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Fundamental analysis and technical analysis of unitech project report
 

Fundamental analysis and technical analysis of unitech project report

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Fundamental analysis and technical analysis of unitech project report

Fundamental analysis and technical analysis of unitech project report

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    Fundamental analysis and technical analysis of unitech project report Fundamental analysis and technical analysis of unitech project report Document Transcript

    • CONTENTSSI.n Contents Page noo1 Executive Summary 1-42 Introduction to the capital market 5-143 Company Profile 15-37 Theoretical Framework4 Fundamental analysis 384.1 Economic Analysis 39-464.2 Industry Analysis 47-514.3 Company analysis 52-595 Technical analysis 60-766 Findings 77-787 Recommendations 798 Conclusions 809 Bibliography 81 BABASAB PATIL -1-
    • Executive SummaryProject Title : Fundamental Analysis and Technical Analysis of Unitech Ltd.Company and Place: KARVY Stock Broking Ltd. DharwadResearch Process:KARVY Stock Broking Ltd. Is a premier financial services provider & ranked top five inthe country. Recently the capital market crashed because of many reasons investors lostheavy amount But fundamental & Macro factors Indian market is good. Stability inmarket is not there currently therefore some of the investor who lost money in marketcrash, so many of them are shaky to enter into market again. Therefore getting investorconfidence is more important which will happen when the market stabilizes. So for thatmatter broking firms should provide proper guidance to their investors for facilitatingtheir decision making in investments.Research Objectives:Main Objective: To know the future increase and decrease of stock price in selectedcompany stocks through Fundamental And Technical Analysis.Sub Objectives:  To understand how best we can use this analysis is to meet the financial goal of the investors.  To understand the effect of Industry specific factors on the stock prices through Industry Analysis.  To know which securities to be bought and when to be bought.  To know which securities to be sold and when to sell.  To provide investors with a basket of securities to be stay invested to have a sound portfolio. BABASAB PATIL -2-
    • Research Plan:The data collected for the study is secondary data. The data I have used for the study is 1. Historical shares value of the stocks collected from www.nseindia.com 2. The balance sheet and Income statement got from companies web site. 3. Some of the information about the industry is collected from the web site.The Measurement TechniquesThe following techniques are used for the study.1. The bar chart2. Candlestick charting3. Point & figure chart4. Moving average.5. Exponential moving average (EMA)6. The relative strength index (RSI)7. Oscillators (ROC, RSI, MACD,STOCHASTICS)Analysis: Using MS-ExcelFindings:General:  One of the most important areas for any investor to look when researching a company is the financial statement. Financial reports are required by law and are published both quarterly and annually.  Management discussion give investors a better understanding of what the company does and usually points out some key areas where they did well.  Audited financial reports have much more credibility than unaudited ones.  The income statement takes into account some non-cash items such as depreciation. The cash-flow statement strips away all non-cash items and tells you how much actual money the company generated. BABASAB PATIL -3-
    • For Stock:  First, the projected MPS of the stock next three years are Rs.231.05, Rs.286.03 and Rs.352.68.  Short term support for scrip: 265-275; Next support has been established at 150-165.  Long term target by technical analysis is 620-40 but this is unlikely to happen in the medium term because short term trend has been bearish and long term trend has been flat and undergoing long consolidationFor market:  Short term support or intermediate support: 4500-4600; next long term support lies at3100-3150  Resistance for Nifty is at present is at 6000  Short term and intermediate trend has been bearish and long term trend is still bullish.  Long term nifty target is a 6980- 7020.Recommendations:  Long term investors can include Unitech, because the growth rates and earnings are good compared to others stocks. Therefore investors can include this in their portfolio to earn the higher return on their investment.  The Long term investors should buy the stocks fair value found out by the fundamental analysis.  Short term investors should look on various support and resistance of stocks to buy or sell and make profit.Conclusion:  Stock market or capital market provides the industry with a lot of capital needed by the industry, which leads to the growth of the industry and economy as a whole; hence the stock market plays an important role in the development of the industry. BABASAB PATIL -4-
    •  Some times Using Technical and fundamental analysis individually leads to incorrect results hence both Fundamental and technical analysis should be used at a time to get the desired result. Fundamental analysts study everything from the overall economy and industry conditions, to the financial condition and management of companies before deciding on any particular stock. Technical analyst’s look for peaks, bottoms, trends, patterns and other factors affecting a stocks price movement and then make buy/sell decisions based on those factors. BABASAB PATIL -5-
    • INTRODUCTION TO CAPITAL MARKETSIntroduction to Capital MarketsTransfer of resources from those with idle resources to others who have a productive needfor them is perhaps most efficiently achieved through the securities markets. Statedformally, securities markets provide channels for allocation of savings to investments andthereby decouple these two activities. As a result, the savers and investors are notconstrained by their individual abilities, but by the economy’s abilities to invest and saverespectively, which inevitably enhances savings and investment in the economy.Market SegmentsThe securities market has two interdependent and inseparable segments, the new issues(primary market) and the stock (secondary) market. The primary market provides thechannel for sale of new securities while the secondary market deals in securitiespreviously issued. The price signals, which subsume all information about the issuer andhis business including associated risk, generated in the secondary market, help theprimary market in allocation of funds. The issuers of securities issue (create and sell) newsecurities in the primary market to raise funds for investment and/or to discharge someobligation. They do so either through public issues or private placement. There are twomajor types of issuers who issue securities. The corporate entities issue mainly debt andequity instruments (shares, debentures, etc.), while the governments (central and stategovernments) issue debt securities (dated securities, treasury bills).The secondary market enables participants who hold securities to adjust their holdings inresponse to changes in their assessment of risk and return. They also sell securities forcash to meet their liquidity needs. A variant of secondary market is the forward market,where securities are traded for future delivery and payment. Pure forward is out side theformal market. The versions of forward in formal market are futures and options. Infutures market, standardized securities are traded for future delivery and settlement.These futures can be on a basket of securities like an index or an individual security. Incase of options, securities are traded for conditional future delivery. There are two typesof options – a put option permits the owner to sell a security to the writer of options at apredetermined price while a call option permits the owner to purchase a security from the BABASAB PATIL -6-
    • writer of the option at a predetermined price. These options can also be on individualstocks or basket of stocks like index. Two exchanges, namely NSE and BSE providetrading of derivatives of securities.Products and ParticipantsSavings are linked to investments by a variety of intermediaries through a range ofcomplex financial products called “securities” which is defined in the Securities Contracts(Regulation) Act, 1956. Which includes shares, scrip’s, stocks, bonds, debentures,debenture stock, or other marketable securities of like nature in or of any incorporatecompany or body corporate, government securities, derivatives of securities, units ofcollective investment scheme, security receipts, interest and rights in securities, or anyother instruments so declared by the central government These demand for and supply ofsecurities and funds determine, under competitive market conditions in goods andsecurities market, the prices of securities.Securities Market and Economic GrowthA well functioning securities market is conducive to sustained economic growth. Therehave been a number of studies, starting from World Bank and IMF to various scholars,which have established robust relationship not only one way, but also the both ways,between the development in the securities market and the economic growth.The securities market fosters economic growth to the extent that it- • Augments the quantities of real savings and capital formation from any given level of national income, • Increases net capital inflow from abroad, • Raises the productivity of investment by improving allocation of investible funds, and (d) Reduces the cost of capital. BABASAB PATIL -7-
    • International LinkageThe securities market facilitates the internationalization of an economy by linking it withthe rest of the world. This linkage assists through the inflow of capital in the form ofportfolio investment. Moreover, a strong domestic stock market performance forms thebasis for well performing domestic corporate to raise capital in the international market.This implies that the domestic economy is opened up to international competitivepressures, which help to raise efficiency. It is also very likely that existence of a domesticsecurities market will deter capital outflow by providing attractive investmentopportunities within domestic economy.There are also other developmental benefits associated with the existence of a securitiesmarket. • The securities market provides a fast-rate breeding ground for the skills and judgment needed for entrepreneurship, risk bearing, portfolio selection and management. • An active securities market serves as an ‘engine’ of general financial development and may, in particular, accelerate the integration of informal financial systems with the institutional financial sector. Securities directly displace traditional assets such as gold and stocks of produce or, indirectly, may provide portfolio assets for unit trusts, pension funds and similar FIIs that raise savings from the traditional sector. • The existence of securities market enhances the scope, and provides institutional mechanisms, for the operation of monetary and financial policyA Profile of Indian Securities MarketThe past decade in many ways has been remarkable for securities market in India. It hasgrown exponentially as measured in terms of amount raised from the market, number ofstock exchanges and other intermediaries, the number of listed stocks, marketcapitalization, trading volumes and turnover on stock exchanges, and investor population.The market has witnessed fundamental institutional changes resulting in drastic reductionin transaction costs and significant improvements in efficiency, transparency and safety. BABASAB PATIL -8-
    • Securities and Exchange Board of India (SEBI)With the objectives of improving market efficiency, enhancing transparency, checkingunfair trade practices and bringing the Indian market up to international standards, apackage of reforms consisting of measures to liberalize, regulate and develop thesecurities market was introduced during the 1990s. This has changed corporate securitiesmarket beyond recognition in this decade. The practice of allocation of resources amongdifferent competing entities as well as its terms by a central authority was discontinued.The secondary market overcame the geographical barriers by moving to screen-basedtrading. Trades enjoy counterparty guarantee.Bombay Stock Exchange (BSE)Bombay Stock Exchange Limited is the oldest stock exchange in Asia with a richheritage. Popularly known as "BSE", it was established as "The Native Share & StockBrokers Association" in 1875. It is the first stock exchange in the country to obtainpermanent recognition in 1956 from the Government of India under the SecuritiesContracts (Regulation) Act, 1956.The Exchanges pivotal and pre-eminent role in thedevelopment of the Indian capital market is widely recognized and its index, SENSEX, istracked worldwide. With Demutualisation, the trading rights and ownership rights havebeen de-linked effectively addressing concerns regarding perceived and real conflicts ofinterest. The Exchange is professionally managed under the overall direction of the Boardof Directors. The Board comprises eminent professionals, representatives of TradingMembers and the Managing Director of the Exchange.The Exchange has a nation-wide reach with a presence in 417 cities and towns of India.The systems and processes of the Exchange are designed to safeguard market integrityand enhance transparency in operations. During the year 2004-2005, the trading volumeson the Exchange showed robust growth. The Exchange provides an efficient andtransparent market for trading in equity, debt instruments and derivatives. The BSEs OnLine Trading System (BOLT) is a proprietary system of the Exchange and is BS7799-2-2002 certified. The surveillance and clearing & settlement functions of theExchange are ISO 9001:2000 certified. BABASAB PATIL -9-
