Returns On Equity - Vikas Ladhe - MFM - JBIMS

“Returns on Equity of High/Low
Debt Company”
A Project Report
Submitted in Partial Fulfillment of the Requirements for the Degree of
Masters in Financial Management
By
Vikas Ladhe
Under the guidance of

Prof. Chhaya Sehgal
Jamnalal Bajaj Institute of Management studies

University of Mumbai
2006 – 2009
CONTENTS
1. Preface
2. Market
A. Stock Market
3. Market Condition
A. Bull Market
B. Bear Market
4. Investors
A. Type of Investors
a. Short Term (Less Than 1 yr)
b. Medium Term (2-5 year)
c. Long Term Investors (more than 5 yrs)
5. Sector Wise Analysis
A. Auto Industries
B. Banking Sector
C. Cement Industries
D. Cloth & Textiles
E. Computers & Peripherals
F. Chemicals & Dyes
G. Diversified Business
H. Drugs & pharmaceuticals
I. Electricity generation
J. Fertilizers
K. General purpose machinery
L. Hotels & restaurants

M. Industrial construction
N. Non-banking financial cos. (NBFCs)
O. Plastic Industries
P. Polymers Manufacturing
Q. Refinery
R. Shipping
S. Steel Industries
T. Tea & Sugar Industries
6. Conclusion
7. Current Scenarios
1. PREFACE
“Returns on Equity of Low Debt Company is more than

Returns on Equity of High Debt Company”
Selection of topic has been done for Small Retail Investors to let them
know whether it will make any difference to their Investment in the
Company if it is High Debt or Low Debt.
To prepare the Topic had collected Data of around 400+ Companies

for tenure ranging from 12 years to 20 years in each company. Companies
from Banking companies, Non-Banking Financial companies, Textile
Companies, Chemicals Industries companies, Drugs & Pharmaceuticals
companies, Computer & Peripherals, Cement Industries, Electricity
Generation companies, Ferlizers Sectors, Plastic Industries, Shipping
Companies, Steel Industries etc……..data is collected, compare & Analyze
properly.
Data consider:
1. Debt to Equity Ratio at the end of each financial year.
2. BSE Stock Market Price at the end of each financial year
3. BSE Sensex Price on day to day basis are also consider
Project has been done under guidance of Prof Chaya Sehgal.

2. MARKET
A market is any place where the sellers of a particular good or service

can meet with the buyers of that goods and service where there is a
potential for a transaction to take place. The buyers must have something
they can offer in exchange for there to be a potential transaction.
Marketing Dictionary: Market
Economic system bringing together the forces of supply and demand for a
particular good or service. A market consists of customers, suppliers, and
channels of distribution, and mechanisms for establishing prices and
effecting transactions. For example, the soft drink market comprises the
manufacturers, bottlers, distributors, retailers, restaurants, and consumers.
Sell some good or service.
Banking Dictionary: Market
1. Aggregate of supply and demand that brings together informed buyers

and sellers, and sets the public price for products or services. For
example, the Credit market, the foreign exchange market, the Money
Market the mortgage market, and the Secondary Market.
2. Public place, such as a stock exchange, or futures exchange, where

trading takes place. It implies the presence of market makers who are
willing to buy or sell for their own account, or for customers, at
quoted prices. Futures exchanges are open outcry markets, where
prices are set by direct interaction (hand signals) by traders on the
trading floor. Securities exchanges, where listed securities are sold,
involve trading by brokers or dealers acting on behalf of buyers or
sellers, who maintain contact with the trading floor by telephone.
3. To sell anything of value to a willing buyer at a mutually agreeable

price.
2. A. STOCK MARKET
A Company always requires Capital for to generate more Income or

enhance Profit or to expand their Business etc….They can raise Capital
by Two ways :-
1. Owners Capital – Equity Shares & Preference Shares

