

brokers as on

31.03.2005

9687 135 303 9519


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2.) Sub-broker

A sub-broker acts as agent of stock broker. He is not a member of a

stock exchange. He assists the investors in buying, selling or dealing in securities

through stockbroker. The broker and sub-broker should enter into an agreement in

which obligations of both should be specified. Sub-broker must be registered SEBI for

a dealing in securities. For getting registered with SEBI, he must fulfill certain rules

and regulation.

3.) Market Makers

Market maker is a designated specialist in the specified securities.

They make both bid and offer at the same time. A market maker has to abide by bye-

laws, rules regulations of the concerned stock exchange. He is exempt from the margin

requirements. As per the listing requirements, a company where the paid-up capital is

Rs. 3 crore but not more than Rs. 5 crore and having a commercial operation for less

than 2 years should appoint a market maker at the time of issue of securities.

4.) Portfolio consultants

A combination of securities such as stocks, bonds and money

market instruments is called as portfolio. Whereas the portfolio consultants are the

persons or firms or companies who advise or direct or undertake the management or

administration of securities or funds on behalf of their clients.

Indian Stock Exchange

India Stock Exchanges are a structured marketplace for the proper conduct of

trading in company stocks and other securities. There are 23 recognized stock

exchanges in India, including the Over the Counter Exchange of India for providing

trading access to small and new companies. The main services of the India Stock

Exchanges all over the country are to provide nation-wide services to investors and to

facilitate the issue and redemption of securities and other financial instruments.

The introduction of the concept of the stock exchanges in India came with the breaking

of the American Civil War and the idea materialized first in 1874 with the foundation

of the Bombay Stock Exchange at the Dalal Street in Mumbai.


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Currently, in all the India Stock Exchanges the trading system is computerized for more

efficient and transparent trading. There has been a significant boom in the degree of

development and volume of trading in the stock exchanges .

The two most important exchange houses of the Indian stock market are the Bombay

Stock Exchange and the National Stock Exchange. Many of the regional


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Recognized Stock Exchanges in India

Name Address

THE BOMBAY STOCK EXCHANGEPhiroze Jeejeebhoy Towers,Dalal Street,Mumbai- 400 001.

The Ahmedabad Stock ExchangeAssociation Ltd,.

Manek Chowk,Ahmedabad - 380 001

BANGALORE STOCK EXCHANGELTD,.

'M' Block, First Floor,Unity Building,J.C. Road,Bangalore - 560 002.

BHUBANESHWAR STOCKEXCHANGE ASSN., LTD,.

217,Budhraja Building,Jharpada Cuttack Road,Bhubaneswar, Orissa - 751

006.

Stock exchanges have obtained the membership of these two stock exchanges in

India. The index of the Bombay Stock Exchange, BSE Sensex is a value-

weighted index composed of 30 companies.

Another significant feature of the India Stock Exchanges is the regulatory

agency, Securities and Exchange Board of India or SEBI which supervises the

activities of stock markets, regulates the functioning of stock exchanges andintermediaries and registers Foreign Investors trading in Indian scrips.


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THE CULCUTTA STOCKEXCHANGE ASSOCIATION LTD,.

7, Lyons Range ,Calcutta - 700 001.

COCHIN STOCK EXCHANGE LTD.,Veekshanam RoadP.B. 3529,Ernakulam,

Cochi - 682 035.

THE DELHI STOCK EXCHANGEASSN. LTD.,

3&4/4B,Asaf Ali Road,New Delhi 110 002.

THE GAUHATI STOCKEXCHANGE LTD,.

Saraf Building Annexe A.T.Road,Guwahati - 781 001.

THE HYDERABAD STOCKEXCHANGE LTD,.

Bank Street,Hyderabad - 500 001.

JAIPUR STOCK EXCHANGE LTD,. Rajasthan Chamber Bhawan,M.I. Road,Jaipur - 302 003.

KANARA STOCK EXCHANGELTD.

4th Floor,Rambhavan Complex,Kodialbail,Mangalore - 575 003.

THE LUDHIANA STOCKEXCHANGE ASSN. LTD.

Lajpat Rai Market,Clock Tower,Ludhiana 141 008.

MADRAS STOCK EXCHNAGELTD.

'Exchange Building',Post Box No.183,11, Second Line Beach,Chennai - 600 001

MADHYA PRADESH STOCKEXCHANGE LTD.

67, Bada Sarafa,Indore - 452 002.

THE MAGADH STOCK

EXCHANGE LTD.

Bihar Industries Assn.Premises,

Sinha Library Road,Patna - 800 001.

PUNE STOCK EXCHANGE LTD.

1177,Budhwar Peth,Bank of Maharashtra Bldg.,2nd Floor,Bajirao Road,Pune 411 002.

SAURASHTRA KUTCH STOCK

EXCHANGE LTD.,

4,Swaminarayan GurukulBldg.,

Dhebarbhai Road,Rajkot - 380 002.


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THE UTTAR PRADESH STOCKEXCHANGE ASSN. LTD.

Padam Towers,14/113,Civil Lines,Kanpur - 208 001

VADODARA STOCK EXCHANGELTD.

101, Paradise Complex,

Tilak Toad,Sayaji Gunj,Vadodara - 390 005.

COIMBATORE STOCK EXCHANGEChamber Tower,8/732,Avvinashi Road,Coimbatore 641 018.

MEERUT STOCK EXCHANGE LTD.

Kingsway Building,345, Bombay Bazar,Meerut Cantonment - 250001.

OTC EXCHANGE OF INDIA.Maker Towers "F" CuffeParade,Bombay - 400 005.

THE NATIONAL STOCKEXCHANGE OF INDIA LTD.

Mahindra Towers,A-Wing, RBC, Worli,Mumbai 18

THE INTER-CONECTED STOCKEXCHANGE OF INDIA (ISE)


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CHAPTER-II

COMPANY PROFILE


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ABOUT INDIABULLS

Indiabulls is India's leading retail financial services company with 135 locations spread

across 95 cities. While our size and strong balance sheet allow us to provide you with varied

products and services at very attractive prices, our over 750 Client Relationship Managers are

dedicated to serving your unique needs. Indiabulls is lead by a highly regarded management

team that has invested crores of rupees into a world class Infrastructure that provides our

clients with real-time service & 24f7 access to all information and products. Our flagship

Indiabulls Professional Network offers real-time prices, detailed data and news, intelligent

analytics, and electronic trading capabilities, right at your fingertips. This powerful

technology is complemented by our knowledgeable and customer focused Relationship

Managers. We are creating a world of Smart Investor. Indiabulls offers a full range of

financial services and products ranging from Equities to Insurance to enhance your wealth

and hence, achieve your financial goals. Indiabulls' Client Relationship Managers are

available to you to help with your financial planning and investment needs. To provide the

highest possible quality of service, Indiabulls provides full access to all our products and

services through multi-channels. Indiabulls offers a full range of financial services and

products ranging from Equities to Insurance to enhance your wealth and hence achieve your

financial goals. Our Indiabulls Professional Network offers real-time prices, detailed data and

news, intelligent analytics, and electronic trading capabilities, right at your finger-tips. This

powerful technology is complemented by our knowledgeable and customer focused

Relationship Managers. Indiabulls' Relationship Managers are available to you to help with


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your financial planning and investment needs. To provide the highest possible quality of

service, Indiabulls provides fun access to all products and services through multi-channels.