    • BSE as a brand is synonymous with capital markets in India. The BSE SENSEX is thebenchmark equity index that reflects the robustness of the economy and finance. At parwith international standards, • First in India to introduce Equity Derivatives • First in India to launch a Free Float Index • First in India to launch US$ version of BSE Sensex First in India to launch Exchange Enabled Internet Trading Platform • First in India to obtain ISO certification for Surveillance, Clearing & Settlement • BSE On-Line Trading System’ (BOLT) has been awarded the globally recognized the Information Security Management System standard • First to have an exclusive facility for financial training • Moved from Open Outcry to Electronic Trading within just 50 days • An equally important accomplishment of BSE is the launch of a nationwide investor awareness campaign - Safe Investing in the Stock Market - • In 2002, the name The Stock Exchange, Mumbai, was changed to BSE.National Stock Exchange (NSE)The National Stock Exchange of India Limited has genesis in the report of the HighPowered Study Group on Establishment of New Stock Exchanges, which recommendedpromotion of a National Stock Exchange by financial institutions (FII’s) to provide accessto investors from all across the country on an equal footing. Based on therecommendations, NSE was promoted by leading Financial Institutions at the behest ofthe Government of India and was incorporated in November 1992 as a tax-payingcompany unlike other stock exchanges in the countryOn its recognition as a stock exchange under the Securities Contracts (Regulation) Act,1956 in April 1993, NSE commenced operations in the Wholesale Debt Market (WDM)segment in June 1994. The Capital Market (Equities) segment commenced operations inNovember 1994 and operations in Derivatives segment commenced in June 2000. BABASAB PATIL - 10 -
    • NSE has been promoted by leading financial institutions, banks, insurance companies andother financial intermediaries. NSE is one of the first de-mutualised stock exchanges inthe country, where the ownership and management of the Exchange is completelydivorced from the right to trade on it. Though the impetus for its establishment came frompolicy makers in the country, it has been set up as a public limited company, owned bythe leading institutional investors in the country.The NSE model however, does not preclude, but in fact accommodates involvement,support and contribution of trading members in a variety of ways. Its Board comprises ofsenior executives from promoter institutions, eminent professionals in the fields of law,economics, accountancy, finance, taxation, etc, public representatives.NSE Milestones Nov-92 Incorporation Apr-93 Recognition as a stock exchange May-93 Formulation of business plan Jun-94 Wholesale Debt Market segment goes live Nov-94 Capital Market (Equities) segment goes live Mar-95 Establishment of Investor Grievance Cell Apr-95 Establishment of NSCCL, the first Clearing Corporation Jun-95 Introduction of centralised insurance cover for all trading members Jul-95 Establishment of Investor Protection Fund Oct-95 Became largest stock exchange in the country Apr-96 Commencement of clearing and settlement by NSCCL Apr-96 Launch of S&P CNX Nifty Jun-96 Establishment of Settlement Guarantee Fund Setting up of National Securities Depository Limited, first depository in India, co- Nov-96 promoted by NSE Nov-96 Best IT Usage award by Computer Society of India Dec-96 Commencement of trading/settlement in dematerialised securities Dec-96 Dataquest award for Top IT User Dec-96 Launch of CNX Nifty Junior Feb-97 Regional clearing facility goes live Nov-97 Best IT Usage award by Computer Society of India May-98 Promotion of joint venture, India Index Services & Products Limited (IISL) May-98 Launch of NSEs Web-site: www.nse.co.in Jul-98 Launch of NSEs Certification Programme in Financial Market Aug-98 CYBER CORPORATE OF THE YEAR 1998 award Feb-99 Launch of Automated Lending and Borrowing Mechanism Apr-99 CHIP Web Award by CHIP magazine Oct-99 Setting up of NSE.IT Jan-00 Launch of NSE Research Initiative Feb-00 Commencement of Internet Trading Jun-00 Commencement of Derivatives Trading (Index Futures) BABASAB PATIL - 11 -
    • Sep-00 Launch of Zero Coupon Yield Curve Launch of Broker Plaza by Dotex International, a joint venture between NSE.IT Ltd. Nov-00 and i-flex Solutions Ltd. Dec-00 Commencement of WAP trading Jun-01 Commencement of trading in Index Options Jul-01 Commencement of trading in Options on Individual Securities Nov-01 Commencement of trading in Futures on Individual Securities Dec-01 Launch of NSE VaR for Government Securities Jan-02 Launch of Exchange Traded Funds (ETFs) NSE wins the Wharton-Infosys Business Transformation Award in the Organization- May-02 wide Transformation category Oct-02 Launch of NSE Government Securities Index Jan-03 Commencement of trading in Retail Debt Market Jun-03 Launch of Interest Rate Futures Aug-03 Launch of Futures & options in CNXIT Index Jun-04 Launch of STP Interoperability Aug-04 Launch of NSE’s electronic interface for listed companies Mar-05 ‘India Innovation Award’ by EMPI Business School, New Delhi Jun-05 Launch of Futures & options in BANK Nifty Index Dec-06 Derivative Exchange of the Year, by Asia Risk magazine Jan-07 Launch of NSE – CNBC TV 18 media centre Mar-07 NSE, CRISIL announce launch of IndiaBondWatch.com Jun-07 NSE launches derivatives on Nifty Junior & CNX 100 Oct-07 NSE launches derivatives on Nifty Midcap 50 Jan-08 Introduction of Mini Nifty derivative contracts on 1st January 2008 Mar-08 Introduction of long term option contracts on S&P CNX Nifty IndexDepository SystemThe Depositories Act, 1996 was passed with the objective of ensuring free transferabilityof securities with speed, accuracy and security. It does so by • Making securities of public limited companies freely transferable subject to certain exceptions • Dematerializing the securities in the depository mode • Providing for maintenance of ownership records in a book entry form.In order to streamline both the stages of settlement process, the Act envisages transferownership of securities electronically by book entry without making the securities movefrom person to person. The Act has made the securities of all public limited companiesfreely transferable, restricting the companys right to use discretion in effecting thetransfer of securities, and the transfer deed and other procedural requirements under the BABASAB PATIL - 12 -
    • Companies Act have been dispensed with. Two depositories, viz., NSDL and CDSL, havecome up to provide instantaneous electronic transfer of securities.Capital Market IntermediariesThere are several institutions, which facilitate the smooth functioning of the securitiesmarket. They enable the issuers of securities to interact with the investors in the primaryas well as the secondary arena. • Merchant Bankers • Credit Rating Agencies • R& T Agents - Registrars to Issue • Stock Brokers • Custodians • Mutual Funds • Depositories • Depository ParticipantsPlayers (investors) in securities market • Individual investors • Institutional investors • FII’s • Mutual fund investorCapital Market InstrumentsThe changes in the regulatory framework of the capital market and fiscal policies havealso resulted in newer kinds of financial instruments (securities) being introduced in themarket. Also, a lot of financial innovation by companies who are now permitted toundertake treasury operations, has resulted in newer kinds of instruments - all of whichcan be traded – being introduced. The variations in all these instruments depend on thetenure, the nature of security, the interest rate, the collateral security offered and thetrading features, etc. • Debentures • Bonds • Preference Shares BABASAB PATIL - 13 -
    • • Equity Shares • Government securitiesCapital Market ProcessesThere are various processes that Issuers of securities follow or utilize in order to tap thesavers for raising resources. Some of the commonly used processes and methods aredescribed below. • Initial Public Offering (IPO) • Private Placement • Preferential Offer/Rights Issue • Internet BrokingDependence on Securities MarketThree main sets of entities depend on securities market. While the Corporates andgovernments raise resources from the securities market to meet their obligations, thehouseholds invest their savings in securities. While the corporate sector and governmentstogether raised a sum of Rs. 226,911 crore during 2001-02, the household sector invested4.3% of their financial savings through the securities market during 2000-01.Corporate SectorThe 1990s witnessed emergence of the securities market as a major source of finance fortrade and industry. The share of capital market based instruments in resources raisedexternally increased to 53% in 1993-94, but declined thereafter to 31% by 2000-01.GovernmentsAlong with increase in fiscal deficits of the governments, the dependence on marketborrowings to finance fiscal deficits has increased over the years. The state governmentsand the central government financed about 14% and 18% respectively of their fiscaldeficit by market borrowings during 1990-91. In percentage terms, dependence of thestate governments on market borrowing did not increase much during the decade1991-2002. In case of central government, it increased to 69.4% by 2001-02. BABASAB PATIL - 14 -
    • HouseholdAccording to the RBI data, the household sector accounted for 84.8 % of gross domesticsavings in Fixed income investment instruments during 2006-07; which has increased incomparison to 83.9% in 2005-06. In fiscal 2006-07, the household sector has invested55.7 % of financial savings in deposits, 24.2 % in insurance/provident funds, 4.9 % insmall savings, and 6.5 % in securities market including government securities , units ofmutual funds and other securities.Investor population and profileAccording to the SEBI-NCAER survey of Indian investors conducted in early 1999, anestimated 12.8 million, or 7.6% of all Indian households representing 19 millionindividuals had directly invested in equity shares and/or debentures as at the end offinancial year 1998-99. The investor households increased at a compound growth rate of22% between 1985-86 and 1998-99. About 35% of investor households became investorsin equity shares prior to 1991, while 47% of the investors entered the market between1991 and 1995 and 17% after 1995. More than 156 million or 92% of all Indianhouseholds were non-investor households who did not have any investments inequity/debentures. Low per capita income, apprehension of loss of capital, and economicinsecurity, which are all inter-related factors, significantly influenced the investmentattitude of the households. The lack of awareness about securities market and absence ofa dependable infrastructure and distribution network coupled with aversion to riskinhibited non-investor households from investing in the securities market. BABASAB PATIL - 15 -
    • About KARVYThe Karvy group was formed in 1983 at Hyderabad, India. Karvy ranks among the topplayer in almost all the fields it operates. Karvy Computer share Limited is India’s largestRegistrar and Transfer Agent with a client base of nearly 500 blue chip corporate,managing over 2 crore accounts. Karvy Stock Brokers Limited, member of NationalStock Exchange of India and the Bombay Stock Exchange, ranks among the top 5 stockbrokers in India. With over 6, 00,000 active accounts, it ranks among the top 5 DepositaryParticipant in India, registered with NSDL and CDSL. Karvy COM trade, Member ofNCDEX and MCX ranks among the top 3 commodity brokers in the country. KarvyInsurance Brokers is registered as a Broker with IRDA and ranks among the top 5insurance agent in the country. Registered with AMFI as a corporate Agent, Karvy is alsoamong the top Mutual Fund mobilizer with over Rs. 5,000 crores under management.Karvy Realty Services, which started in 2006, has quickly established itself as a brokerwho adds value, in the realty sector. Karvy Global offers niche off shoring services toclients in the US.Karvy has 575 offices over 375 locations across India and overseas at Dubai and NewYork. Over 9,000 highly qualified people staff Karvy.Karvy – Early DaysKarvy the name comes from the names of the directors:K - Mr. V. Kutumba RaoA - Mr. K Ajay KumarR - Mr. M S RamakrishnaV - Mr. Vikram SinghY - Mr. M YugandharThe birth of Karvy was on a modest scale in 1979. It began with the vision and enterpriseof a small group of practicing Chartered Accountants who founded the flagship company…Karvy Consultants Limited. Karvy started with consulting and financial accountingautomation, and carved inroads into the field of registry and share accounting by 1985.Since then, Karvy have utilized its experience and superlative expertise to go fromstrength to strength…to better its services, to provide new ones, to innovate, diversify and BABASAB PATIL - 16 -
    • in the process, evolved Karvy as one of India’s premier integrated financial serviceenterprise.GROWTH AND DEVELOPMENT OF KARVYOver the last 20 years Karvy has traveled the success route, towards building a reputationas an integrated financial services provider, offering a wide spectrum of services. AndKarvy have made this journey by taking the route of quality service, path breakinginnovations in service, versatility in service and finally…totality in service. Karvy’shighly qualified manpower, cutting-edge technology, comprehensive infrastructure andtotal customer-focus has secured for Karvy the position of an emerging financial servicesgiant enjoying the confidence and support of an enviable clientele across diverse fields inthe financial world.Karvy’s values and vision of attaining total competence in its servicing has served as thebuilding block for creating a great financial enterprise, which stands solid on its fortressesof financial strength - its various companies.With the experience of years of holistic financial servicing behind it and years ofcomplete expertise in the industry to look forward to, Karvy have now emerged as apremier integrated financial services provider.And today, Karvy can look with pride at the fruits of its mastery and experiencecomprehensive financial services that are competently segregated to service and manage adiverse range of customer requirements. BABASAB PATIL - 17 -