2. Borrowed Capital – Secured Loans & Unsecure Loans.
Borrowed Capital is also known as Debt Capital. Debt Capital is fund

which requires to be repaid by Company over a period of time & normally
carry fixed Rate of Interest. The debt may be owed to an organization's own
reserves, individuals, banks, or other institutions. The debt is normally
secured by a note or bond or mortgage or other instrument that states
repayment and interest provisions. The note, in turn, may be secured by a
lien against property or other assets
Owners Capital does not require to be repaid in abnormal situation. It

is issued in the form of Stock. A stock (also known as equity or a share) is a
portion of the ownership of a corporation. A share in a corporation gives the
owner of the stock a stake in the company and its profits. If a corporation
has issued 100 stocks in total, then each stock represents a 1% ownership
in the company.
A market in which shares are issued and traded either through

exchanges or over-the-counter markets is known as Stock Market. Also
known as the equity market, it is one of the most vital areas of a market
economy as it provides companies with access to capital and investors with
a slice of ownership in the company and the potential of gains based on the
company's future performance.
The size of the world stock market is estimated at about $51 trillion.
Major Stock Markets of India are:-

1. Bombay Stock Exchange
2. National Stock Exchange
Major Stock Markets of World are:-
Market
Turnover
Value
Region Stock Exchange (trillions
(trillions of
of US
US dollars)
dollars)
Africa JSE Securities Exchange $0.94 $0.35
Americas NASDAQ $4.39 $12.40
Americas São Paulo Stock Exchange $1.40 $0.48
Americas Toronto Stock Exchange $2.29 $1.36
Americas/Europe NYSE Euronext $20.70 $28.70
Asia-Pacific Australian Securities Exchange $1.45 $1.00
South Asia Bombay Stock Exchange $1.61 $0.26
Asia-Pacific Hong Kong Stock Exchange $2.97 $1.70
Asia-Pacific Korea Exchange $1.26 $1.66
National Stock Exchange of
South Asia India $1.46 $0.56
Asia-Pacific Shanghai Stock Exchange $3.02 $3.56
Asia-Pacific Shenzhen Stock Exchange $0.74 $1.86
Asia-Pacific Tokyo Stock Exchange $4.63 $5.45
Frankfurt Stock Exchange
Europe (Deutsche Börse) $2.12 $3.64
Europe London Stock Exchange $4.21 $9.14
Madrid Stock Exchange
Europe (Bolsas y Mercados Españoles) $1.83 $2.49
Milan Stock Exchange (Borsa
Europe Italiana) $1.13 $1.98
Moscow Interbank Currency
Europe Exchange (MICEX) $0.97 $0.49
Nordic Stock Exchange Group

Europe OMX1 $1.38 $1.60
Europe Swiss Exchange $1.33 $1.58
Total World Stock Market is estimated about 51 Trillion

3. MARKET CONDITIONS
Each & every country goes to different market condition at

different period. Sometime market condition is conducive for companies
to grow while some time it market may not be conducive & sometime it is
consolidation. All markets go through different market condition:-
A. Bull Market
B. Bear Market
3. A. Bull Market:
Definition:
A bull market tends to be associated with increasing investor confidence,
motivating investors to buy in anticipation of future price increases and
future capital gains. In describing financial market behavior, the largest
group of market participants is often referred to, metaphorically, as a herd.
This is especially relevant to participants in bull markets since bulls are
herding animals. A bull market is also sometimes described as a bull run. A
Bull market occurs all major macro economic factors are conducive for
business in an economy & all stock prices are on the rise.
Sensex Prices:-
• 1000, July 25, 1990 -

On July 25, 1990, the Sensex touched the four-digit figure for the first
time and closed at 1,001
• 2000, January 15, 1992 -

On January 15, 1992, the Sensex crossed the 2,000-mark and closed
at 2,020 followed by the liberal economic policy initiatives undertaken
by finance minister Dr Manmohan Singh.
• 3000, February 29, 1992 -

On February 29, 1992, the Sensex surged past the 3000 mark
• 4000, March 30, 1992 -

On March 30, 1992, the Sensex crossed the 4,000-mark and closed at
4,091 on the expectations of a liberal export-import policy
• 5000, October 11, 1999 -
On October 8, 1999, the Sensex crossed the 5,000-mark as the BJP-
led coalition won the majority in the 13th Lok Sabha election.
• 6000, February 11, 2000 -