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PRODUCTS AND SERVICES OFFERED BY INDIABULLS

Equities & Derivatives Comprehensive services for independent investors,

active traders & Non-Resident Indians.

Indiabulls Equity Analysis Premium research on 401+ companies updated

daily.

Depository Services Value added services for seamless delivery

Insurance Take care of your life while you take care of

business.

EQUITY AND DERIVATIVESOur Retail Equity Business caters to the needs of individual Indian and Nonresident Indian

(NRI) investors. Indiabulls offers broker assisted trade execution, automated online investing

and access to aIl IPO's.

Through various types of brokerage accounts, Indiabulls offers the purchase and sale of

securities which includes Equity, Derivatives and Commodities Instruments listed on

National Stock Exchange of India Ltd (NSEIL), The Stock Exchange, Mumbai (BSE) and

NCDEX.Indiabulls Signature Account - Comprehensive services including research and investing

guidance for independent investors.

Power Indiabulls - Indiabulls is dedicated to empower Active Traders through personal

service and advanced trading technology.

Non-Resident Indian (NRI) Investor Services - With an extensive range of investment

products, you will discover an unwavering commitment to helping you


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INDIABULLS EQUITY ANALYSAS

Building and maintaining your ideal portfolio demands objective, dependable information.

Indiabulls Equity Analysis helps satisfy that need by rating stocks based on carefully

selected, fact-based measures. And because we're not focused on investment banking, we

don't have the same conflicts of interest as traditional brokerage firms. This objectivity is

only one important difference in our ratings. A to E ratings are applied to over 401 Indian

headquartered stocks using a wide variety of investment criteria from four broad categories.

The Indiabulls Equity Analysis model attempts to gauge investor expectations, since stock

prices tend to move in the same direction as changes in investor expectations.

Stocks with low and potentially Improving investor expectations tend to receive A orB ratings

Stocks with high and potentially falling investor expectations tend to receive D or E

ratings

Over the next 12 months, A-rated stocks have a return outlook of strongly outperforming the

market while E-rated stocks have a return outlook of strongly underperforming the market.

DEPOSITORY SERVICES

Indiabulls is a depository participant with the National Securities Depository Limited and

Central Depository Services (India) Limited for trading and settlement of dematerialized

shares. Indiabulls performs clearing services for all securities transactions through its

accounts. We offer depository services to create a seamless transaction platform - execute

trades through Indiabulls Securities and settle these transactions through the Indiabulls

Depository Services. Indiabulls Depository Services is part of our value added services for

our clients that create multiple interfaces with the client and provide for a solution that takes

care of all your needs.


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India bulls products

Indiabulls financial services Ltd.

Indiabulls Financial Services Ltd is listed on the National Stock Exchange, Bombay Stock

Exchange and Luxembourg Stock Exchange. The market capitalization of Indiabulls is

around USD 3,330 million (30th September 2007). Consolidated net worth of the group is

around USD 950 million (30th September 2007). Indiabulls and its group companies have

attracted more than USD 800 million of equity capital in Foreign Direct Investment (FDI)

since March 2000. Some of the large shareholders of Indiabulls are the largest financial

institutions of the world such as Fidelity Funds, Goldman Sachs, Merrill Lynch, Morgan

Stanley and Farallon Capital.

Business of the company has grown in leaps and bounds since its inception. Revenue of the

company grew at a CAGR of 159% from FY03 to FY07. During the same period, profits of

the_company_grew_at_a_CAGR_of_184%.

Indiabulls became the first company to bring FDI in Indian Real Estate through a JV with

Farallon Capital Management LLC, a respected US based investment firm. Indiabulls has

demonstrated deep understanding and commitment to Indian Real Estate market by winning

competitive bids for landmark properties in Mumbai and Delhi.

Consumer Finance

Indiabulls being a retail focused organization fulfills the credit need of a large percentage of

population in India. The key aspect of Indiabulls business model is to provide an extremely

unique customer experience. The blend of power of the Internet with personalized services

allows Indiabulls to expand its geographical coverage and capture a greater share in the

highly competitive retail market. We offer consumer loans, home loans, personal loans,

securities brokerage, and other financial products and services to retail customers from across

640 Indiabulls offices in 127 leading cities of the country.


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Mortgage Loans

Indiabulls has commenced lending of Mortgage Loans to prospective customers under the

flagship of Indiabulls Housing Finance Ltd. Here we enable home-seekers to access finance

to buy their homes. We also provide plot loans, Loan against Residential, Commercial and

Rental Property, thereby enabling the borrower to leverage the property owned to fund any

legitimate needs be it Business Expansion, Child's Education, Child's Marriage or for Holiday

Abroad.


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Real Estate

Indiabulls Real Estate Limited (IREL) with projects covering a total land area in excess of

10000 acres is one of the largest listed real estate companies in India and a leading national

player across multiple realty and infrastructure sectors. IREL projects include High-end

Office and Commercial Spaces, Premium Residential Developments, Integrated Townships,Luxury Resorts and Special Economic Zones. IREL is partners with internationally renowned

consultants and construction companies for its developments at various stages of execution.

Indiabulls Power Services Limited (IBPSL)

Founded in September 2007, Indiabulls Power Services Limited (IBPSL) is part of Indiabulls

Group. IBPSL has been founded as a subsidiary of Indiabulls Real Estate Limited (IBREL).

Indiabulls has ventured into the power business to take advantage of the opportunitypresented by the huge gap in Demand and Supply of power in India. With Electricity Act


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2003 easing the regulatory environment and with State Utilities becoming financially healthy

over the last couple of years, private participation in the Power Sector is booming, providing

excellent opportunities for investment and nation building.

The National Electricity Policy (NEP) notified in 2005 has envisaged an ambitious target of

creation of 5% spinning reserve by 2012. This requires obliteration of energy shortage across

the country. However, even after one year of NEP notification, the statistics diverge

significantly from what is envisaged. Instead of reduction in peak and energy shortages, they

have increased significantly. In fact for the period between April 2006 and May 2006 energy

shortage and peak shortage in the country were 10.7% and 13.1% respectively.

Indiabulls Wholesale Services Ltd (IBWSL)

Founded in mid 2007, Indiabulls Wholesale Services Limited (IBWSL) is a part of Indiabulls

Group, one of the top 25 business houses in India with a combined market capitalization of

over US$ 7.5 billion across different businesses. IBWSL has been founded as a subsidiary of

Indiabulls Real Estate Limited (IBREL). The company has been formed to take advantage of

the massive organized retail opportunity that is available in India, Some key facts about the

Indian retail industry:

1. Retail is Indias largest industry, accounting for over 10 per cent of the countrys

GDP and around eight per cent of the employment.

2. The market size of Indian retail industry is about US $312 billion to grow to US $ 425

billion by 2010.

3. Organised retailing comprises only 2.8 per cent / US $ 9 billion of the total retailing

market.

4. The organised retail sector is expected to grow to a US $ 70 billion market by 2010.


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IBWSL managed by highly qualified professionals having years of experience in organised

retail and related industries is very well positioned to be the top player in the Indian retail

industry, some of the factors that contribute to achieving this goal are:

1. Strong Pan-India presence planned with big box retail stores, cash and carry

operations, with hypermarkets and specialty stores to follow.

2. First phase of 5 wholesale cash & carry stores to be launched in early 2008.

3. An investment of Rs. 1,500 crores (US $ 325 million aprox) will fuel the first phase of

the retail foray for IBWSL.