    • KARVY-MilestonesAT PRESENT STATUS OF KARVYPresently Karvy is a member of National Stock Exchange (NSE), the Bombay StockExchange (BSE), and The Hyderabad Stock Exchange (HSE). Market analysis andmarket predictions are done by professional management team.KARVY is covering the entire spectrum of financial services such as Stock BrokingServices, Advisory Services, Stock broking, Depository Participants, Distribution offinancial products - mutual funds, bonds, fixed deposit, equities, Insurance Broking,Commodities Broking, Personal Finance Advisory Services, Merchant Banking &Corporate Finance, placement of equity, IPOs, among others.It is the largest mobiliser of funds as per PRIME DATABASE. It is among the top 5stock brokers in India (4% of NSE volumes). Indias No. 1 Registrar & SecuritiesTransfer Agents (Ranked as “The Most Admired Registrar" by MARG). Among the top 3Depository Participants. Largest Network of Branches & Business Associates. First ISO -9002 Certified Registrar in India. Among top 10 Investment bankers. Largest Distributorof Financial Products are --Every 50th Indian is serviced by KARVY Every 20th trade in stock market is donethrough KARVY. Every 6th Investor in India invests through KARVY Indias No.1Registrars and Transfer agent : KARVY Every 10th Demat Account is held at KARVY. BABASAB PATIL - 18 -
    • ORGANISATION STRUCTURE OF KARVY LEVEL-I Board of CMD, MD, & other Directors Karvy Karvy Karvy Karvy Global Stock Investor Consultants Service Broking Service Limited Limited Limited Limited Karvy Karvy Karvy Karvy Insurance Commodities Computershare Inc. Broking Broking Private Pvt. Limited Private Limited Limited Karvy Regional HQs / Branches BABASAB PATIL - 19 -
    • Level-II Regional Branch Head ISO CELL Operations Support Branches Divisions Functions ACCOUNTS RIS SYSTEM FPD HRDBROKING ADMN, DP PURCHASE, & STORES BRANCHES Operations Support Divisions Functions BABASAB PATIL - 20 -
    • STUDY OF COMPANY PROFILE WITH RESPECT TO Mc KINSEY’S 7S MODELSTRATEGY:In modern times the word strategy has found its way into the management field. In thecontext of a business concern, strategy indicates specific program of action for achievingthe organization objectives by employing the firm’s resources efficiently andeconomically. It involves preparing oneself for meeting unforeseen factor. It is alsoconcerned with meeting the challenges posed by the policies and actions of othercompetitors in the market.Quality PolicyTo achieve and retain leadership, Karvy shall aim for complete customer satisfaction, bycombining its human and technological resources, to provide superior quality financialservices. In the process, Karvy will strive to exceed Customers expectations.Quality Objectives are to: • Build in-house processes that will ensure transparent and harmonious relationships with its clients and investors to provide high quality of services. • Establish a partner relationship with its investor service agents and vendors that will help in keeping up its commitments to the customers. BABASAB PATIL - 21 -
    • • Provide high quality of work life for all its employees and equip them with adequate knowledge & skills so as to respond to customers needs. • Continue to uphold the values of honesty & integrity and strive to establish unparalleled standards in business ethics. • Use state-of-the art information technology in developing new and innovative financial products and services to meet the changing needs of investors and clients. • Strive to be a reliable source of value-added financial products and services and constantly guide the individuals and institutions in making a judicious choice of same. • Strive to keep all stake-holders (shareholders, clients, investors, employees, suppliers and regulatory authorities) proud and satisfied.STRUCTURE:Board of DirectorsMr. C Parthasarathy (Chairman and Managing Director), Mr. M Yugandhar (ManagingDirector ), Mr. M S Ramakrishna (Director ), Mr. Prasad V Potluri (Director), WilliamStuart Crosby (Chairman – Karvy Computer share Pvt Ltd.), ChandraBalaraman(Director– Karvy Computer share Pvt Ltd.), Mark Davis(Director– KarvyComputer share Pvt Ltd.), Mr. Uday Raval(Director - Karvy Inc. )Karvy’s organization structure can be viewed as accomplishing departments OperationsDivisions and Support Function Division.Below the Operations Divisions there are sub divisions namely Registry and InvestorServices (RIS), Depository Participant (DP), Broking Services, Financial ProductDistribution (FPD).Below the Support Functions, there are sub divisions namely Accounts, System, HumanResource Development, and Administration, Purchase & Stores.These department heads controls the day-to-day affairs of the company. Thesedepartment heads are directly reports to the director. Board of Directors directly appointsdepartment heads. The departmental heads does locations of responsibilities amongvarious positions. BABASAB PATIL - 22 -
    • In Karvy Departments are inter related. Majority of decisions are taken by the topmanagement. While taking important decision the department managers are alsoconsulted and their suggestions are also considered. Hence Participative style ofmanagement is followed in Karvy.SYSTEM:KARVY covers the entire spectrum of financial services such as Stock broking,Depository Participants, Distribution of financial products - mutual funds, bonds, fixeddeposit, equities, Insurance Broking, Commodities Broking, Personal Finance AdvisoryServices, Merchant Banking & Corporate Finance, placement of equity, IPOs.A link called ‘Resource Center’, devoted solely to research. Karvy’s highly skilledresearch team, comprising of technical analysts as well as fundamental specialists, secureresult-oriented information on market trends, market analysis and market predictions.This crucial information is given as a constant feedback to its customers, through dailyreports delivered thrice daily; The Pre-session Report, where market scenario for the dayis predicted, The Mid-session Report, timed to arrive during lunch break, where themarket forecast for the rest of the day is given and The Post-session Report, the finalreport for the day, where the market and the report itself is reviewed. To add to thisrepository of information, Karvy publish a monthly magazine The Finapolis, whichanalyzes the latest stock market trends and takes a close look at the various investmentoptions, and products available in the market, while a weekly report, called Karvy BazaarBaatein, gives more information on the immediate trends in the stock market. In addition,its specific industry reports give comprehensive information on various industries.Karvy’s Stock Broking services are widely networked across India, with the number oftrading terminals providing retail stock broking facilities. To empower the investorfurther Karvy have made serious efforts to ensure that its research calls are disseminatedsystematically to all our stock broking clients through various delivery channels likeemail, chat, SMS, phone calls etc.STYLE:An activity like forecasting and planning are made by top level managers. Major policiesand plans are made by top management and it is implemented and administered by BABASAB PATIL - 23 -
    • employees. In the organization the style of informal communication and meetings withemployees has created workers to a friendly environment.STAFF:The term staff refers to manpower planning, recruitment, performance appraisal,motivation and morale.SKILLS:The managers and workers in each department are skilled to the extent of functions theyperform. Directors of the company are skilled in every activities and disciplines oforganization.A 1600 team of highly qualified and dedicated professionals drawn from the best ofacademic and professional backgrounds are committed to maintaining high levels ofclient service delivery. This has propelled Karvy to a position among the top distributorsfor equity and debt issues with an estimated market share of 15% in terms of applicationsmobilized, besides being established as the leading procurer in all public issues.A link called ‘Resource Center’, devoted solely to research. Karvy’s highly skilledresearch team, comprising of technical analysts as well as fundamental specialists, secureresult-oriented information on market trends, market analysis and market predictions.Achievements • Largest mobiliser of funds as per PRIME DATABASE • Among the top 5 stock brokers in India (4% of NSE volumes) • Indias No. 1 Registrar & Securities Transfer Agents (Ranked as " The Most Admired Registrar" by MARG) • A Category- I -Merchant banker. • Among the to top 3 Depository Participants • Largest Network of Branches & Business Associates • First ISO - 9002 Certified Registrar in India • Among top 10 Investment bankers • Largest Distributor of Financial Products • Full Fledged IT driven operations • Handled the largest- ever Public Issue - IDBI • Handled over 500 Public issues as Registrars. BABASAB PATIL - 24 -
    • • Handling the Reliance Account which accounts for nearly 10 million account holdersMajor issues managed as arrangers • Kerala State Electricity Board. • Power Finance Corporation • A.P. Water Resources Development Corporation. • A.P. Roads Development Corporation. • A.P. State Electricity Board. • Haldia Petrochemicals Ltd.Major issues managed as Co-Managers • IndusInd Bank Ltd • ICICI Bonds – March 97 • ICICI Bonds – Dec 97 • ICICI Safety Bonds March 98 • ICICI Safety Bonds – April 98. July 98, Oct 98, Dec 98, Jan 99. • The Jammu and Kashmir Bank LtdMajor issue handled as Registrars to Issues • IDBI Equity • Morgan Stanley Mutual Fund • Bank of Baroda • Bank of Punjab Ltd • Corporation Bank • IndusInd Bank Ltd • Jammu and Kashmir Bank Ltd • Housing and Urban Development Corporation (HUDCO) Ltd • Madras Refineries Ltd • Tamil Nadu Newsprint & Paper Ltd • BPL Ltd • Birla 3M Ltd BABASAB PATIL - 25 -
    • • Essar Shipping Ltd • Essar Steels Ltd. • Hindustan Petroleum Corporation Ltd. • Infosys Technologies Ltd. • Jindal Vijayanagar Steels Ltd. • Nagarjuna Fertilizers & Chemicals Ltd. • Rajshree Polyfil Ltd.Karvy Securities Ltd.Karvy has secured over Rs. 500 crore in the following debt issues. • Andhra Pradesh Road Development Corporation Ltd • ICICI Bonds ( Private Placement) • ICICI Bonds – 96 • ICICI Bonds – 97- I • ICICI Bonds – 97 – II • ICICI Safety Bonds March 98. • IDBI Bonds 96. • IDBI Flexi Bonds I • IDBI Flexi Bonds II • IDBI Flexi Bonds III • Kerala State Electricity Board • Krishna Bhagya Jala Nigam Ltd • Power Finance Corporation Ltd • Andhra Pradesh Water Resources Development Corporation • Andhra Pradesh State Electricity BoardSHARED VALUES:Employees at each level of organization are conscious about delivering customer valuefor his money. Each and every employee understands the mission and vision of thecompany. Employees of company are committed towards the quality aspects in service.The employees of Karvy themselves put forward in fulfilling the organizational principlesfor betterment of organization. BABASAB PATIL - 26 -
    • STUDY OF FUNCTIONAL DEPARTMENTS OF KARVYIn Karvy the functions are mainly divided into two parts namely Operational Functionsand the Supporting Functions.OPERATING FUNCTIONS:Registry and Investor Services (RIS) in which Karvy carry out functions as Registrar &transfer Agent (RTA), and Registrar to the Issues. Financial Product Distribution(FPD), Here financial products include Mutual Funds, Fixed income securities, bonds,fixed deposits, Tax-saving Products, Insurance, etc. Stock Broking Services andDepository Participant (DP), which are explained in Service Profile of the Karvy groupof companies.SUPPORTING FUNCTIONS: Administration - Purchase and Stores Department HOD Assistant HOD Administration TeamResponsibilities • To ensure preventive breakdown of equipment/accessories including computer hardware • To ensure speedy breakdown maintenance • To ensure that the maintenance status of all equipment/ accessories is entered in the service • To ensure that the maintenance is carried out efficiently BABASAB PATIL - 27 -
    • Maintenance includes preventive, breakdown and general maintenance. Preventivemaintenance shall be done as per the prefixed time schedule by the subcontractors for thepurpose. The administration incharge shall make necessary arrangements for this purpose.In Breakdown / General maintenance admi9nistration team receive informationregarding any breakdown or general repairs. On receipt of the same, the administrativeteam shall maintain a record of all maintenance done.The Procedure involves identification of subcontractors which will be done throughNewspaper, advertisements, word of mouth. Both the parties meet to their requirementsand enter into agreement. Subcontractors are appointed for providing services Preventivemaintenance, Breakdown maintenance, Courier services and any other services.2.62 Accounts DepartmentFinance operations in Karvy are centralized at the Head Office Account. Periodic fundrequirement at the regional level will be sort as and when required. But all cheques andsuch instruments would be signed by the local regional manager. BABASAB PATIL - 28 -