On February 11, 2000, the infotech boom helped the Sensex to cross
the 6,000-mark and hit and all time high of 6,006.
• 7000, June 21, 2005 -

On June 20, 2005, the news of the settlement between the Ambani
brothers boosted investor sentiments and the scripts of RIL, Reliance
Energy, Reliance Capital and IPCL made huge gains. This helped the
Sensex crossed 7,000 points for the first time.
• 8000, September 8, 2005 -

On September 8, 2005, the Bombay Stock Exchange's benchmark 30-
share index -- the Sensex -- crossed the 8000 level following brisk
buying by foreign and domestic funds in early trading.
• 9000, December 9, 2005 -

The Sensex on November 28, 2005 crossed 9000 to touch 9000.32
points during mid-session at the Bombay Stock Exchange on the back
of frantic buying spree by foreign institutional investors and well
supported by local operators as well as retail investors.
• 10,000, February 7, 2006 -

The Sensex on February 6, 2006 touched 10,003 points during mid-
session. The Sensex finally closed above the 10K-mark on February 7,
2006.
• 11,000, March 27, 2006 -

The Sensex on March 21, 2006 crossed 11,000 and touched a peak of
11,001 points during mid-session at the Bombay Stock Exchange for
the first time. However, it was on March 27, 2006 that the Sensex first
closed at over 11,000 points.
• 12,000, April 20, 2006 -

The Sensex on April 20, 2006 crossed 12,000 and touched a peak of
12,004 points during mid-session at the Bombay Stock Exchange for
the first time.
• 13,000, October 30, 2006 -
The Sensex on October 30, 2006 crossed 13,000 and still riding high
at the Bombay Stock Exchange for the first time. It took 135 days to
reach 13,000 from 12,000. And 124 days to reach 13,000 from
12,500. On 30 October 2006 it touched a peak of 13,039.36 & closed
at 13,024.26.
• 14,000, December 5, 2006 -

The Sensex on December 5, 2006 crossed 14,000 and touched a peak
of 14028 at 9.58AM(IST) while opening for the day December 5, 2006.
• 15,000, July 6, 2007-

The Sensex on July 6, 2007 crossed another milestone and reached a
magic figure of 15,000. it took almost 7 month and 1 day to touch
such a historic milestone.
• 16,000, September 19, 2007-

The Sensex on September 19, 2007 crossed the 16,000 mark and
reached a historic peak of 16322 while closing. The bull hits because
of the rate cut of 50 bit/s in the discount rate by the Fed chief Ben
Bernanke in US.
• 17,000, September 26, 2007-

The Sensex on September 26, 2007 crossed the 17,000 mark for the
first time, creating a record for the second fastest 1000 point gain in
just 5 trading sessions. It failed however to sustain the momentum
and closed below 17000. The Sensex closed above 17000 for the first
time on the following day. Reliance group has been the main
contributor in this bull run, contributing 256 points. This also helped
Mukesh Ambani's net worth to grow to over $50 billion or Rs.2
trillion. It was also during this record bull run that the Sensex for the
first time zoomed ahead of the Nikkei of Japan.
• 18,000, October 9, 2007-

The Sensex crossed the 18k mark for the first time on October 9,
2007. The journey from 17k to 18k took just 8 trading sessions which
is the third fastest 1000 point rise in the history of the sensex. The
sensex closed at 18,280 at the end of day. This 788 point gain on 9
October was the second biggest single day absolute gains.
• 19,000, October 15, 2007-

The Sensex crossed the 19k mark for the first time on October 15,
2007. It took just 4 days to reach from 18k to 19k. This is the fastest
1000 points rally ever and also the 640 point rally was the second
highest single day rally in absolute terms. This made it a record 3000
point rally in 17 trading sessions overall.
• 20,000, October 29, 2007-

The Sensex crossed the 20k mark for the first time- It took 11 days to
reach from 19k to 20k. The journey of the last 10,000 points was
covered in just 869 sessions as against 7,297 sessions taken to touch
the 10,000 mark from 1,000 levels. In 2007 alone, there were six
1,000-point rallies for the Sensex.
• 21,000, January 8, 2008 Business Standard
3. B. Bear Market:
Bear market is described as being accompanied by widespread pessimism.