4. Partnerships with top International Brands, Retailers and Investors will offer access to

world class goods in India.

5. Full fledged destination retailing which includes multiplexes, gaming/ fitness, food

court facilities etc


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GROWTH &ACHIEVMENTS

GROWTH OF INDIABULLS


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Indiabulls real estatePvt ltd

India bullsinsurance

Advisory Pvt ltd

India bulls creditServices ltd

Indiabulls securitiesPvt ltd

Indiabulls financial services ltd


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2000-01 Indiabulls Financial Services Ltd. established Indias one of the first

trading platforms with the development of an in house team.

2001-03 Indiabulls expands its service offerings to include Equity, F&O,

Wholesale Debt, Mutual fund, IPO distribution and Equity Research.

2003-04

Indiabulls ventured into Insurance distribution and commodities trading.

Company focused on brand building and franchise model.

2004-05

Indiabulls came out with its initial public offer (IPO) in September 2004.

Indiabulls started its consumer finance business

Indiabulls entered the Indian Real Estate market and became the first

company to bring FDI in Indian Real Estate.

Indiabulls won bids for landmark properties in Mumbai.

2005-06

Indiabulls has acquired over 115 acres of land in Sonepat for residential

home site development.

Merrill Lynch and Goldman sac, one of the renowned investment banks in

the world have increased their shareholding in Indiabulls.

Indiabulls is a market leader in securities brokerage industry, With around

31% share in online trading,

Farallon Capital and its affiliates, the worlds largest hedge fund

committed Rs. 2000 million for Indiabulls subsidiaries Viz. Indiabulls

Credit Services Ltd. and Indiabulls Housing Finance Ltd.

Steel Tycoon Mr. LN Mittal promoted LNM India Internet venture Ltd.

acquired 8.2% stake in Indiabulls Credit Services Ltd.


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2006-07

Indiabulls entered in a 50/50 joint venture with DLF, Kenneth Builders

& Developers (KBD). KBD has acquired 35.8 acres of land from Delhi

Development Authority through a competitive bidding process for Rs 450 crore

to develop residential apartments.

Indiabulls Financial Services Ltd. is included in the prestigious Morgan

Stanley Capital International Index (MSCI).

Farallon Capital has agreed to invest Rs. 6,440 million in Indiabulls Financial

Services Ltd.


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GEOGRAPHICAL AREA COVERAGE

Indiabulls starts its journey in year 2001 with a registered office in New Delhi. Year 2003

describe that it have only 25 branches in India .But now it reaches 414 branches in June

2006.It shows its continuously growth.

INCREASE IN NO. OF RMS

0

100

200

300

400

500

600

700

800

900

'03 March '04 March '05 March '05 June '06 June '07 June '08 June

'03 March

'04 March

'05 March

'05 June

'06 June

'07 June

'08 June


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Indiabulls is serious about maintaining the relations with the customer and that is why they

appointed the relationship managers within their premises to offer the best and delightful

services to the customer.

Increased penetration of customers through RMs

124

476

1,893

3,187

4,000

970

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

Mar-03 Mar-04 Mar-05 Jun-05 Jun-06 Jun-08


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SWOT ANALYSIS OF INDIABULLS

A tool that identifies the strengths, weaknesses, opportunities and threats of an organization.

Specifically, SWOT is a basic, straightforward model that assesses what an organization can

and cannot do as well as its potential opportunities and threats. The method of SWOT

analysis is to take the information from an environmental analysis and separate it into

internal (strengths and weaknesses) and external issues (opportunities and threats). Once this

is completed, SWOT analysis determines what may assist the firm in accomplishing its

objectives, and what obstacles must be overcome or minimized to achieve desired results.

1. STRENGTHS

NATIONAL PRESENCE: Indiabulls has a national presence. It has an advantage

over the local players like master capital and competent Finman because Indiabulls can

also cater to the needs of the investors in other parts of the country. GOODWILL: Due to its national presence, Indiabulls has a very good brand image. It

has its own identity in this particular business.

SERVICES AND PRODUCTS: The survey conducted revealed that the services

provided by the Indiabulls like portfolio management services and marginal funding gives

it a huge advantage over other players competing in the city.

Indiabulls has got a very wonderful and powerful software.


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2. WEAKNESSES

ACCOUNT OPENING CHARGES: Today's scenario is very competitive. All other

competitors are taking very nominal charges for the account opening but the accountopening charges are quite high as compared to its competitors. So, its it major weakness.

BROKERAGE: The brokerage charges are a little bit high than the competitors. So it

is facing a stiff competition from its competitors.

3. OPPORTUNITY

HUGE UNTAPPED MARKET: Inspite of its national presence, there is quite huge

untapped market. So they can expand its business.

BANKING SECTOR: Indiabulls has entered into banking sector. They are into

personal loans.

4. THREATS

SEBI GUIDELINES: If SEBI give certain guidelines, which can adversely affect the

Indiabulls, it can prove to be major threat.

COMPETITORS: The competitors like Kotak Securities are the major threat to

Indiabulls at the National level. But in Chandigarh other local players like Competent

Finman is the major threat to its business.


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ANALYSIS OF THE SURVEY

SAMPLE SIZE: 50

A survey was conducted to know the rationale and psyche of the investors in the Chandigarh

city in various broker firms. This survey was conducted for 7 days and data was collected.

The questionnaire was designed in such a way that we can easily come to know about how

investors invest in the security and how other broker firms lack behind India Bulls and how

they are ahead of India Bulls. The suggestions will be given to India Bulls on the basis of the

survey conducted and also the plus points of India Bulls will be told to them so that they can

concentrate on those points and can grasp more market share in Chandigarh city and nearby

places.

The survey was conducted all over Chandigarh and survey consist if 60% serviceman, 20%

others like retired persons, small retailers and rest 20% were businessman. I asked the

executives that only service class people invest. They told that generally businessmen don't

come to their places. They place their orders from their place only and they come very rare.

OCCUPATION OF THE INVESTORS

SERVICEMAN

BUSINESSMAN

OTHERS

Fig.10

Next, they were asked about the brokerage they pay to their brokers.

Some were paying according to the norms fixed by the brokerage firm and some had

negotiated according to the volume and their negotiation skills. But the investors surveyed of

HDFC on-line were paying as mentioned in their brochure.

investors surveyed of HDFC on-line were paying as it is as mentioned in their brochure.

The most of the investors were approached by the respective executives and rests were

recommended by their friends. They told me that executives on the recommendation of the

investor give a call to the potential investors and they approach in this way to the investors.


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The survey conducted consisted of 40 investors covering main brokerage firms operating in

the city. This includes India Bulls Securities Itd (20%) Competent Finman (20%), HDFC on-

line (10%), Master Capital (20%), Kotak Securities (20%), and Net Worth (10%)

MARKET SHARE OF EACH BROKERAGE FIRM

COMPETENT FINMAN

HDFC ON-LINE

MASTER CAPITAL

KOTAK SECURITIES

NET WORTH

INDIABULLS

SECURITIES LTD

Fig.11

The next aspect on which the survey was conducted was to know which income group

generally invest in the share market. To solve this problem the whole group was divided into

the income group of less than 1 lakh, 1-1.5 lakh, 1.5-2.5 lakh and more than 2.5 lakh.