    • System Administration Department Dy. General Manager Dy.Manager Asst. ManagerIn this department the functions include Trouble shooting, desktop queries, Networkproblems, Software and Hardware problems, Installation of new systems, creating newnetworks.Human resource DepartmentThe human resource Department (HRD) caters to the entire recruitment and employeeupbringing in the company. The HR functions and practices, which are practiced at theKarvy, are:Manpower Planning: The departmental heads are entrusted with the responsibility ofassessing the present and the future manpower requirement in their departments.Manpower planning is being done in the company in order to secure a confidence andcapabilityRecruitment: Advertising in newspaper and other media, private employment agencies,personal contacts, colleges and universities are the sources used by Karvy.Training: The personnel department gives training for all new employees.Performance Appraisal: The HOD of the department, to which the employees belongs,presents a report of the employees, to be appraised. In addition to that other managers towhom the employee is associated is also evaluating the performance of the employee.Motivation: The Company provides both extrinsic and intrinsic motivation to theemployees. Extrinsic motivation is considered with external motivators which employeesget through pay, promotion, fringe benefits, holiday’s etc. Intrinsic motivation isconcerned with the feeling of having accomplished something worthwhile i.e. thesatisfaction one gets after doing one’s work well, praise, responsibility, recognition, BABASAB PATIL - 29 -
    • participation are the examples. Job rotation is undertaken to reduce the monitoring andburden of the employees.Morale: For improving employee’s morale positive measures like job rotation, buildingresponsibility into job etc are introduced. Both upward and downward communicationtakes place within the company. Participation is the key to commitment. BABASAB PATIL - 30 -
    • SERVICE PROFILE OF THE KARVY GROUP OF COMPANIESKarvy Stock Broking LimitedMember - National Stock Exchange (NSE), the Bombay Stock Exchange (BSE), and theHyderabad Stock Exchange (HSE). Karvy Stock Broking Limited, one of thecornerstones of the Karvy edifice, flows freely towards attaining diverse goals of thecustomer through varied services.Stock Broking ServicesIt is an undisputed fact that the stock market is unpredictable and yet enjoys a highsuccess rate as a wealth management and wealth accumulation option. The differencebetween unpredictability and a safety anchor in the market is provided by in-depthknowledge of market functioning and changing trends, planning with foresight andchoosing one & other options with care. Karvy offer trading on a vast platform; NationalStock Exchange, Bombay Stock Exchange and Hyderabad Stock Exchange. Karvy’shighly skilled research team, comprising of technical analysts as well as fundamentalspecialists, secure result-oriented information on market trends, market analysis andmarket predictions. This crucial information is given as a constant feedback to itscustomers, through daily reports delivered thrice daily; The Pre-session Report, wheremarket scenario for the day is predicted, The Mid-session Report, timed to arrive duringlunch break, where the market forecast for the rest of the day is given and The Post-session Report, the final report for the day, where the market and the report itself isreviewed. To add to this repository of information, Karvy publish a monthly magazineThe Finapolis, which analyzes the latest stock market trends and takes a close look at thevarious investment options, and products available in the market, while a weekly report,called Karvy Bazaar Baatein, gives more information on the immediate trends in the stockmarket. In addition, it’s specific industry reports give comprehensive information on BABASAB PATIL - 31 -
    • various industries. Karvy’s Stock Broking services are widely networked across India,with the number of trading terminals providing retail stock broking facilities.To empower the investor further Karvy have made serious efforts to ensure that itsresearch calls are disseminated systematically to all our stock broking clients throughvarious delivery channels like email, chat, SMS, phone calls etc.Depository ParticipantsThe onset of the technology revolution in financial services Industry saw the emergenceof Karvy as an electronic custodian registered with National Securities Depository Ltd(NSDL) and Central Securities Depository Ltd (CSDL) in 1998. Karvy set standardsenabling further comfort to the investor by promoting paperless trading across the countryand emerged as the top 3Depository Participants in the country in terms of customer serviced. Offering a widetrading platform with a dual membership at both NSDL and CDSL, Karvy haveestablished live DPMs, Internet access to accounts and an easier transaction process inorder to offer more convenience to individual and corporate investors. A wide nationalnetwork makes its efficiencies accessible to all.Distribution of Financial ProductsA 1600 team of highly qualified and dedicated professionals drawn from the best ofacademic and professional backgrounds are committed to maintaining high levels ofclient service delivery. This has propelled Karvy to a position among the top distributorsfor equity and debt issues with an estimated market share of 15% in terms of applicationsmobilized, besides being established as the leading procurer in all public issues.Advisory ServicesUnder its retail brand ‘Karvy – the Finapolis, it delivers advisory services to a cross-section of customers. The service is backed by a team of dedicated and expertprofessionals with varied experience and background in handling investment portfolios.They are continually engaged in designing the right investment portfolio for eachcustomer according to individual needs and budget considerations with a comprehensivesupport system that focuses on trading customers portfolios and providing valuableinputs, monitoring and managing the portfolio through varied technological initiatives. BABASAB PATIL - 32 -
    • ‘Karvy - the Finapolis, covers the latest of market news, trends, investment schemes andresearch-based opinions from experts in various financial fields.Mutual Fund ServicesKarvy has attained a position of immense strength as a provider of across-the-boardtransfer agency services to AMCs, Distributors and Investors. Nearly 40% of the top-notch AMCs including prestigious clients like Deutsche AMC and UTI swear by thequality and range of services that Karvy offers. Besides providing the entire back officeprocessing, Karvy provides the link between various Mutual Funds and the investor,including services to the distributor, the prime channel in this operation. Carrying the‘limitless ideology forward, Karvy has explored new dimensions in every aspect ofMutual Fund servicing right from volume management, cost effective pricing, delivery inthe least turnaround time, efficient back-office and front-office operations to customizedservice.Karvy has been with the AMCs every step of the way, helping them serve their investorsbetter by offering them a diverse and customized range of services. The ‘first to marketapproach that is Karvy’s anthem has earned the reputation of an innovative serviceprovider with a visionary bent of mind.Karvy’s service enhancements such as ‘Karvy Converz, a full-fledged call center, a top-line website (www.karvymfs.com), the ‘m-investor and many more, creating a galaxy ofcustomer advantages.Karvy Consultants Limited As the flagship company of the Karvy Group, KarvyConsultants Limited has always remained at the helm of organizational affairs, pioneeringbusiness policies, work ethic and channels of progress. Today, Karvy service over 6 lakhscustomer accounts in this business spread across over 250 cities/towns in India and areranked amongst the largest Depository Participants in the country. With a growingsecondary market presence, Karvy have transferred this business to Karvy Stock BrokingLimited (KSBL), Karvy’s associate and a member of NSE, BSE and HSE. BABASAB PATIL - 33 -
    • Karvy Investor ServiceMerchant BankingRecognized as a leading merchant banker in the country, Karvy registered with SEBI as aCategory I merchant banker. This reputation was built by capitalizing on opportunities incorporate consolidations, mergers and acquisitions and corporate restructuring. Karvy’squality professional team and our work-oriented dedication have propelled it to offervalue-added corporate financial services and act as a professional navigator for long termgrowth of its clients, who include leading corporates, State Governments, foreigninstitutional investors, public and private sector companies and banks, in Indian andglobal markets.Its financial advice and assistance in restructuring, divestitures, acquisitions, de-mergers,spin-offs, joint ventures, privatization and takeover defense mechanisms have elevated itsrelationship with the client to one based on unshakable trust and confidence.Karvy Global Services LimitedThe specialist Business Process Outsourcing unit of the Karvy Group. Here Karvy offerseveral delivery models on the understanding that business needs are unique and thereforeonly a customized service could possibly fit the bill. Be it in re-engineering and managingprocesses or delivering new efficiencies, Karvy’s service meets up to the most stringentof international standards. Karvy’s outsourcing models are designed for the globalcustomer and are backed by sound corporate and operations philosophies, and domainexpertise. Providing productivity improvements, operational cost control, cost savings,improved accountability and a whole gamut of other advantages. Karvy’s wide marketcoverage includes Banking, Financial and Insurance Services (BFIS), Retail andMerchandising, Leisure and Entertainment, Energy and Utility and Healthcare. BABASAB PATIL - 34 -
    • BABASAB PATIL - 35 -
    • Karvy Computershare Pvt. LimitedKarvy have traversed wide spaces to tie up with the world’s largest transfer agent, theleading Australian company, Computershare Limited. The company that services morethan 75 million shareholders across 7000 corporate clients and makes its presence felt inover 12 countries across 5 continents has entered into a 50-50 joint venture with Karvy.Excellence has to be the order of the day when two companies with such similarideologies of growth, vision and competence, get together.Issue RegistryKarvy has emerged as the largest transaction-processing house for the Indian Corporatesector. With an experience of handling over 700 issues, Karvy today, has the ability toexecute voluminous transactions and hard-core expertise in technology applications havegained the No.1 slot in the business. Karvy is the first Registry Company to receive ISO9002 certification in India that stands testimony to its stature.It is actively coordinating with both the main depositories to develop special models toenable the customer to access depository (NSDL, CDSL) services during an IPO. BABASAB PATIL - 36 -
    • Karvy Insurance Broking Private LimitedAt Karvy Insurance Broking Pvt. Ltd., it provide both life and non-life insurance productsto retail individuals, high net-worth clients and corporates. With the opening up of theinsurance sector and with a large number of private players in the business, Karvy is in aposition to provide tailor made policies for different segments of customers. With Indianmarkets seeing a sea change, both in terms of investment pattern and attitude of investors,insurance is no more seen as only a tax saving product but also as an investment product.By setting up a separate entity, Karvy would be positioned to provide the best of theproducts available in this business to its customers.Karvy’s wide national network, spanning the length and breadth of India, further supportsthese advantages. Further, personalized service is provided here by a dedicated teamcommitted in giving hassle-free service to the clients.Karvy Commodities Broking Private LimitedAt Karvy Commodities, Karvy is focused on taking commodities trading to newdimensions of reliability and profitability. Karvy has made commodities trading, anessentially age-old practice, into a sophisticated and scientific investment option.Here Karvy enable trade in all goods and products of agricultural and mineral origin thatinclude lucrative commodities like gold and silver and popular items like oil, pulses andcotton through a well-systematized trading platform.Regular trading workshops and seminars are conducted to hone trading strategies toperfection. Karvy’s commitment to excel in this sector stems from the immenseimportance that commodity broking has to a cross-section of investors – farmers,exporters, importers, manufacturers and the Government of India itself. BABASAB PATIL - 37 -
    • Karvy Inc.With its growing ambitions of reaching out to investors across the shores of this country,Karvy’s has set up Karvy Inc. in the US located in New York to provide various financialproducts and information on Indian equities to potential Foreign Institutional Investors(FIIs) in the region. This entity soon would be ACC registered and would also become amember of various important stock exchanges in the US. This entity would extensivelyfacilitate various businesses of Karvy viz., stock broking (Indian equities), research andinvestment by (Qualified Institutional Buyer) QIBs in Indian markets for both secondaryand primary offerings, outsourcing of various assignments for the multiple streams ofbusiness in Karvy Global Services Ltd (KGSL). BABASAB PATIL - 38 -