Investors anticipating further losses are often motivated to sell, with
negative sentiment feeding on itself in a vicious circle. Prices fluctuate
constantly on the open market; a bear market is not a simple decline, but a
substantial drop in the prices of the majority of stocks in a given market
over a defined period of time. According to The Vanguard Group, "While
there’s no agreed-upon definition of a bear market, one generally accepted
measure is a price decline of 20% or more over at least a two-month period
The term bear market comes from the image of a bear pawing something to
the ground.
The biggest stock market falls of all time.

1) Wall Street 1929-32: -89%
The Wall Street Crash heads the list, with the US stock market falling by 89
per cent between 1929 and 1932. The bursting of the speculative bubble led
to further selling as people who had borrowed money to buy shares had to
cash them in in a hurry when their loans we called in.
2) US Nasdaq 2000-2002: -82%
The second biggest collapse came from the technology-rich US Nasdaq
index, which fell by 82 per cent following the bursting of the dot.com bubble
in 2000
3) Japan 1990-2003: -79%
In third place, with a 79 per cent decline, was the Japanese stock market,
which suffered a protracted slide in price from 1990 to 2003 as a share and
property price bubble burst and turned into a deflationary nightmare.
4) London 1973-74: -73%
Next came the UK stock market’s 73 per cent drop in 1973 and 1974. set
against the backdrop of a dramatic rise in oil prices, the miners’ strike and
the downfall of the Heath government.
5) Hong Kong 1997-98: -64%
The Hong Kong stock market’s heavy fall in 1997-1998 came as investors
deserted emerging Asian shares, including a very overheated Hong Kong
stock market
6) London 2000-2003: -52%
The UK took sixth place in the table with a 52 per cent market fall between
2000 and 2003 as investors suffered the consequences of the collapse of the
technology bubble
7) Wall Street 1937-38: -49%
This share price fall was triggered by an economic recession and doubts
about the effectiveness of Franklin D Roosevelt's New Deal policy.
8) Wall Street 1906-07: -48%
Markets took fright after President Theodore Roosevelt had threatened to
rein in the monopolies that flourished in various industrial sectors, notably
railways.
9) Wall Street 1919-21: -46%
There were fears that the new automobile sector was becoming overheated
and that car ownership had reached saturation point.
10) Wall Street 1901-03: -46%
The market was spooked by the assassination of President McKinley in
1901, coupled with a severe drought later the same year.
List of Recession of US:-
Name Dates Duration Causes
The effects of the deflation of the Bank of England

crossed the Atlantic Ocean to North America and
disrupted commercial and real estate markets in
the United States and the Caribbean. Britain's
economy was greatly affected by developing
disflationary repercussions because it was fighting
France in the French Revolutionary Wars at the
Panic of 1797 1797–1800 3 years time.
The Embargo Act of 1807 was passed by the

United States Congress under President Thomas
Jefferson. It devastated shipping-related
industries. The Federalists fought the embargo
and allowed smuggling to take place in New
Depression of 1807 1807–1814 7 years England.
The first major financial crisis in the United States

featured widespread foreclosures, bank failures,
unemployment, and a slump in agriculture and
manufacturing. It also marked the end of the
Panic of 1819 1819–1824 5 years economic expansion that followed the War of 1812.
A sharp downturn in the American economy was

caused by bank failures and lack of confidence in
the paper currency. Speculation markets were
greatly affected when American banks stopped
Panic of 1837 1837–1843 6 years payment in specie (gold and silver coinage).
Failure of the Ohio Life Insurance and Trust