Only 10% of the investors surveyed were having their family an income of less than 1 lakh

and they invest in share market. The value of their portfolio was around Rest 20,000

20% of the investors surveyed were having their family annual income between 1-1.5 lakh.

On an average, the market value of their portfolio on an average varies in between Rs 40,000-

Rs 60,000. They are bothered about ups and downs in the market but are little less bothered

as compared to the income group of less than Rs 1 lakh. They invest in small caps and mid

cap companies like NIPPON, IFCI etc.

20% of the investors surveyed belong to the income group having family annual income

between 1.5 lakh-2.5 lakh. On an average the market value of the portfolio varies between Rs

60,000-Rs 1,20,000. They invest in mid caps and sometimes in some big companies like

Infosys etc.

Rest 50% of the investors belong to the income group having family annual income of more

than 5 lakh. The average market value of the portfolio varies in between Rs 1,20,000- Rs


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2,50,000. They invest in those companies which have high reputation in the market and gives

good returns.

The investors were asked whether they invest from their regular earnings or income from

other sources? They said we invest when we get some earnings from other sources like some

money from L1C and bank interests etc.

10% less than 1 lakh20% 1-1.5 lakh20% 1.5-2.5 lakh50% more than 2.5lakh

INCOME OF THE INVESRTORS SURVEYED

10%

20%

20%

50%

Fig.12All the investors (surveyed) have Initial Public Offerings (IPO) and secondary markets as

their preference avenues for the investment. They are interested in Intra-day settlement and

short term investment. Very few are interested in long term investment.

The major difference lies in the services provided by the brokerage firm. The product

delivered is same but services provided by one firm distinguish it from other company. Here,

India Bulls is having the advantage because it is providing Financial Statements, Advisory

Services, Margin Funding and Portfolio Management Services. But some of the brokerage

firms are lacking behind in some of the services like HDFC is not providing any advisory

services and Margin Funding. Competent Finman is not providing Margin Funding and

Portfolio management services.


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Questionnaire was designed in such a way that investors were asked to rank the services

being provided to them as 1,2,3,4 etc. Majority of the investors rank advisory services and

margin funding as their priority. Very few investors invest on basis of fundamental analysis

and on the recommendation of the friend. They generally invest on the basis of the news and

on the recommendation of the broker.

The investors surveyed have portfolio varying from as low as Rs 10,000 to as high of Rs 15,

00,000. 30% of investors were having their portfolio of less than Rs 50,000. 20% of the

customers are having their portfolio ranging from Rs50, OOO-Rs 1, 00,000. 30% of the

investors were having their portfolio in between the range of Rs 1, 00,000- Rs 2, 50,000. 20%

of the investors were having their portfolio of more than Rs 2,50,000.

All the investors know that there are some other broker firms operating in the city. The main

advantage for India Bulls is that all the investors know that it is Operating in the city. 70% of

the customers are ready to shift to other broker firms if they will be provided with better

services.

30% -Less than 50,00020%-50,000-1,00,00020%-1,00,000-2,50,00020%-more than 2,50,000

VALUE OF THE PORTFOLIO OF I NVESTORS

SURVEYED

30%

20%

30%

20%

Fig.13


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CHAPTER 3

DATA BASE AND RESEARCH METHODOLOGY


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DATA BASE AND RESEARCH METHODOLOGY

OBJECTIVE OF THE PROJECT

The project is undertaken with the following objectives:

1. To know how on-line trading takes place.

2. To know the rationale and psychology of the investors, how they invest and what are

The ravenues for the investment.

3. To conduct fundamental analysis in Indian Stock Market.

METHODOLOGY

During the training period the operations of online trading was known from the Relationship

Manager. For the purpse of second objective i.e. investors analysis questionnaire were got

filled from 50 investors. The brief summary is shown in table below:

SAMPLE SIZE 50

SAMPLE METHOD Convenience sampling

POPULATION WORKING CLASS, BUSINESS

CLASS & RETIRED PERSONS

For the purpose of conducting fundamental analysis the data related to companies,

industry and economy were collected for 4 years starting from 2004-05 to 2007-08.

Various financial and statistical techniques like CAPM, ratio analysis, Cash Flow

analysis, percentage analysis.

METHOD OF COLLECTING DATA AND THEIR SOURCES

1. Guidance from Project guide and Company guide.

2. Referring to previous projects done.

3. Discussions with other SIP trainees doing training in the same area.4. From websites of respective companies.


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SCOPE

This project gives me ample scope to know the share market and know the psychology of the

investors residing in Chandigarh and nearby places. But the scope was limited to certain

shares only and also some of the techniques were used. The project has allowed me to learn

the various aspects of the share market and various tools which can be applied to know the

different aspects of buying and selling.

LIMITATIONS

1. Only certain indicators were applied to certain shares which not hard and fast rules

which can be applied while is buying the shares.

2. Investors of only Chandigarh and nearby places were covered.

3. As a trainee, limitation of analyzing and interpreting the data.

4. Time constraint was the main hurdle in conducting survey and taking out the ratios.

5. People don't respond in a very good manner and they don't give time for filling up the

questionnaires.

6. Only dividend discount model and CAPM model has been applied for valuation of the

shares.


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CHAPTER IV

WORK DONE DURING TRAINING PERIOD


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WORK DONE DURING TRAINING PERIOD

During the training period following procedure for online training was learnt

LOGON:

First of all, the requirement for trading is to log on Indiabulls has its software Power India

Bull (PIB) which makes the trading possible.There are two types of transactions-

1) Buy

2) Sell

BUY TRANSACTION

Check the buying limit

In the buying transaction, the system will check the buying limit of the buyer after checkingthe balance. If there is sufficient balance in the account only then the PIB will proceed further

otherwise it will display that the client has insufficient balance to execute the balance.

Placement of order

After checking the limit, the customer places the order in accordance with limit

available in his account. If still customer places order above the limit the reason for rejection

will be displayed immediately.

Order accepted

The order if accepted it will be transmitted to the exchange for the execution. On

execution of the transaction the confirmation message is displayed on the screen if the price

strikes. But if the price doesn't strikes it will remain pending. If the customer feels to modify

the price, it can modify anytime before the striking of the desired price. If the order is

confirmed, it is flashed on the screen. On execution the confirmation may be sent to the

customer mobile or email or contract note may be sent to the customer by hand.


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SELL TRANSACTION

In case of the sell transaction, the procedure is more or less same. First of all the

software will check the DP accounts for the quantity.

Reject order

The order may be rejected if more number of shares has been entered than it has been

in the DP account. The reasons for the same will be flashed on the computer screen.

Accept order

If the order is accepted the order will be transmitted to exchange for the execution.The investor can give the price of its own or it may sell at the market price. If he has given

his own price the order will remain pending until and unless the price strikes.

Pending order

If the price doesn't strike the order will remain pending and if investor feels at any

point before the striking of the price to change the offer price he can modify or even delete

the transaction.

Confirmation of the order

If the order is confirmed it is immediately flashed on the screen. On execution the

confirmation may be sent to the customer mobile or email or contract note may be sent to the

customer by hand.


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CHAPTER-V

DATA ANALYSIS&

INTERPRETATION


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Ques) How did you come to know about your stock broking firm?

Table 1

Fig.1

INTERPRETATION

particulars percentage

Newspaper 8%

Friends 48%

Executive 28%

others 16%

FIRM'S

8%

48%28%

16%

Newspapers

Friends

Executive

others


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lakh which make them a good target customers for the stock broking firms though people

with comparatively less annual income have been doing investments.