    • THEROTICAL FRAMEWORKFUNDAMENTAL ANALYSIS:Fundamental analysis is the examination of the underlying forces that affect the wellbeing of the economy, industry groups, and companies. The goal is to derive theforecasted earning growths for future price movements. Fundamental analysis is the method of evaluating securities by attempting tomeasure the intrinsic value of a particular stock. It is the study of everything from theoverall economy and industry conditions, to the financial condition and management ofspecific companies (i.e., using real data to evaluate a stock’s value). The method utilizesitems such as revenues, earnings, return on equity and profit margins to determine acompany’s underlying value and potential for future growth. One of the major assumptions under fundamental analysis is that, even thoughthings get mis priced in the market from time to time, the price of an asset will eventuallygravitate toward its true value. This seems to be a reasonable bet considering the longupward march of quality stocks in general despite regular setbacks and periods ofirrational exuberance. The key strategy for the fundamentalist is to buy when prices are ator below this intrinsic value and sell when they got overpriced.Fundamental analysis consists of: • For the national economy we focus on economic data to assess the present and future growth of the economy. • At the industry level, there might be an examination of supply and demand forces for the products offered. • At the company level, may involve examination of financial data, management, business concept and competition. BABASAB PATIL - 39 -
    • Economy analysisThe economy is the overall economic environment in which all firms operate. The keyvariables used to describe the state of economy are: • World economy • Asian economy • Indian economy 1. Growth rate of GDP 2. Industry growth rate 3. Agriculture and monsoons 4. Savings and investment 5. Inflation 6. Interest rates 7. Balance of payments 8. InfrastructureWorld economyAccording to the recent statistics, the world GDP (comprising 180 economies) hasreached at a sum of US $ 46,747 Billions. Top 15 contributors to the world GDP areUSA, Japan, Germany, China, UK, France, Italy, Canada, Spain, Brazil, Russia, Korea,India, Mexico and Australia.Percentage share of USA to the total world GDP is 28.3. While both the emergingeconomies such as India and China have a share of 1.82 and 5.41 respectively.Find next page the top 15 contributors to the world GDP. BABASAB PATIL - 40 -
    • Asian EconomyAsian Economies have brought tremendous success in the recent years. Economic growthrate in China crossed a two-digit number, while economic growth in India’s Economy isnear to 10 percent. Apart from those two emerging Asian Economic giants, economiessuch as Philippines, Indonesia and Malaysia are growing at a faster pace. Find belowvarious economic indicators on the Asian Economies.GDP growth projections among various Asian Economies over years are as follows:GDP Growth Projection on Asian EconomiesCountry Name 2007 2008Japan 2.3 1.9Hong Kong SAR 5.5 5Korea 4.4 4.4Singapore 5.5 5.7China 10 9.5India 8.4 7.8Indonesia 6 6.3Malaysia 5.5 5.8Philippines 5.8 5.8Thailand 4.5 4.8The output over the world increased by 4.4% in the year 2005. The largest contributors ofthe world output were India, China and Russia. The Gross World Product (in purchasing BABASAB PATIL - 41 -
    • power parity) as to the 2005 estimated data has reached at $ 60.71 trillions with a realgrowth rate of 4.7%.The services sector contributes a largest share to the world GDP. As to the 2004 estimateddata, the services sector accounted for 64% followed by industries at 32% and Agriculture4%.The level of exports and imports over the world has reached at $10.33 trillion and 10.3trillions f.o.b. as to 2004 estimation.World inflation:Inflation, which can be simply stated to be a state of economic activities with rising pricelevel and falling purchasing power of money, has become global phenomenon. Fast risingoil prices over the world has pressurized the general price level in countries of the world.Present world economy is experiencing higher economic growth with some inflationarypressure.The stabilized countries have the inflation level ranging between 1-3% and thedeveloping countries have inflation between 3-6%.Indian economy:Indian primary sectorAgriculture is the mainstay of Indian economy because of its high share in employmentand livelihood creation notwithstanding its reduced contribution to the nation’s GDP. Theshare of agriculture in the gross domestic product has registered a steady decline from36.4 per cent in 1982-83 to 17 per cent in 2007-08. Yet this sector continues to supportmore than half a billion people providing employment to 52 per cent of the workforce. Itis also an important source of raw material and demand for many industrial products,particularly fertilizers, pesticides, agricultural implements and a variety of consumergoods. This is first time after green revolution that the India has become dependent insatisfying its own food need. Growth pattern of Indian agriculture has been so irregular,because of over dependency on the monsoon. This year we could achieve dismal growthof 2.5%.India is expecting its agriculture to grow at least 4% (CAGR) in the 11th plan tohave sustainable and consistent growth of overall GDP.Industrial sector (secondary sector) BABASAB PATIL - 42 -
    • Industrial growth in India has been inspired by the LPG in 1991. in the 10th plan wecould achive growth rate of 8-9%. At present industry sector is contributing 28% tocountry’s GDP. Though at present India is experiencing slowdown in growth of industryproduction, the long term growth of 8-10% is still intact. The first eight months of thecurrent fiscal, till November 2007, witnessed a moderate slowdown in the growth of theindustrial sector. The slowdown has mainly been on account of the manufacturing sector.The mining and quarrying sector grew at a faster pace, while the growth in electricityremained unchanged from April- November 2006. Nonetheless, the 9.2 per cent growthachieved during April-November 2007 by the industrial sector, when seen against thebackdrop of the robust growth during the preceding four years, suggests that thebuoyancy in this sector has continued, albeit with a degree of moderation. Two importantchanges have occurred in the growth pattern of the use-based industrial categories:First, capital goods have grown at an accelerated pace, over a high base attained in theprevious years, which augurs well for the required industria capacity addition. Secondly,the consumer durables basket that forms part of the Index of Industrial Production (IIP)showed a negative growth during the period, thereby forcing a visible decline in thegrowth of the total consumer goods basket, despite reasonable growth in the non-durables.Dimension of Indian Economy GDP Composition 17% 28% Manufacturing Service Agriculture 55%Gross domestic product: measure of the total production of final goods and services inthe economy during a specified period usually a year. Higher the growth rate, the otherthings being equal, the more favorable it is for the stock market. BABASAB PATIL - 43 -
    • The growth rate of GDP is more important indicator of the performance of the economy.The average growth rate of Indian economy during 1950-1980 was around 3.5% in realterms. In 1980 it was 5% and 6.2% in 2004. At present it is 8.7 and estimated to cross9%.Industrial growth rate: stock market analysts mainly focus on the industrial sector.Higher the growth rate, more favorable is the things for stock market. The industrialsector witnessed a slowdown in the first nine months of the current financial year. Thegrowth of 9 per cent during April-December 2007, when viewed against the back drop ofthe robust growth witnessed in the preceding four years, suggests that there is a certaindegree of moderation in the momentum of the industrial sector. At the product grouplevel, the moderation in growth has been selective. Industries like chemicals, foodproducts, leather, jute textiles, wood products and miscellaneous manufacturing productswitnessed acceleration in growth, while basic metals, machinery and equipments, rubber,plastic and petroleum products and beverages and tobacco recorded lower but stronggrowth during April-December 2007.Agriculture and monsoons: agriculture accounts for about a quarter of the Indianeconomy and has important linkages both direct and indirect with the industry. There hasbeen a loss of dynamism in the agriculture and allied sectors in recent years. A gradualdegradation of natural resources through overuse and inappropriate use of chemicalfertilizers has affected the soil quality resulting in stagnation in the yield levels. Publicinvestment in agriculture has declined and this sector has not been able to attract privateinvestment because of lower/unattractive returns. Savings and investment: A notable feature of the recent GDP growth has been asharply rising trend in gross domestic investment and saving, with the former rising by BABASAB PATIL - 44 -
    • 13.1 per cent of GDP and the latter by 11.3 per cent of GDP over five years till 2006-07.The average investment ratio for the Tenth Five Year Plan at 31.4 per cent was higherthan that for the Ninth Five Year Plan, while the average saving rate was also 31.4 percent of GDP higher than the average ratio of 23.6 per cent during the Ninth Five YearPlan.Money supply: For policy purposes for 2007-08, the RBI assumed a real GDP growth of8.5 per cent with inflation close to 5 per cent, and targeted the monetary expansion in therange of 17-17.5 per cent and credit expansion in the range of 20 to 24 per cent asconsistent with envisaged growth and inflation.Interest rates: interest rates affect the cost of financing to the firms. Higher the interestrates, higher will be the cost and if lower, lower the cost and more will be theprofitability. Below table shows that interest rates are decreasing year after year which isa good sign for the growth.Year Interest(bank) rates % p.a.April 1997 11April 1998 10March 1999 8March 2001 7April 2003 6 BABASAB PATIL - 45 -
    • Inflation: The Wholesale Price Index (WPI), which is available on a weekly basis,continues to be the most popular measure of headline inflation in India.Balance of payments: The strength, resilience and stability of the country’s externalsector is reflected by various indicators. These include a steady accretion to reserves,moderate levels of current account deficit, changing composition of capital inflows,flexibility in exchange rates, sustainable external debt levels with elongated maturityprofile and an increase in capital inflows. The current account has followed an inverted“U” shaped pattern during the period from 2001-02 to 2006-07, rising to a surplus of over2 per cent of GDP in 2003-04. Thereafter it has returned close to its post-1990s reformaverage, with a current account deficit of 1.2 per cent in 2005-06 and 1.1 per cent of GDPin 2006-07.Capital inflows, as a proportion of GDP, have been on a clear uptrend duringthe six years (2001-02 to 2006-07) of this decade. They reached a high of 5.1 per cent ofGDP in 2006-07 after a somewhat modest growth rate of 3.1 per cent in 2005-06.The netresult of these two trends has been a gradual rise in reserve increase to reach 4 percent ofGDP in 2006-07 (Figure 6.1). With capital inflows exceeding financing requirements,foreign exchange reserve increase was of the order of US$ 15.1 billion in 2005-06 andUS$ 36.6 billion in 2006-07 (Table 6.2). As a proportion of GDP, external debt was 17.2per cent and 17.9 per cent in 2005-06 and 2006-07 respectively. BABASAB PATIL - 46 -
    • Infrastructure: with the rapid growth of the economy in recent years the importance andthe urgency of removing infrastructure constraints have increased. Traditionally, power,railways, roads, ports, airports and telecommunications were the exclusive domain of thegovernment. Policy has changed gradually over the past two decades under the pressureof rising gaps between demand and supply of infrastructure and deteriorating quality ofassets. BABASAB PATIL - 47 -
    • Industry AnalysisGrowth of Construction Industry:Since the beginning of economic reforms in 1991, the Indian economy has recorded acompounded annual growth rate (CAGR) of over 6.7%. That is impressive in itself, andmakes India the second fastest growing large economy in the world — bettered only byChina. More significant is the orbit change in India’s GDP growth since 2003-04. With9.4% growth in 2006-07 following 9% growth in 2005-06, India’s CAGR since 2003-04has exceeded 8.6%. There is a wide consensus among economists, policy-makers andindustry that India can now sustain a CAGR of around 8.5% for the foreseeable future.Indeed, the general feeling is that with more investments in physical infrastructure, it isquite feasible for the country to achieve double-digit growth by 2011-12 — the terminalyear of the Eleventh Five Year Plan. This strong economic growth, along with thedemographic impetus of a growing population in the working-age category, is creating amassive demand supply mismatch across the real estate sector. The sheer increase in the‘need for built-up space’ is opening up several opportunities for developers — be it forconstructing residential properties, creating commercial space for offices or retail, settingup of SEZs, or developing entertainment zones.Current situation of ConstructionsThe turnover of the construction industry witnessed 57% growth on Year of Year(YoY)basis to reach Rs150,933m in December 2007. This is because investments planned in theinfrastructure both by government and private sector, booming housing construction andexpansion in corporate production facilities, is likely to fast forward the growth in theIndian construction industry. Aggregate operating profit increased by 35% toRs22,186.55m. The other income of the industry was Rs8,481.04m. The depreciationincreased to Rs2,048.49m. The net profit increased by 83% to reach Rs19,819.89m onYoY basis.The overall cost for the construction industry as the percentage of sales is 90.27% fromRs87 billion in December 2006 to Rs1,35 billion in December 2007. The cost of rawmaterials to the total sales is 37.82% during December 2007. The staff costs and otheroperating expenses are 7.34% and 8.04% of the total sales, as compared to thecorresponding quarter of the previous year. Depreciation and tax decreased but theinterest rate was high. BABASAB PATIL - 48 -