Company burst a European speculative bubble in
United States railroads and caused a loss of
confidence in American banks. Over 5,000
businesses failed within the first year of the Panic,
and unemployment was accompanied by protest
Panic of 1857 1857–1860 3 years meetings in urban areas.
Economic problems in Europe prompted the

failure of the Jay Cooke & Company, the largest
bank in the United States, which busted the post-
Civil War speculative bubble. The Coinage Act of
1873 also contributed by immediately depressing
the price of silver, which hurt North American
Panic of 1873 1873–1879 6 years mining interests.
The collapse of the Vienna Stock Exchange caused

a depression that spread throughout the world. It
is important to note that during this period, the
global industrial production greatly increased. In
the United States, for example, industrial output
Long Depression 1873–1896 23 years increased fourfold.
Failure of the United States Reading Railroad and

withdrawal of European investment lead to a stock
market and banking collapse. This Panic was also
Panic of 1893 1893–1896 3 years precipitated in part by a run on the gold supply.
A run on Knickerbockers Trust Company deposits
on October 22, 1907 set events in motion that
Panic of 1907 1907–1908 1 year would lead to a severe monetary contraction.
Severe hyperinflation in Europe took place over

production in North America. It was a brief, but
very sharp recession and was caused by the end of
wartime production, along with an influx of labor
Post-World War I from returning troops. This in turn caused high
recession 1918–1921 3 years unemployment.
Stock markets crashed worldwide, and a banking

collapse took place in the United States. This
sparked a global downturn, including a second,
more minor recession in the United States, the
Great Depression 1929–1939 10 years Recession of 1937.
After a post-Korean War inflationary period, more
funds were transferred into national security. The
Federal Reserve changed monetary policy to be
more restrictive in 1952 due to fears of further
Recession of 1953 1953–1954 1 year inflation.
Monetary policy was tightened during the two

years preceding 1957, followed by an easing of
policy at the end of 1957. The budget balance
resulted in a change in budget surplus of 0.8% of
GDP in 1957 to a budget deficit of 0.6% of GDP in
Recession of 1957 1957–1958 1 year 1958, and then to 2.6% of GDP in 1959.
A quadrupling of oil prices by OPEC coupled with

high government spending due to the Vietnam War
1973 oil crisis 1973–1975 2 years lead to stagflation in the United States.
The Iranian Revolution sharply increased the price

of oil around the world in 1979, causing the 1979
energy crisis. This was caused by the new regime
in power in Iran, which exported oil at inconsistent
intervals and at a lower volume, forcing prices to
go up. Tight monetary policy in the United States
to control inflation lead to another recession. The
changes were made largely because of inflation
that was carried over from the previous decade
due to the 1973 oil crisis and the 1979 energy
Early 1980s recession 1980–1982 2 years crisis.
Industrial production and manufacturing-trade

Early 1990s recession 1990–1991 1 year sales decreased in early 1991.
The collapse of the dot-com bubble, the September

11th attacks, and accounting scandals contributed
to a relatively mild contraction in the North
Early 2000s recession 2001–2003 2 years American economy.
4. INVESTORS
Definition:-
Investors are person\group of persons\financial Institution\mutual

funds\banks\corporate\foreign institutional investors\HNI’s who invest
their money in Stocks\Shares of the company in anticipation of Returns on
their Investment in the form of dividend or price appreciation in the value of
their stock. Investors will not be guaranteed about Returns on it Capital but
can even incur losses on its investment but on the other hand a lender is
promise of fixed returns on capital & also the capital.
Firms like Financial Institutions\ Mutual Funds\ Banks\ Corporate\

Foreign Institutional Investors normally has a team of Professionals in their
organization for doing investment in Stock Market & usually do invest a
large Volume of money in the markets.
Small Retail Investors are Individuals investors who invest money in