Ques) What is your preference avenue for investment?

Table 3

particulars Percentage

Initial publicofferings(IPO)

24%

Trading market 31%

Mutual funds 45%

Fig.3

INTERPRETATION

The above figure depicts that most preferred avenue is Mutual funds, followed by IPOs andTrading markets.

AVENUE FOR INVESTMENT

24%

31%

45%

Initial public offerings(IPO)

Trading market

Mutual funds


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Ques) You are more interested in?Table 4

Fig.4

FIELD OF INTEREST

31%

42%

27% Intraday

Long term

Short term

INTERPRETATION

It can be easily inferred from the above diagram that respondents are investing for long-term

as compared to other time periods. It has also been observed that intraday transactions are

gaining popularity.

particulars Percentage

Intraday 31%Short term 42%

Long term 27%


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Ques) How do you trade?

Table 5

Particulars Percentage

Through phone 34%

Through internet 42%

By visiting broker firm

yourself

24%

Fig.5

TRADING

34%

42%

24%

Through phone

Through internet

By visiting broker firm

yourself

INTERPRETATION

Evidently, people being technology friendly; prefer online trading. The above pie chart shows

that 42% of respondents prefer online trading followed by call and trade 34%.


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Ques) On what basis do you buy a scrip?

Table 6


On the recommendation

of the broker

32%

Fundamental analysis 11%


of your friend

15%

Yourself 17%

On the basis of news 25%

Fig.6

BUYING OF SCRIP

32%

11%15%

17%

25%


of the broker

Fundamental analysis


of your friend

Yourself

On the basis of news

INTERPRETATION

It has been observed that 32% respondents buy on the recommendation of their broker.

25% rely on the news and 17% on their friends.


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Ques) What is the value of your portfolio?

Table 7

Particulars percentage

Rs 50,000- Rs 2,00,000 21%

Rs 2,00,000- Rs 5,00,000 38%

Rs 5,00,000- Rs 10,00,000 32%

More than Rs 10,00,000 9%

Fig.7

PORTFOLIO VALUES

21%

38%

32%

9%

Rs 50,000- Rs 2,00,000

Rs 2,00,000- Rs 5,00,000

Rs 5,00,000- Rs

10,00,000More than Rs 10,00,000

INTERPRETATION

It is evident from above data and figure that 38% respondents portfolio value falls

between 2,00,000-5,00,000. Whereas with 32% portfolio value of respondents are not far

behind. This means that respondents believe in high value portfolio.


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Ques) Are you satisfied with the services of the current broker firm?

Table 8

Fig.8

SERVICE OF BROKER'S

Yes

72%

No28%

Yes

No

INTERPRETATION

72% of respondents are satisfied with services of current broker firm.


Yes 72%

No 28%


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Ques ) If some other broker firm promises you to provide better services will you shift to

that firm?

Table 9

Particula

r

percentage

Yes 26%

No 65%

Can't say 11%

Fig.9

SHIFT TO OTHER FIRM'S

25%

64%

11%

Yes

No

Can't say

INTERPRETATION

Majority of respondents are not ready to shift which depicts that they are satisfied with

the services of broker.


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CHAPTER-VI

FUNDAMENTAL ANALYSIS


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oriented companies. A defensive strategy might involve the purchase of consumer staples,

utilities and energy-related stocks.

To assess a industry group's potential, an investor would want to consider the overall growth

rate, market size, and importance to the economy. While the individual company is still

important, its industry group is likely to exert just as much, or more, influence on the stock

price. When stocks move, they usually move as groups; there are very few lone guns out

there. Many times it is more important to be in the right industry than in the right stock! The

chart below shows that relative performance of 5 sectors over a 7-month time frame. As the

chart illustrates, being in the right sector can make all the difference.

Narrow Within the Group

Once the industry group is chosen, an investor would need to narrow the list of companies

before proceeding to a more detailed analysis. Investors are usually interested in finding the

leaders and the innovators within a group. The first task is to identify the current business and

competitive environment within a group as well as the future trends. How do the companies

rank according to market share, product position and competitive advantage? Who is the

current leader and how will changes within the sector affect the current balance of power?

What are the barriers to entry? Success depends on an edge, be it marketing, technology,

market share or innovation. A comparative analysis of the competition within a sector will

help identify those companies with an edge, and those most likely to keep it.


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Company Analysis

With a shortlist of companies, an investor might analyze the resources and capabilities within

each company to identify those companies that are capable of creating and maintaining a

competitive advantage. The analysis could focus on selecting companies with a sensible

business plan, solid management and sound financials.

Business Plan

The business plan, model or concept forms the bedrock upon which all else is built. If the

plan, model or concepts stink, there is little hope for the business. For a new business, the

questions may be these: Does its business make sense? Is it feasible? Is there a market? Can a

profit be made? For an established business, the questions may be: Is the company's directionclearly defined? Is the company a leader in the market? Can the company maintain

leadership?

Management

In order to execute a business plan, a company requires top-quality management. Investors

might look at management to assess their capabilities, strengths and weaknesses. Even the

best-laid plans in the most dynamic industries can go to waste with bad management (AMD

in semiconductors). Alternatively, even strong management can make for extraordinary

success in a mature industry (Alcoa in aluminum). Some of the questions to ask might

include: How talented is the management team? Do they have a track record? How long have

they worked together? Can management deliver on its promises? If management is a

problem, it is sometimes best to move on

Financial Analysis

The final step to this analysis process would be to take apart the financial statements and

come up with a means of valuation. Below is a list of potential inputs into a financial

analysis.


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Accounts PayableAccounts ReceivableAcid RatioAmortizationAssets - CurrentAssets - FixedBook ValueBrandBusiness CycleBusiness IdeaBusiness ModelBusiness PlanCapital ExpensesCash FlowCash on hand

Current RatioCustomer RelationshipsDays PayableDays ReceivableDebtDebt StructureDebt:Equity RatioDepreciationDerivatives-HedgingDiscounted Cash FlowDividend

Dividend Cover EarningsEBITDAEconomic GrowthEquityEquity Risk PremiumExpenses

Good WillGross Profit MarginGrowthIndustryInterest Cover InternationalInvestmentLiabilities - CurrentLiabilities - Long-termManagementMarket GrowthMarket Share

Net Profit MarginPageview GrowthPageviews

PatentsPrice/Book ValuePrice/EarningsPEGPrice/SalesProductProduct PlacementRegulationsR & DRevenuesSector

Stock OptionsStrategySubscriber GrowthSubscribersSupplier RelationshipsTaxesTrademarksWeighted Average Cost of Capital

The list can seem quite long and intimidating. However, after a while, an investor will learn

what works best and develop a set of preferred analysis techniques.

There are many different valuation metrics and much depends on the industry and stage of

the economic cycle. A complete financial model can be built to forecast future revenues,

expenses and profits or an investor can rely on the forecast of other analysts and apply

various multiples to arrive at a valuation. Some of the more popular ratios are found by

dividing the stock price by a key value driver.


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Ratio

Price/Book ValuePrice/EarningsPrice/Earnings/GrowthPrice/SalesPrice/SubscribersPrice/LinesPrice/Page viewsPrice/Promises

Company Type

OilRetail

NetworkingB2BISP or cable companyTelecomWeb site Biotech

This methodology assumes that a company will sell at a specific multiple of its earnings,

revenues or growth. An investor may rank companies based on these valuation ratios. Those

at the high end may be considered overvalued, while those at the low end may constitute

relatively good value.