    • InversementReal estate investments account for about 60% of the total construction investments.Demand-supply gap for residential housing, favorable demographics, rising affordabilitylevels, availability of financing options as well as fiscal benefits available on availing ofhome loan are the key drivers supporting the demand for residential construction. Inaddition to this, demand for office space from IT/BPO segment is expected to continuedue to emergence of India as a preferred outsourcing destination. Also, boom inorganized retail is expected to result in huge demand for real estate construction.According to industry estimates, the Indian real estate industry is expected to grow at acompounded rate of 33% between FY05 to FY10, mainly driven by the residentialsegment.Regulations:Construction Industry in India According to the 11th five-year plan (2007-12), the coreinfrastructure sector, comprising power, roads, highways, railways, ports, airports, miningand irrigation, will require massive investments to the tune of US$490 billion over thenext five years to sustain current 9-10% GDP growth per annum. The constructionindustry accounts for 40-50% of the plan outlays and contributes about 20%, nearlyUS$59.4 billion to the national GDP. It employs around 31m people, second only to theagriculture sector. The industry has witnessed a sustained growth of 30% per annumduring the last four years and is poised to grow at 55% in the current fiscal 2007-08,outperforming even the growth of IT and biotech industry in the knowledge sector.Jawaharlal Nehru National Urban Renewal Mission, with an outlay of approximatelyRs1,200 billion, is one of the most ambitious projects currently underway in the nation forstrengthening the urban infrastructure.While the government announced the withdrawal of tax benefits under Section 80 IA ofthe Income Tax Act, there is a lot of confusion regarding its interpretation. While somecompanies are of the opinion that they can no more claim benefits under this section (i.e.they will have to pay taxes at marginal rate), others feel that the benefit has beenwithdrawn only on the subcontracted work i.e. they can still claim tax benefits on self-executed projects. BABASAB PATIL - 49 -
    • Budget 2008-09India is on the verge of witnessing a sustained investment phase in infrastructure buildup.With a slew of announcements in housing, road, port and airport development, we areseemingly on a path of sustained higher economic growth on the back of improvement ininfrastructure construction in the country. From a policy perspective, there has been agrowing consensus that a private-public partnership is required to remove difficultiesconcerning the development of infrastructure in the country. A substantial chunk of theabovementioned investment target is likely to come from the private sector.Budget measures  The general CENVAT rate has been reduced to 14% from 16%.  Allocation for National Highway Development Programme (NHDP) has been enhanced to Rs 12,966 crore in 2008-09 from Rs 10,867 crore bn in 2007-08.  The budget has given special attention to development of roads in North Eastern region where 180 kms of roads will be completed in 2007-08 and 300 kms of road is being targetted for completion in 2008-09.  The corpus of Rural Infrastructure Development Fund (RIDF-XIV) has been raised to Rs14,000 crore, with a separate window for rural roads.  The budget has also given considerable thrust to irrigation project where the outlay for 2008-09 has been increased to Rs 20,000 crore from Rs 11,000 crore in 2007-08.  The government is setting up 14 irrigation projects with initial capital of Rs 100 crore to fund long-gestation major and medium irrigation projects.Budget Impact  The Bharat Nirman and water irrigation programmes will benefit companies involved in road construction and BOT irrigation projects.  Reduction of CENVAT is also a big positive for the sector as it indicates government’s commitment towards the Goods and Service Tax Act.Company ImpactCompanies like Jain Irrigation and Madhucon Projects will benefit from increased outlayin irrigation spending. BABASAB PATIL - 50 -
    • Industry Wish listBuilders’ Association of India  Alter existing customs duty structure on imported steel bars and rods – fix the duty at 5% without levy of special additional duty and countervailing duty  Extend existing structure of import duty, countervailing duty and special duty on cement for another year, to discourage domestic manufacturers from hiking prices  Project exporters who have executed projects abroad to be allowed to import equipment purchased abroad at 5% duty instead of current 50%  Scrap 2% TDS on construction companies as margins are wafer thin at 4-5%. Allow companies to pay advance tax instead BABASAB PATIL - 51 -
    • PORTER’S FIVE FORCE MODELSupply Past 2-3 years have seen a substantial increase in the number of contractors and builders, especially in the housing and road construction segment.Demand Demand exceeds supply by a large margin. Demand for quality infrastructure construction is mainly emanating from the housing, transportation and urban development segments.Barriers to entry Low for road and housing construction. However, high working capital requirements can create growth problems for companies with weak financial muscle.Bargaining power Low. Due to the rapid increase in the number of contractors andof suppliers construction service providers, margins have been stagnant despite strong growth in volumes.Bargaining power Low. The country still lacks adequate infrastructure facilities andof customers citizens have to pay for using public services.Competition Very high across segments like road construction, housing and urban infrastructure development. Relatively less in airport and port development. BABASAB PATIL - 52 -
    • COMPANY ANALYSISEstablished in 1971, Unitech today is India’s leading real estate company with a marketcapitalization of around US$ 10 billion. From being a National Capital Region (NCR)focused real estate developer, Unitech is fast establishing a pan India presence. It isalready a market leader in NCR and Kolkata and endeavors to attain leadership in everymarket that it operates in. Unitech has the most diversified product mix comprisingresidential, commercial, Information Technology (IT) parks, Retail, Amusement parksand Hotels. It is known for the quality of its product and is the first real estate developerto have been certified ISO 9001:2000 certificate in North India.Future expansion plansAs of 31 March 2007, the Company has 22 major ongoing residential projects. The totalresidential space offering from on-going projects is over 25 million square feet. Of these22 major projects, nine are in Gurgaon, five in Greater Noida, six in Kolkata and one eachin Lucknow and Bangalore.Ongoing ProjectsProject Location TypeClose(North) Gurgaon Multi-StoriedClose(South) Gurgaon Multi-StoriedUniworld Spa Gurgaon Multi-StoriedFresco Gurgaon Multi-StoriedUniworld Garden Gurgaon Multi-StoriedEspace Gurgaon VillaHarmony Gurgaon Multi-StoriedEscape Gurgaon Multi-StoriedUniworld City Gurgaon Multi-StoriedHorizon Greater Noida Multi-StoriedHabitat Greater Noida Multi-StoriedHeights Greater Noida Multi-StoriedCascades Greater Noida Multi-StoriedVerve Greater Noida Multi-StoriedGarden Kolkata Multi-StoriedAir Kolkata Multi-Storied BABASAB PATIL - 53 -
    • Downtown Kolkata Multi-StoriedHeights Kolkata Multi-StoriedCascades Kolkata Multi-StoriedHorizon Kolkata Multi-StoriedSouth City Lucknow Multi-StoriedHeritage Estate Bangalore Multi-StoriedUpcoming Township ProjectsProject Location TypeUnitech Grande Noida Multi-StoriedUniworld Resorts Gurgaon Villa & Multi-StoriedGateway Kolkata Multi-StoriedUniworld City Greater Noida Multi-StoriedOasis Chennai Villa & Multi-StoriedOasis Hyderabad Villa & Multi-StoriedRisk factors:In the course of its business, Unitech is exposed to a wide variety of risks. The companyis pursuing a strategy of high growth through entry into new markets. Though thecompany has, in the recent past, significantly scaled up its internal as well as externalresources in keeping with its strategy, it remains to be seen if the company can managethis growth effectively. Demand for real estate especially residential real estate issensitive to interest rate movements. Interest rats have been rising in the recent pastowing to a Reserve Bank of India’s credit tightening policy. This could adversely affectcompany’s business plans considering that residential segment constitutes a significantportion of company’s business. Also, recent curbs by RBI and the Government of India toreduce credit flow to real estate sector may affect company’s plans. Rise in cost of rawmaterials could impact company’s performance. While the prices of cement and steel arebeyond company’s control, we have been leveraging the bargaining power of scale tomanage the cost of other materials through consolidated purchase of those materials. Realestate business in India being highly regulated by Governments at various levels, severalregulatory approvals, permits, licenses etc. are required to be obtained from theGovernment from time to time for our projects. Any delay in obtaining such approvalscan affect the timely execution of our projects. While there remain a number of risks to BABASAB PATIL - 54 -
    • our business, due to Unitech’s experience of over two decades in real estate development,its relatively low average cost of the land bank, its capital efficiency and its innovativemethods of turning around cash flows, we believe that the company will continue togenerate healthy shareholder returns for the future. Therefore, Unitech’s outlook for2007-08 remains positive.Financial performance analysis: Ratios Industry 2007 2006 2005 Current Ratio 1.74 0.95 0.48 0.43 Quick Ratio 1.46 0.93 0.46 0.4 Inventory Turnover Ratio 14.23 32.16 16.45 15.78 Debt Equity Ratio 1.85 3.11 3.06 1.86 Operating Profit Ratio 23.49 56.83 19.41 9.73 Return On Equity 28.46 84.72 31.01 17.2 P/E 29.02 31.97 50.04 13.99 Price to Book Value Ratio 7.26 16.37 18.35 2.63 Dividend Payout Ratio 13.34 4.13 152.1 127.47 Earning Yield 3.46 3.13 2 7.15 Dividend Yield 0.47 0.13 0.04 1.19 Total Asset Turnover Ratio 0.88 0.22 0.58 0.93 Capital Turnover Ratio 2.31 0.91 2.36 2.66 Gross Profit Margin 21.84 56.64 18.94 9.31 Net Profit Margin 12.78 39.22 10.32 5.67Interpretation:Liquidity ratios: Ratios Industry Company Current Ratio 1.74 0.95 Quick Ratio 1.46 0.93 Though company’s current ratio is increasing year by year still it is lesser than industry average. But as the company has got ability to use capital more efficiently, this ratio gives it more leverage in terms of earnings. So it can be justifiable. BABASAB PATIL - 55 -
    • Turnover ratios: Ratios Industry Company Total Asset Turnover Ratio 0.88 0.36 Capital Turnover Ratio 2.31 0.54 Inventory Turnover Ratio 14.23 32.16 Inventory turnover ratio is exceptionally good compared to industry. Inventory turnover ratios are improving year by year. Asset and Capital Turnover Ratios are lower than industry, because company has not yet realized good from its newly restructured capital .Leverage ratios: Ratios Industry Company Debt Equity Ratio 1.85 3.11 Company is in the comfortable zone. So that it can still use more Financial Leverage in future.Profitability ratios: Ratios Industry Company Operating Profit Ratio 23.49 56.83 Gross Profit Margin 21.84 56.64 Net Profit Margin 12.78 39.22 All profitability ratios for the company are exceptionally good and they are more than double the industrial average. Perhaps this could be possible because of its volume, very good companies business strategies and mainly because of high project execution expertise that the company has got over the year.Valuation ratios: Ratios Industry Company P/E 29.02 31.97 Price to Book Value Ratio 7.26 16.37 Dividend Payout Ratio 13.34 4.13 Earning Yield 3.46 3.13 Dividend Yield 0.47 0.13 P/E of company is higher than industry average; it is because of the company brand and almost de-risked business operations and company’s higher earning ratios. BABASAB PATIL - 56 -
    • Coming to Price to BV ratio company higher ratio than industry average which is substantiable from the companies past financial track record point of view. The DY and EY for scrip is lower than industry average, because of lower proportion of dividend payout owing to companies high growth potential.Summary: So I can conclude company’s scrip is over valued.Note:Adjustment factor for P/E:I have considered only Historical P/E but not the Weighted P/E ratio. Because ConstantGrowth Dividend Model can not be applied for the company. ( because there is noconsistent dividend pay out). BABASAB PATIL - 57 -
    • Period & months 2007/03 2006/03 2005/03 2004/03 2003/03INCOME 2,441.7Net Operating Income 4 653.13 509.33 373.95 235.63EXPENSESMaterial Consumption 78.97 61.07 55.68 20.14 25.45ManufacturingExpenses 853.98 396.1 359.62 298.87 174.36Personnel Expenses 65.62 31.11 15.95 10.38 8.71Selling Expenses 13.13 10.62 8.35 4.3 0.91AdministrativeExpenses 42.35 27.4 20.15 14.71 8.45 1,054.0Cost of Sales 4 526.29 459.75 348.4 217.88 1,387.6Reported PBDIT 9 126.84 49.57 25.56 17.75Other RecurringIncome 65.66 21.45 17.41 8.1 12.01 1,453.3Adjusted PBDIT 5 148.29 66.98 33.66 24.55Depreciation 4.54 3.1 2.14 1.69 1.84Other Write-offs 0 0 0 0 0 1,448.8Adjusted PBIT 1 145.19 64.84 31.97 22.71Financial Expenses 193.71 37.14 21.92 9.54 12.01 1,255.1Adjusted PBT 1 108.05 42.92 22.43 10.7Tax Charges 361.27 38.48 13.46 6.46 4.61Adjusted PAT 893.84 69.57 29.47 15.98 6.1Non-recurring Items 89.72 0.07 0.45 -1.91 4.52Other Non-cashAdjustments 0.44 -0.51 -1.05 2.5 0.02REPORTED PAT 983.56 69.64 29.92 14.07 10.61No. of shares 81.17 1.25 1.25 1.25 1.25EPS 12.12 55.71 23.94 11.26 8.49 BABASAB PATIL - 58 -