Stock Market.
4. A. TYPE OF INVESTORS
For our reference I had further classified the above mention investors into
different types of Investors on the basis of time they do the transaction of
the stock/shares they holds. Different types of Investors on the basis of time
are as follows:-
a. Short Term (Less Than 1 yr)
Individual/firms who invest their money in Stock Market for a period

ranging from few second to few hours to few days to few weeks to few
months but less than a year are known as Speculators. Speculators are
mostly involve in trading of stocks on daily basis. They normally purchase
shares for small period of time & sell it even at small value appreciation or
depreciations. Speculation, in the narrow sense of financial speculation,
involves the buying, holding, selling, and short-selling of stocks, bonds,
commodities, currencies, collectibles, real estate, derivatives or any valuable
financial instrument to profit from fluctuations in its price as opposed to
buying it for use or for income via methods such as dividends or interest.
Speculation represents one of three market roles in western financial
markets, distinct from hedging, long term investing and arbitrage.
Speculators in an asset have no intention to have long term exposure all the
best asset.
b. Medium Term (1 to 5 year)
Individual/firms who invest their money in Stock Market for a period

ranging from One year to Five years are known as Medium Term Investors.
Medium term Stock investors purchase stocks with the intention of holding
for an extended period of time, usually for several years. They rely primarily
on fundamental analysis for their investment decisions and fully recognize
stock shares as part-ownership in the company. Many investors believe in
the buy and hold strategy, which as the name suggests, implies that
investors will hold stocks for the very long term, generally measured in
years. This strategy was made popular in the equity bull market of the
1980s and 90s where buy-and-hold investors rode out short-term market
declines and continued to hold as the market returned to its previous highs
and beyond
c. Long Term Investors (more than 5 yrs)
Individual/firms who invest their money in Stock Market for a period more
than Five years are known as Long Term Investors. Medium term Stock
investors purchase stocks with the intention of holding for a very long
period of time. Usually Promoters of the companies are long term Investors.
They rely primarily on fundamental of company decisions and fully
recognize stock shares as part-ownership in the company. They believe on
hold Policies & main source of Income are the Dividends they receive from
the company along with price appreciation.
5. SECTOR WISE ANALYSIS
Data from companies of different sector like Banking companies, Non-

Banking Financial companies, Textile Companies, Chemicals Industries
companies, Drugs & Pharmaceuticals companies, Computer & Peripherals,
Cement Industries, Electricity Generation companies, Ferlizers Sectors,
Plastic Industries, Shipping Companies, Steel Industries etc……..is
collected.
I had consider two important aspects - Debt to Equity Ratio of each

company at the end of each financial year for tenure ranging from 12 years
to 20 years and BSE Sensex price at the end of each Financial year.
5. A. AUTO INDUSTRIES
Debt to Equity Ratio
BSE Prices
ANALYSIS
Auto Manufacturing Companies like:-

6. Ashok Leyland Ltd.
7. Eicher Motors Ltd.
8. Swaraj Mazda Ltd.
Tata Motors Ltd.
The above mention companies data of Debt to Equity Ratio & BSE Sensex
price from 1991 to 2008 are consider for Analysis.
Analysis shows that average debt to equity ratio of all the companies is
between 1 to 1.5 & Returns on equity for first 5 years was Nil except Tata
Motors which was 300% & for 15+ years is approx 750% of base year price
5. A. a. AUTOMOBILES ANCILIARY
BSE Prices
ANALYSIS
Automobile Ancillary Companies like:-
• Amtek Auto Ltd.