Putting it All Together

After all is said and done, an investor will be left with a handful of companies that stand out

from the pack. Over the course of the analysis process, an understanding will develop of

which companies stand out as potential leaders and innovators. In addition, other companies

would be considered laggards and unpredictable. The final step of the fundamental analysis

process is to synthesize all data, analysis and understanding into actual picks.


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EECONOMIC ANALYSIS

ANALYTICAL FRAMEWORK FOR COMMON STOCK

of analysis. The primary motive for buying a stock is to sell it subsequently at a higher price.

In many cases, dividends will be expected also. Dividends and price changes are the principal

ingredient~ in what investors regard as return or yield.

If an investor had impeccable information and insight about dividends and stock prices over

subsequent periods, he would be well on his way to great riches. But the real world of

investing is full of political, economic, social, and other forces that we do not understand

sufficiently to permit us to predict anything with absolute certainty. Forces intermix and flow

at crosscurrents. Nothing is static.

For the security analyst, what primary influences will determine the dividends to be paid on a

stock in the future and what the stock price will be in the future are the ultimate questions to

be answered. A logical systematic approach to estimating future dividends and stock price is

indispensable.

The framework we will be using is the economic-industry-company approach, or the E-I-C

framework. This approach is sometimes referred to as a "top-down" method

ECONOMIC AND INDUSTRY ANALYSIS

King observed that, on the average, over half the variation in a stock's price could be

attributed to a market influence that affects all stock-market indexes, such as the Dow Jones

Industrial Average or the S&P 500 Stock Index.! But stocks are also subject to an industry

influence, over and above the influence common to all stocks. King noted that this industry

influence explained, on the average, about 13 percent of the variation in a stock's price. In

sum, about two-thirds of the variation in the prices of stocks observed in King's study was

the result of market and industry influences or factors. King actually examined only about

sixty companies, so it is dangerous to extrapolate from this small sample/to a generalization

about all stocks. However, although the amount of variation in a stock's price attributable to

the market may be more or less than the percentage observed by King, the impact of a

common market influence is obviously something to contend with.


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The significance of these conclusions seems to be that in order to estimate stock price

changes, an analyst must spend more than a little time probing the forces operating in the

overall economy, as well as influences peculiar to industries he is concerned with. A failure

to examine overall economic and industry influences is a naive error, that of assuming that

individual companies follow their own private paths in a vacuum.

It is important to predict the course of the national economy because economic activity

affects corporate profits, investor attitudes and expectations, and ultimately security prices.

An outlook of sagging economic growth can lead to lower corporate profits, a prospect that

can engender investor pessimism and lower security prices. Some industries might be

expected to hold up better, and stock prices of companies in these industries may not decline

as much as securities in general. The key for the analyst is that overall economic activity

manifests itself in the behavior of stocks in general-or the stock market, if you will. This

linkage between economic activity and the stock market is critical.

Before an investor commits funds in the market, he must decide if the time is right to

invest in securities at all; and if so, he must then decide which type of security to purchase

under the circumstances.2 Thus, he must decide whether to purchase common stocks, options,

preferred stocks, bonds, or some combination thereof. We will explore the relevance of broad

economic variables such as national income and defense expenditures to the investor or

analyst considering the purchase of common stocks. In the process, we will place major

emphasis on the techniques most frequently employed by business economists as they go

about their business of short-term economic forecasting. These are important for the security

analyst or investor to know because he will be utilizing much of the output of the economists'

efforts as a basis for his own opinion about the impending economic environment. In this

respect, the analyst can better evaluate economic forecasts if he has at least some knowledge

of alternative economic forecasting tools-not only the techniques but also their advantages

and shortcomings. The techniques we will examine and evaluate include the use of surveys,

key economic indicators, diffusion indexes, econometric model building, and the

opportunistic model building. First, let us discuss the relationship of economic forecasting to

the stock-investment decision more fully.3


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FORECASTING TECHNIQUES

Short-Term versus Long-Term Economic Forecasts

First, let us define some terms in the manner in which a business forecaster uses them. When

he speaks of ashort-term forecast, he is generally referring to one covering a period of up to

three years, although frequently \1e means a much shorter period, such as a quarter or several

quarters. An intermediate forecastrefers to a three- to five-year period ahead. And finally, a

long-term forecastrefers to a period more than five years, and frequently ten or more years,

in advance.

We noted in an earlier chapter that one of the differences between investment and

speculation is the time horizon of the individual in question. That is, the speculator is

interested in very short-term holds of securities in order to realize quick capital gains. On the

other hand, the investor is interested in situations that will yield adequate returns in both

dividends and capital gains for their risk class over a period of several years. However, we

also observed earlier that even in the true investment situation, the investor or analyst must

constantly review each securitys performance both in an absolute sense and in a relative

sense-relative to the market. Furthermore, he must regularly observe the state of the stock

market, the money and capital markets, and the economy in general in order to ascertain if

basic economic conditions have changed sufficiently to warrant his changing his investment

strategy. This is another reason for viewing the macroeconomic picture-namely, to detect the

relatively most attractive industries at a given moment. Thus, even for the pure investor with

a long time horizon, we see that this long period is broken into several short-term periods. In

other words, his initial long-term forecast can be broken down into a series of short-term

forecasts that are constantly reviewed and revised. Therefore we will focus on a one-year

horizon throughout our analysis.

In this chapter we will discuss only short-term forecasting techniques, realizing that

when these various short-term forecasts are put side by side, they constitute a check for

consistency with an independently arrived-at long-term forecast.


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.

INDUSTRY ANALYSIS

Investing is a business of relative changes. When the econ. omic outlook is assessed,

along with the direction of changes in the overall market for stocks, the analyst must realizethat even though industry groups and/or individual companies may find it difficult to "buck

the trend," they do not necessarily respond to the same degree. For example, it is widely

assumed that heavy-goods industries fare worse in economic recessions than do consumer-

goods industries. Heavy-goods industries include automobiles (and related industries such as

rubber, steel, and glass) and machinery. Consumer-goods and service industries include

utilities (telephone, power), food, and banks. Recessions or expansions in economic activity

may translate into falling or rising stock markets with different relative price changes among

industry groups.

For the analyst, industry analysis demands insight into (1) the key sectors or

subdivisions of overall economic activity that influence particular industries, and (2) the

relative strength or weakness of particular industry or other groupings under specific sets of

assumptions about economic activity. The analyst with an economic forecast that he has

developed from scratch, or a set of figures that he has developed from forecasts prepared by

others, is now ready to apply this information to an appropriate industry. Before

demonstrating this, however, let us look at some definitions of an industry. Webster's

Dictionary defines an industry as "a department or branch of a craft, art, business, or

manufacture." And more specifically:

[a] group of productive or profit-making enterprises or organizations that have a similar

technological structure of production and that produce or supply technically substit1:ltable

goods, services, or sources of income.!

'Webster's Third New International Dictionary (Springfield, Mass.: Merriam, 1966), pp.

1155-56.

Although at first glance these definitions seem neat and clear-cut, they are not. First, it

may seem desirable to break industries down by their products; however, defining a product

is no easy chore.