    • Estimated EPS:Period & months 2008 2009 2010 CAGRINCOME 3150.5 4065.2 5245.3Net Operating Income 9 2 7 1.29EXPENSESMaterial Consumption 98.29 122.33 152.25 1.24 1048.4 1287.1 1580.2Manufacturing Expenses 2 4 2 1.23Personnel Expenses 90.21 124.02 170.49 1.37Selling Expenses 24.27 44.85 82.90 1.85Administrative Expenses 56.83 76.26 102.33 1.34 1318.0 1654.6 2088.2Cost of Sales 2 0 0 1.25 1832.5 2410.6 3157.1Reported PBDIT 7 2 7Other Recurring Income 75.91 87.75 101.44 1.16 1908.4 2498.3 3258.6Adjusted PBDIT 7 6 1 1.57Depreciation 5.17 5.89 6.71 1.14 1903.3 2492.4 3251.9Adjusted PBIT 0 7 0Financial Expenses 292.50 441.68 666.93 1.51 1610.8 2050.7 2584.9Adjusted PBT 0 9 7Tax Charges 469.65 610.55 793.71 1.30 1141.1 1440.2 1791.2Adjusted PAT 5 5 6Non-recurring Items 31.65 11.17 3.94 0.35Other Non-cash Adjustments 0.11 0.03 0.01 0.24 1172.9 1451.4 1795.2REPORTED PAT 0 4 0No. of shares 81.17 81.17 81.17EPS 14.45 17.88 22.12Adjusted EPS(factor is1/2)* 7.22 8.94 11.06Note: recently company has issued 1:1 bonus, so the adjustment factor of ½ is consideredfor calculation of expected EPS and Book Value. BABASAB PATIL - 59 -
    • Estimated Book Value:Book valueCalculatio CAGn 2007 2006 2005 2004 2003 2008 2009 2010 RDividend 40.58 16.23 5 3.75 2.5 70.86 123.73 216.04 1.75REPORTE 1172.9 1451.4D PAT 983.56 69.64 29.92 14.07 10.61 0 4 1795.20EquityShareCapital 162.34 12.49 12.49 12.49 12.49 162.34 162.34 162.34Reserves &Surplus 998.66 212.05 161.42 138.2 125.86 998.66 998.66 998.66Number ofEquitysharesoutstanding 81.17 1.25 1.25 1.25 1.25 81.17 81.17 81.17 2103.9 3212.1 4560.1Net worth 8 277.95 198.83 161.01 146.46 1 5 6190.31Book value 25.92 222.36 159.06 128.81 117.17 39.57 56.18 76.26Price toB.V.Ratio 5.84 5.09 4.62Projection of MPSBasis Formula MPS 2008 2009 2010P/E(Historical EPS * P/E 231.04 286.08 352.92Method)Price to BV BV * 231.08 285.96 352.32 price to BV ratioData:P/E multiple = 32Fair value of stock:Weight age assigned to different basis for calculating MPS of stock: • For P/E basis: 1.5 • For price to BV basis: 1Particular Formula 2008 2009 2010Fair Value (1.5*P/E MPS 231.05 286.03 352.68 + 1* P to BV MPS )/2.5 BABASAB PATIL - 60 -
    • TECHNICAL ANALYSIS:Technical analysis is the examination of past price movements to forecast future pricemovements. Technical analysts are sometimes referred to as chartists because they relyalmost exclusively on charts for their analysis.Technical stock analysis is based on three basic principles namely:1. Market action discounts everything;2. Prices move in trends;3. History repeats itself.Technical analysis is a forecasting method of price movements using past Prices, volume,and open interest. Pring (2002), a leading technical Analyst provides a more specificdefinition:“The technical approach to investment is essentially a reflection of the idea that pricesmove in trends that are determined by the changing Attitudes of investors toward avariety of economic, monetary, political, and psychological forces. The art of technicalanalysis, for it is an art, is Testing of Technical Analysis Tools”.Two technical indicators have been used to analyze the patterns on the chart. They aremoving averages both simple and exponential moving averages and relative strengthindex. They are explained in detail as below:Moving Average:  Zigzag movement of prices often makes it difficult to judge the underlying trend. Trend lines do help as we have already seen.  Another popular way is to smooth the price data with the help of moving averages.  Technical analysts use two different types of moving averages - simple moving average, exponential moving average and weighted moving average. BABASAB PATIL - 61 -
    •  The moving average system of trading is also known as the trend following system because the trader waits for the trend to be established before initiating a trade.Moving averages are one of the most popular and easy to use tools available to thetechnical analyst. They smooth a data series and make it easier to spot trends, somethingthat is especially helpful in volatile markets. They also form the building blocks for manyother technical indicators and overlays.The two most popular types of moving averages are the Simple Moving Average (SMA)and the Exponential Moving Average (EMA). They are described below:Simple Moving Average (SMA)A simple moving average is formed by computing the average (mean) price of a securityover a specified number of periods. While it is possible to create moving averages fromthe Open, the High, and the Low data points, most moving averages are created using theclosing price. For example: a 5-day simple moving average is calculated by adding theclosing prices for the last 5 days and dividing the total by 5.10+ 11 + 12 + 13 + 14 = 60(60 / 5) = 12The calculation is repeated for each price bar on the chart. The averages are then joined toform a smooth curving line - the moving average line. Continuing our example, if thenext closing price in the average is 15, then this new period would be added and theoldest day, which is 10, would be dropped. The new 5-day simple moving average wouldbe calculated as follows:11 + 12 + 13 + 14 +15 = 65(65 / 5) = 13Over the last 2 days, the SMA moved from 12 to 13. As new days are added, the old dayswill be subtracted and the moving average will continue to move over time. Table 14 BABASAB PATIL - 62 -
    • Source: stockcharts.comIn the example above, using closing prices from Eastman Kodak (EK), day 10 is the firstday possible to calculate a 10-day simple moving average. As the calculation continues,the newest day is added and the oldest day is subtracted. The 10-day SMA for day 11 iscalculated by adding the prices of day 2 through day 11 and dividing by 10. Theaveraging process then moves on to the next day where the 10-day SMA for day 12 iscalculated by adding the prices of day 3 through day 12 and dividing by 10.The chart above is a plot that contains the data sequence in the table. The simple movingaverage begins on day 10 and continues.Exponential Moving Average (EMA)In order to reduce the lag in simple moving averages, technicians often use exponentialmoving averages (also called exponentially weighted moving averages). EMAs reducethe lag by applying more weight to recent prices relative to older prices. The weightingapplied to the most recent price depends on the specified period of the moving average.The shorter the EMAs period, the more weight that will be applied to the most recentprice. For example: a 10-period exponential moving average weighs the most recent price18.18% while a 20-period EMA weighs the most recent price 9.52%. As well see, thecalculating and EMA is much harder than calculating an SMA. The important thing toremember is that the exponential moving average puts more weight on recent prices. As BABASAB PATIL - 63 -
    • such, it will react quicker to recent price changes than a simple moving average. Heresthe calculation formula.Exponential Moving Average CalculationExponential Moving Averages can be specified in two ways - as a percent-based EMA oras a period-based EMA. A percent-based EMA has a percentage as its single parameterwhile a period-based EMA has a parameter that represents the duration of the EMA.The formula for an exponential moving average is:EMA (current) = ( (Price(current) - EMA(prev) ) x Multiplier) + EMA(prev)For a percentage-based EMA, "Multiplier" is equal to the EMAs specified percentage.For a period-based EMA, "Multiplier" is equal to 2 / (1 + N) where N is the specifiednumber of periods.For example, a 10-period EMAs Multiplier is calculated like this:(2 / (Time periods + 1) ) = (2 / (10 + 1) ) = 0.1818 (18.18%)This means that a 10-period EMA is equivalent to an 18.18% EMA.Note: StockCharts.com only support period-based EMAs.Below is a table with the results of an exponential moving average calculation forEastman Kodak. For the first periods exponential moving average, the simple movingaverage was used as the previous periods exponential moving average (yellow highlightfor the 10th period). From period 11 onward, the previous periods EMA was used. Thecalculation in period 11 breaks down as follows:(C - P) = (57.15 - 59.439) = -2.289(C - P) x K = -2.289 x .181818 = -0.4162( (C - P) x K) + P = -0.4162 + 59.439 = 59.023 Table 15 BABASAB PATIL - 64 -
    • Source: stockcharts.com*The 10-period simple moving average is used for the first calculation only. After that theprevious periods EMA is used.Note that, in theory, every previous closing price in the data set is used in the calculationof each EMA that makes up the EMA line. While the impact of older data pointsdiminishes over time, it never fully disappears. This is true regardless of the EMAsspecified period. The effects of older data diminish rapidly for shorter EMAs. than forlonger ones but, again, they never completely disappear.Uses:There are many uses for moving averages, but three basic uses stand out: 1. Trend identification/confirmation 2. Support and Resistance level identification/confirmation 3. Trading SystemsInterpretation:  A moving average smoothens the underlying price data and represents the trend for the period used to calculate the average. BABASAB PATIL - 65 -
    •  More importantly, it acts as a curved trendline providing support in an uptrend and resistance in a downtrend.  Since the moving average reflects the trend, intersection of the price with the moving average signals at least a pause in the trend by way of a correction and possibly a trend reversal.  In an uptrend, both the price and the moving average are rising and price is above the moving average. If the price were now to move below the moving average while the moving average is still rising, it would probably signal just a correction.  After a while renewed buying usually pushes the price again over the moving average. If the moving average is still rising, such a crossover of the price over the moving average indicates resumption of the uptrend.  However, caution is indicated if the moving average has begun to move sideways. A trend reversal is now more likely and is signalled when the price again crosses below the moving average.  Penetration of a very short term average such as the 5-day average occurs often in long lasting trends and often signals temporary pauses in the trend by way of correction or consolidation. This happens after a sharp upmove or a downmove when profit-taking sets in a countertrend move in the opposite direction. However, when prices retrace 50 to 60% of the previous move, players who missed the earlier move usually enter leading to resumption of the underlying trend.  On the other hand, penetration of say 20-day average accompanied by a change in the direction of the moving average itself, would usually confirm trend reversal or prolonged and deep correction.Relative Strength Index (RSI):Developed by J. Welles Wilder and introduced in his 1978 book, New Concepts inTechnical Trading Systems, the Relative Strength Index (RSI) is an extremely useful andpopular momentum oscillator. The RSI compares the magnitude of a stocks recent gainsto the magnitude of its recent losses and turns that information into a number that rangesfrom 0 to 100. It takes a single parameter, the number of time periods to use in thecalculation. In his book, Wilder recommends using 14 periods. BABASAB PATIL - 66 -
    • Calculation: 100 RSI = 100 - -------- (1 + RS) RS = Average Gain / Average Loss Average Gain = [(previous Average Gain) x 13 + current Gain] / 14 First Average Gain = Total of Gains during past 14 periods / 14 Average Loss = [(previous Average Loss) x 13 + current Loss] / 14 First Average Loss = Total of Losses during past 14 periods / 14 Note: "Losses" are reported as positive values.To simplify our explanation of the formula, the RSI has been broken down into its basiccomponents which are the RS, the Average Gain, and the Average Loss.To start the running calculation, the First Average Gain is calculated as the total of allgains during the past 14 periods divided by 14. Similarly, the First Average Loss iscalculated as the total magnitude of all losses during the past 14 periods divided by 14.The next values for the "averages" are calculated by taking the previous value,multiplying it by 13, adding in the next Gain (or Loss), and then dividing by 14. This isWilders modified "smoothing" technique in action.The RS value is simply the Average Gain divided by the Average Loss for each period.Finally, the RSI is simply the RS converted into an oscillator that goes between zero and100 using this formula: 100 - (100 / RS + 1).When the Average Gain is greater than the Average Loss, the RSI rises because RS willbe greater than 1. Conversely, when the Average Loss is greater than the Average Gain,the RSI declines because RS will be less than 1. The last part of the formula ensures thatthe indicator oscillates between 0 and 100. Note: If the Average Loss ever becomes zero,RSI becomes 100 by definition. BABASAB PATIL - 67 -
    • Important Note: The more data points that are used to calculate the RSI, the moreaccurate the results.Interpretation: When Wilder introduced the Relative Strength Index, he recommended using a14-day Relative Strength Index. Since then, the 9-day and 25-day Relative StrengthIndexes have also gained popularity. The fewer days used to calculate the RelativeStrength Index, the more volatile the indicator. The Relative Strength Index is a price-following oscillator that ranges between 0and 100. A popular method of analyzing the Relative Strength Index is to look for adivergence in which the security is making a new high, but the Relative Strength Index isfailing to surpass its previous high. This divergence is an indication of an impendingreversal. When the Relative Strength Index then turns down and falls below its mostrecent trough, it is said to have completed a "failure swing." The failure swing isconsidered a confirmation of the impending reversal.In Mr. Wilders book, he discusses five uses of the Relative Strength Index: 1. Tops and Bottoms. The Relative Strength Index usually tops above 70 and bottoms below 30. It usually forms these tops and bottoms before the underlying price chart. 2. Chart Formations. The Relative Strength Index often forms chart patterns such as head and shoulders or triangles that may or may not be visible on the price chart. 3. Failure Swings (also known as support or resistance penetrations or breakouts). This is where the Relative Strength Index surpasses a previous high (peak) or falls below a recent low (trough). 4. Support and Resistance. The Relative Strength Index shows, sometimes more clearly than price themselves, levels of support and resistance. 5. Divergences. As discussed above, divergences occur when the price makes a new high (or low) that is not confirmed by a new high (or low) in the Relative Strength Index. Prices usually correct and move in the direction of the Relative Strength Index. BABASAB PATIL - 68 -