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SIC CLASSIFICATION

In order to provide an organized reporting framework for the vast amount of data

collected by the federal government, the Standard Industrial Classification (SIC) was

developed. The following passage from the SIC Manual describes the system. The SIC is thestatistical classification standard underlying all establishment based federal economic

statistics classified by industry. The SIC is used to promote the comparability of

establishment data describing various facets of the U.S. economy. The classification covers

the entire field of economic activities and defines industries in accordance with the

composition and structure of the economy. It is revised periodically to reflect the economy's

changing industrial organization

Agriculture, forestry, and fishingMiningConstructionManufacturingTransportation, communications, electric,gas, andSanitary servicesWholesale trade-durable goods RetailtradeFinance, insurance, and real estateServices

Public administration No classifiableestablishments

MAJOR GROUPS

01-09

10-14

15-17

20-39

40-49

50-51

52-59

60-67


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INDUSTRIAL DIVISION

The major groups detailed in the table and identified by two-digit codes are further

subdivided into three-digit industry groups and, finally, into four-digit industries. Forexample, under industrial division G, retail trade, major group 57 is home furniture,

furnishings, and equipment stores, industry group 571 is home furniture and Furnishings

stores; this consists of industry numbers 5712, furniture stores; 5713, floor covering stores;

5714, drapery, curtain, and upholstery stores; and 5719, miscellaneous home furnishings

stores.

Using SIC codes, industry information, such as the number of firms classified in the industry,

number of employees, value of shipments, and capital expenditures, can be found and

analyzed. This information is useful in detecting changing industrial patterns and

developments over time, such as expansion or contraction of the industry. Although the

census provides valuable information to the industry analyst, it is not without its drawbacks.

For example, the methodology employed in classifying firms into the various categories is

not consistent over the entire spectrum of the U.S. economy


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THE ECONOMY AND THE INDUSTRY ANALYSIS

In the preceding chapter we saw how various techniques of economic forecasting could

be brought to bear upon the investment decision. Specially we observed how variousapproaches could be used to forecast components of gross national product and we noted that

for the investment decision it was often as significant to predict the direction of any change

in these sectors as it was to predict their actual level. An example or two will highlight this

concept.

When the GNP is growing, unemployment is relatively low (4 to 5 percent), and the

general economic climate is optimistic; an economic forecast based upon any of the

approaches already discussed would probably show high and increasing levels of

expenditures on consumer durables, inventory, and plant and equipment Because business is

buoyant and it is generally expected that this will continue, businessmen accumulate

inventory in anticipation of still higher sales levels, and they also increase their capacity

through plant and equipment expenditures. At the same time, on the consumer's side of the

market, individual households are experiencing high levels of personal discretionary income

(income available for luxuries), and they are free to spend some of this money on such things

as residential housing, automobiles, and other consumer durables. Indeed, if prior economic

periods had been far less booming than those just described, expenditures on various

durables, having been postponed, could now become exaggerated.

It would be desirable at such a time to buy securities of firms in industries most likely to

benefit from these purchasing patterns. As you will recall i nthe opportunistic-model-building

approach, the forecaster would arrive at specific estimates of the broad categories we have

just mentioned. It is easy to see how such an economic forecast can be helpful, not only in

selecting industries that will benefit in a period of general economic prosperity but also in

selecting those that will benefit in periods when only certain sectors of the economy are

expanding. Much academic research has substantiated the importance of sound industry

analysis to successful investment analysis. Examples of the latter type would be defense

industries in a period when the federal government is boosting the economy through large

national-defense expenditures, and also those industries that will be hurt least during a period

of economic downswing-such as those producing food, something that is always necessary.

Another way of gauging the economy's performance with special regard to specific


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industry classifications is to examine regularly the statistics contained in the monthly

Federal Reserve Bulletin. By examining the behavior of the various series over time, the

analyst can gain insights into important economic developments in many industries and

important industry sub sectors. An increase in manufacturing could necessitate additional

capital spending to add overall manufacturing capacity. If additional capacity comes on-line,

price competition could become more prevalent if an occurrence, such as an economic

downturn, results in decreased demand for manufactured products. These are but two of the

possible implications of the noted increase in capacity utilization. Many more undoubtedly

exist Although such tentative conclusions can be derived from even such a superficial

analysis, such observations should be incorporated into the analyst's overall data base of

information.


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INDUSTRY SHARE PRICES

RELATIVE TO INDUSTRY EARNINGS

Having evaluated the various characteristics of past sales and earnings, industry permanence,

government attitude, labor conditions, and industry competitive conditions, the analyst must

ultimately reach a considered investment decision. However, even if all indications are that

the industry has very favorable future prospects, this does not necessarily imply that funds

should be committed to it immediately. A decision to purchase is not made based only on the

current status and future prospects, but also on the current prices of securities in the industry,

their risk, and the returns they promise.

At this point we will refer to only the price consideration. If the price is very high

relative to future earnings growth, these securities might not be a wise investment.

Conversely, if future prospects are dim but prices are low relative to a fairly level future

pattern of earnings, the stocks in this industry might well be an attractive investment.

Frequently, when an industry develops because of technology or some other such reason,

investors become overzealous in their desire to purchase securities of firms in this new

industry. Thus, these share prices are bid to very high levels, with the consequence that the

PIE ratio soars. So it can be seen that the "market psychology" can be a crucial factor in both

raising prices to exorbitant levels and depressing prices to unreasonable levels, depending on

how the market evaluates the industry's future prospects.


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EXTERNAL SOURCES OF INFORMATION

FOR INDUSTRY ANALYSIS

Federal Government

The federal government publishes a wide variety of data that can be useful during the

industry phase of the analysis. It is well worth the time to thumb through the Census of

Manufacturers, Federal Reserve Bulletins, and Survey of Current Business in order to

appreciate more fully the wealth of information, helpful in the economic as well as industry

analysis, available in these government sources. Many private services use these government-

furnished data in their own security-analysis efforts.

Investment Services

Many investment services are available to furnish the investor or analyst with valuable

industry and corporate information. The ones we highlight in this section are perhaps the best

known.

Standard & Poors

Standard & Poor's regularly covers a number of different industries in two ways: a basic

analysis and a current update of the basic analysis. The basic analysis provides an in-depth

report on all facets of the industry and the firms comprising the industry. A revised basic

analysis is published approximately every year. The current update, entitled Current Analysis

and Outlook, is published roughly every quarter.

Standard & Poor's also publishes the Security Price Index Record, containing indexes of

the S&P's groupings, which are helpful when performing an industry analysis.

TRADE PUBLICATIONS

Virtually every major U.S. industry has at least one trade association, which in its

publications reports much data pertaining to the industry it represents. The analyst can locate

these sources, as well as references to various industries in other publications, by checking

the Business Periodicals Index and the Science and Technology Index, as well as secondary

sources already mentioned in this chapter.-


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FINANCIAL POSITION: The BALANCE SHEET

The level, trend, and stability of earnings are powerful forces in the determination of

security prices. This flow of earnings is depicted on the income statement. The stock of

assets and the claims to those assets that provide the fuel for those earnings are revealed on

the balance sheet. The balance sheet shows, at a given point in time, the assets, liabilities, and

owners' equity in a company. It is the analyst's primary source of information on the financial

strength of a company:

Assets include properties and rights to properties, both tangible (such as buildings) andintangible (such as patents and goodwill). Liabilities are debts that are payable on demand or

over specified future periods. They are evidenced by simple invoices or rather lengthy legal

documents, such as mortgages. The equity of stockholders represents the excess of assets

over liabilities at the balance-sheet date.

Modern accounting principles dictate the basis for assigning values to assets.

Liability values are set by contracts. When assets are reduced by liabilities, the "book

value" of stockholders' equity can be determined. This book value invariably differs fromcurrent value in the marketplace because market value is dependent upon the earning power

of assets and not their cost or value in the accounts.

For the most part, the accounting concept of conservatism requires that assets be carried

at original or historical cost when they are first acquired. During subsequent time periods,

they may be valued at cost or market, whichever is lower.

Income statement and reported-earnings problems can stem from the rate at which

assets are written off against related revenues, a matter we discussed under inventory and

depreciation accounting. In addition, the framework of historical cost does not make

reference to the changing purchasing power of the dollar. When inflation occurs, historical-

dollar accounting can be unrealistic and deficient.

First, the income statement fails to express all items in dollars of the same purchasing

power. For example, revenues closely represent current dollars; where FIFO inventory

costing would represent "old" dollars. Needless to say, over time interperiod comparability is

destroyed.

Second, assets and stockholders' equity reflect an admixture of items shown in dollars of


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different purchasing power. For example, FIFO inventory procedure might tend to show

inventories in near-current dollars, but fixed assets may t-e worth many times their carrying

value. These distortions in asset groups are ~ lady reflected in the stockholders' -equity

section of the balance sheet. The erosion of the purchasing power of the dollar affects

measurements using the balance sheet and influences "real" earning power.

Most accounting statements deal with rather arbitrary cutoff points in time.6 Thus,

accounting statements cannot be considered complete without parenthetical references and

notes that not only clarify the data in the body of the statements but also introduce new

information not conveniently admissible within the statements proper.

Quite often, valuation bases for assets are shown next to the item caption or in footnotes.

Parenthetical references should be examined to note where assets have been pledged and the

related liability secured.

Footnotes to the balance sheet often show many of the following items of importance to

the analyze

1. Contingent liabilities for taxes, dividends and pending lawsuits.

2. Particulars on options outstanding, leases, loans, and other financing arrangements.

3. Changes in accounting principles and techniques, including bases of valuation, and

the dollar effect on income.

4. Facts of importance occurring between the balance-sheet data and date ofSI : : : -mission

of statements that might have a material effect on the statements. Examples include

refinancing, proposed mergers, and changes in capitalization

The analyst will find a wealth of information in these parenthetical references .EO.: footnotes

that can shed light on the company under analysis.


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INFOSYS TECHNOLOGIES LTD.


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INFOSYS TECHNOLOGIES LTD.

Infosys Technologies Ltd. (NASDAQ: INFY) was started in 1981 by seven people with US$

250. Today, we are a global leader in the "next generation" of IT and consulting withrevenues of over US$ 4 billion.

Infosys defines, designs and delivers technology-enabled business solutions that help Global

2000 companies win in a Flat World. Infosys also provides a complete range of services by

leveraging our domain and business expertise and strategic alliances with leading technology

providers.

Infosys' service offerings span business and technology consulting, application services,systems integration, product engineering, custom software development, maintenance, re-

engineering, independent testing and validation services, IT infrastructure services and

business process outsourcing.

Infosys pioneered the Global Delivery Model (GDM), which emerged as a disruptive force in

the industry leading to the rise of offshore outsourcing. The GDM is based on the principle of

taking work to the location where the best talent is available, where it makes the best

economic sense, with the least amount of acceptable risk.

Infosys has a global footprint with over 40 offices and development centers in India, China,

Australia, the Czech Republic, Poland, the UK, Canada and Japan. Infosys has over 91,000

employees.

Infosys takes pride in building strategic long-term client relationships. Over 97% of our

revenues come from existing customers.

Vision

"To be a globally respected corporation that provides best-of-breed business solutions,

leveraging technology, delivered by best-in-class people."

Mission

"To achieve our objectives in an environment of fairness, honesty, and courtesy towards our

clients, employees, vendors and society at large."
http://www.infosys.com/about/who-we-are/history.asphttp://www.infosys.com/about/who-we-are/history.asphttp://www.infosys.com/flat-world/business/default.asphttp://www.infosys.com/about/alliances/default.asphttp://www.infosys.com/industries/default.asphttp://www.infosys.com/consulting-services/default.asphttp://www.infosys.com/IT-services/application-services/default.asphttp://www.infosys.com/IT-services/systems-integration/default.asphttp://www.infosys.com/engineering-services/product-engineering/default.asphttp://www.infosys.com/engineering-services/default.asphttp://www.infosys.com/engineering-services/default.asphttp://www.infosys.com/IT-services/independent-validation-services/default.asphttp://www.infosys.com/IT-services/infrastructure-services/default.asphttp://www.infosys.com/BPO-services/default.asphttp://www.infosys.com/global-sourcing/global-delivery-model/default.asphttp://www.infosys.com/about/who-we-are/locations.asphttp://www.infosys.com/about/who-we-are/history.asphttp://www.infosys.com/about/who-we-are/history.asphttp://www.infosys.com/flat-world/business/default.asphttp://www.infosys.com/about/alliances/default.asphttp://www.infosys.com/industries/default.asphttp://www.infosys.com/consulting-services/default.asphttp://www.infosys.com/IT-services/application-services/default.asphttp://www.infosys.com/IT-services/systems-integration/default.asphttp://www.infosys.com/engineering-services/product-engineering/default.asphttp://www.infosys.com/engineering-services/default.asphttp://www.infosys.com/engineering-services/default.asphttp://www.infosys.com/IT-services/independent-validation-services/default.asphttp://www.infosys.com/IT-services/infrastructure-services/default.asphttp://www.infosys.com/BPO-services/default.asphttp://www.infosys.com/global-sourcing/global-delivery-model/default.asphttp://www.infosys.com/about/who-we-are/locations.asp


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Values

We believe that the softest pillow is a clear conscience. The values that drive us underscore

our commitment to:

Customer Delight: To surpass customer expectations consistently

Leadership by Example: To set standards in our business and transactions and be an

exemplar for the industry and ourselves

Integrity and Transparency: To be ethical, sincere and open in all our transactions

Fairness: To be objective and transaction-oriented, and thereby earn trust and respect

Pursuit of Excellence: To strive relentlessly, constantly improve ourselves, our teams, our

services and products to become the best

A Magnet for the Best Global Talent

Fortune magazine identified Infosys among the top companies that "inspire, nurture and

empower a new generation of global leaders." We are committed to remain among the

industry's leading employers.

Quality Focus

'In God we trust, everyone else must come with data' is an oft-heard phrase at Infosys. We

constantly benchmark our services and processes against globally recognized quality

standards. Our certifications include SEI-CMMI Level 5, CMM Level 5, PCMM Level 5, TL

9000 and ISO 9001-2000. In February 2007, Infosys BPO was certified for eSCM level 4.0,

the eSourcing Capability Model for Service Providers developed by a consortium led by

Carnegie Mellon University's Information Technology Services Qualification Centre.

Innovation, Speed and Excellence in Execution

We were one of the first companies to develop and deploy a global delivery model and attain

SEI-CMMI Level 5 certification our offshore and onsite operations. We manage growth by

investing in infrastructure and by rapidly recruiting, training and deploying new

professionals. We have 44 global development centers, the majority of which are located in

India. We also have development centers in Australia, Canada, China, Japan, Mauritius, and
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