    • Technical analysis consists of: • Market analysis • Company analysisMarket analysis:Nifty is considered as market index. Both short as well as long term analysis has beendone using moving averages (simple and exponential MA) and relative strength index(RSI).Analysis: fundamentals of marketEvaluating the fundamentals of market ie Nifty though gives us right estimation about theperformance of market and also helps us in forecasting future growth of market, it has gotlittle importance in present scenario. Because, market is sentiment driven then the actualfact driven, so swings of market make it so unstable beyond compare.In notable future of GDP growth rate that there has been sharply rising trend in GDPinvestment and savings with former rising by 13.1% of GDP and latter by 11.3% of theGDP over five years till 2006-07. So there is slight increase in the gap. Averageinvestment ratio for 10th five year plan is at 31.4% and average savings rate was also atthe same level 28.32%. We can say that gap between investment and saving is very whichis usually being satisfied by FDI flow. This fact clearly shows that Indian investments arenot dependent on foreign countries. On the other side of the growth ie demand, India hasdomestic demand which forms major portion of total demand. So we are not dependenton foreign demand.Balance of payment:At present the biggest trade partner is US with whom India is having some $11bn surplustrade which might be at stake (US recession) and marginally affect foreign trade that to inservice sector. One more thing we need to critically look at is rupee appreciation v/sdollar which has been so furious and India needs to adjust to the pace at which it is beingappreciated. BABASAB PATIL - 69 -
    • Inflation:Major concern for India than anything else is alarming inflation which is primarily drivenby the capital goods price and other food items. So keeping inflation below 5-7 percent isthe immediate as well as long term prime objectives of governing bodies here. In thesame light the honorable FM proposed budget which has an element of inflationarycontainment. (Across the board cut in excise duty)After looking at all these major factors of economy, we also need to to look at many otherstock markets across the world like dow jones, Nikkei, shanghai, hangsang which areshaken because of world economy slow down (US recession). After critically examiningthese factors, we come to conclusion that Indian economy is not so much affected byabove discussed factors and LT story of it going to be intact. According to Indianplanning commission expected the GDP growth rate for next plan is between 8%-9%. Atpresent stock market growth rate (CAGR) is pegged at 18- 20 percent. I expect the samelevel of growth in stock market for coming years.If we look at the market from other side ie technical side, market is in total chaos. BABASAB PATIL - 70 -
    • BABASAB PATIL - 71 -
    • Analysis: (Short term or intermediate)Market Trend:If we look at 90 day EMA of Nifty chart, for the past one and half year the trend has beenBullish. From 20th Jan 2008 onwards there has been shift in the trend towards Bearish.The 18day EMA & SMA of Nifty has broken down below 90 day EMA. So this is onemore conclusive evidence for reversal of trend from Bull to Bear.Immediate Future:As we can see from the graph it is clear that market is finding support at 4450 to4600(which is previous resistance for the market). At this level market is likely toconsolidate for the medium time period.Significance of Future Trend:In future unless and until market finds required strengths to come to the previous level i.e.resistance at 5630 – 50, there will be no signs of market turning Bullish.And if in future market breaks the resistance level i.e. 5630-50 then it will rally up to6980-7020. (Target)Long term analysisMarket is sentiment driven and swings and hypes in market are so strong that they prevaileven for years that have happened at present. There has been shift in market trend and ithas turned bearish though there is no clear sign of bear trend (it’s a long term correctionnot exactly bearish) but present situation is of complete chaos has left market in a state ofvolatility so we should wait and see market movement closely.Market’s long term support is at 3118-3130 and next support is at 4500 level so next rallyfrom that level 4500 is 1380-1400(4500-3110) and we can see some 150-200 pointsabortive rally has been occurred and has reached 6050. At that level market was waitingfor correction. Bad clues from US slow down had made market to take LT correction andmarket has turned to be volatile and has yet to settle down at previous support of 4500. BABASAB PATIL - 72 -
    • Company technical analysis:Stock taken is Indian hotels which operates the brand name “Taj hotel resorts andpalaces”. Both short and long term analysis has been done using moving averages (simpleand exponential MA) and relative strength index (RSI).Short term analysis: 1) Trend short term or intermediate trend for the scrip has been flat. Now terning in to bearish. 2) Key short term support and resistance levels for the scrip. As we can see from the 10 day EMA &SMA graph the scrip has established strong support at 130-140 price band.Price movement; the scrip has undergone major consolidation (sideway movement)phase. And it seems that the scrip has made abortive attempt to breach the flat trend andstart rally, but in vain and the obvious reason for this failure is market crash.In the month Feb 2008 the scrip has broken the key support (130-140) and turned out tobe bearishFuture; as the scrip has already broken the key support, the short term traders should sellit and the fresh buy signal for the stock is known only when scrip establishes support.If in case scrip regains the strength to come back to the level of 130-140, investors shouldstill wait till it clearly breaches above that level but with expanding volume.Trading tactics for short term investors:As it can be clearly seen from the graph, the stock is purely a trading stock. So to trade inthe scrip one should look for key support and also look for cue from RSI. If the stock is atsupport and selling pressure is high i.e. RSI value 30 and below, it should be bought andsold at high buying pressure i.e. at RSI value 70 & above.Here the identifying future target price (for the short term) is very difficult as scrip wasundergoing phase of consolidation and has no established resistance level. BABASAB PATIL - 73 -
    • UNITECH RSI, M.A. & VolumeEMA 10SMA 10EMA 40SupportResistanceBuySell BABASAB PATIL - 74 -
    • Short term analysis:Trend:The long term trend was bullish but turned flattish. The short term trend is bearish andstock undergoing consolidation.Short term resistance:Short term resistance is at 365 and support at 275 though the trend seems to be bullish,the intermediate trend has been flat because for year scrip has shown a sign ofconsolidation. Now the scrip is slightly on down trend and settling down to theintermediate support of 265-275.Future:If market turns back to old levels then scrip will get the strength to regain its previousmomentum at resistance level of 365 and even break away that level of resistance withexpanding volume then rally is set to be resumed and is expected to rally till 455-475(target) or else if it doesn’t get support from market it fails to take support at then straightaway goes down to settle at the rock bottom i.e. 150 level.Note:Buying and selling is suggested to be followed at support level in combination with rightRSI values i.e. when RSI value is in oversold region 30. If possible investors should alsohave a close eye on expanding volume which is a conclusive evidence for aggressive bullor bear run. BABASAB PATIL - 75 -
    • Unitech Long Term RSI, M.A. & VolumeLong term analysis:Long term resistance:Long term resistance is at 500 and support at 300 then 200.Future:Movement of scrip is mainly dependent on the market (Nifty) performance. If marketturns back to old levels then scrip will get the strength to regain its previous momentum atresistance level of 500 and even break away that level of resistance with expandingvolume then rally is set to be resumed and is expected to rally till 620-640 (target) or elseif it doesn’t get support from market it fails to take support at then straight away goes BABASAB PATIL - 76 -
    • down to settle at the rock bottom ie 150 level. If it crosses 620-40 range successfully thenit may rally till 700.Note:Buying and selling is suggested to be followed at support level in combination with rightRSI values ie when RSI value is in oversold region 30. if possible investors should alsohave a close eye on expanding volume which is a conclusive evidence for aggressive bullor bear run. BABASAB PATIL - 77 -
    • FINDINGS:General: • One of the most important areas for any investor to look when researching a company is the financial statement. Financial reports are required by law and are published both quarterly and annually. • Management discussion give investors a better understanding of what the company does and usually points out some key areas where they did well. • Audited financial reports have much more credibility than unaudited ones. • The income statement takes into account some non-cash items such as depreciation. The cash-flow statement strips away all non-cash items and tells you how much actual money the company generated. • The share prices of the company are very sensitive and may change very rapidly (upward or downward), but if we follow a systematic study, it is possible to predict the share prices to a certain extent. • The stock prices always take a correction after a major climb. • Technical analysts evaluate securities by analyzing statistics generated by market activity, past prices and volume. • The bar chart is used more than a straight-line graph because it shows the high, low, open and close for each particular day. • One of the most basic and easy to use technical analysis indicators is the moving average, which shows the average value of a securitys price over a period of time. The most commonly used moving averages are 20-, 30-, 50-, 100- and 200-day. • Support and resistance levels are price levels, at which movement should stop and reverse direction. Think of support/resistance (S/R) as levels that act as a floor or a ceiling to future price movements. BABASAB PATIL - 78 -
    • For Stock: • First, the projected MPS of the stock next three years are Rs.231.05, Rs.286.03 and Rs.352.68. • Short term support for scrip: 265-275; Next support has been established at 150-165. • Short term resistance for scrip: 365 • Short term support for scrip: 265 • Long term resistance for scrip: 500 • Long term support is at 200 level; • Now the scrip is slightly on the down trend(short term) and settling down to the intermediate support of 265-275 • Long term target by technical analysis is 620-40 but this is unlikely to happen in the medium term because short term trend has been bearish and long term trend has been flat and undergoing long consolidationFor market: • Short term support or intermediate support: 4500-4600; next long term support lies at3100-3150 • Resistance for Nifty is at present is at 6000 • Short term and intermediate trend has been bearish and long term trend is still bullish. • Long term nifty target is a 6980- 7020. BABASAB PATIL - 79 -
    • Recommendations: Long term investors can include Unitech, because the growth rates and earnings are good compared to others stocks. Therefore investors can include this in their portfolio to earn the higher return on their investment. The Long term investors should buy the stocks fair value found out by the fundamental analysis. Short term investors should look on various support and resistance of stocks to buy or sell and make profit. The investors are watch the news which affects the stocks and market because market is very much driven by sentiments, so they see its effects the market or stocks that they can make more profit out of it. BABASAB PATIL - 80 -
    • Conclusion:• Stock market or capital market provides the industry with a lot of capital needed by the industry, which leads to the growth of the industry and economy as a whole; hence the stock market plays an important role in the development of the industry.• Some times Using Technical and fundamental analysis individually leads to incorrect results hence both Fundamental and technical analysis should be used at a time to get the desired result.• Fundamental analysts study everything from the overall economy and industry conditions, to the financial condition and management of companies before deciding on any particular stock.• Technical analyst’s look for peaks, bottoms, trends, patterns and other factors affecting a stocks price movement and then make buy/sell decisions based on those factors.• Stock market or capital market provides the industry with a lot of capital needed by the industry, which leads to the growth of the industry and economy as a whole; hence the stock market plays an important role in the development of the industry. BABASAB PATIL - 81 -
    • BIBLIOGRAPHYBooks referredSecurity Analysis and Portfolio Management - Fisher and JordanInvestment Analysis and Portfolio Management -Prasanna ChandraWebsites;- www.rbi.com- www.sebi.com- www.bse.com- www.nseindia.com- www.icicidirect.com- www.equitymaster.com- www.moneycontrol.com BABASAB PATIL - 82 -