• Automotive Axles Ltd.
• Bharat Forge Ltd.
• Bosch Chassis Systems India Ltd.
• Bosch Ltd.
• Federal-Mogul Goetze (India) Ltd.
• Lumax Industries Ltd.
• Motherson Sumi Systems Ltd.
• Munjal Showa Ltd.
• Omax Autos Ltd.
• Pricol Ltd.
• Rico Auto Inds. Ltd.
• Sona Koyo Steering Systems Ltd.
• Sundram Fasteners Ltd.
• Ucal Fuel Systems Ltd.
The above mention companies data of Debt to Equity Ration & BSE Sensex
between 1 to 1.5 & Returns on equity for first 5 years was on an average
around 300% 15+ years of most of the companies was around 1000% except
Amtek Auto & Automotive & Mothersons which were more leverage for in its
initial period of more than 4 times the equity which laid down the base for
long term growth of their organization.
5. B. BANKING SECTOR
BSE Prices
BSE Prices
BSE Prices
ANALYSIS
Banking Companies like:-
• Allahabad Bank
• Andhra Bank
• Axis Bank Ltd.
• Bank Of Baroda
• Bank Of India
• Canara Bank
• City Union Bank Ltd.
• Corporation Bank
• Dena Bank
• Federal Bank Ltd.
• H D F C Bank Ltd.
• I C I C I Bank Ltd.
• I D B I Bank Ltd.
• I N G Vysya Bank Ltd.
• Indian Overseas Bank
• Indusind Bank Ltd.
• Jammu & Kashmir Bank Ltd.
• Karnataka Bank Ltd.
• Karur Vysya Bank Ltd.
• Kotak Mahindra Bank Ltd.
• Lakshmi Vilas Bank Ltd.
• Oriental Bank Of Commerce
• Punjab National Bank
• South Indian Bank Ltd.
• State Bank Of India
• Syndicate Bank
• Uco Bank
• Union Bank Of India
• Vijaya Bank
between 0.5 to 1.5 & Returns on equity over the tenure of 13 years is around
400 % except Banks like ICICI, HDFC, SBI & Kotak Mahindra which were
more 1000% & their debt to equity ratio was more twice its equity other than
SBI Bank.
4. C. CEMENT INDUSTRIES
BSE Prices
ANALYSIS
Cement Companies like:-
• A C C Ltd.
• Ambuja Cements Ltd.
• Birla Corporation Ltd.
• Dalmia Cement (Bharat) Ltd.
• Grasim Industries Ltd.
• India Cements Ltd.
• K C P Ltd.
• Madras Cements Ltd.
• Prism Cement Ltd.
• Shree Cement Ltd.
• Ultratech Cement Ltd.
around 1 except India Cement which highly leverage 2.5 times of Equity.
There was regular growth in some of the Industries like ACC, Grasim,
Ultratech and Shree Cement etc which was more than 500% of its original
price.
5. D. CLOTH & TEXTILES INDUSTRIES
BSE Prices
ANALYSIS
Cloth Industries Companies like:-
• Alok Industries Ltd.

• Arvind Ltd.
• Bombay Dyeing & Mfg. Co. Ltd.
• Bombay Rayon Fashions Ltd.
• S Kumars Nationwide Ltd.
around 1. There was regular growth in Bombay Dyeing Co Ltd since its fall
from 2001 to 400% since it started its debt to equity ratio
5. E. COMPUTERS & PERIPHERALS
BSE Prices
BSE Prices
ANALYSIS
Computers & Peripherals Companies like:-
• Avaya Globalconnect Ltd.

• Himachal Futuristic Communications Ltd.
• Aftek Ltd.
• C M C Ltd.
• G T L Ltd.
• Hexaware Technologies Ltd.
• Infosys Technologies Ltd.
• Infotech Enterprises Ltd.
• K P I T Cummins Infosystems Ltd.
• Mastek Ltd.
• Mphasis Ltd.
• N I I T Ltd.
• Oracle Financial Services Software Ltd.
• P V P Ventures Ltd.
• Rolta India Ltd.
• Satyam Computer Services Ltd.
• Sonata Software Ltd.
• Tata Elxsi Ltd.
• Tech Mahindra Ltd.
• Wipro Ltd.
• Zensar Technologies Ltd.
Analysis shows that average debt to equity ratio of all the companies is less
than 0.5 times & Returns on some of the high performing shares like Wipro,
Infosys, Mphasis ltd is more than 5000% oever a duration of more than 10
years
5. F. CHEMICALS & DYES
BSE Prices
BSE Prices
ANALYSIS
Chemical & Dyes Companies like:-
• Aarti Industries Ltd.

• Godrej Industries Ltd.
• Gujarat Fluorochemicals Ltd.
• Hikal Ltd.
• India Glycols Ltd.
• Jubilant Organosys Ltd.
• Tamilnadu Petroproducts Ltd.
• Agro Dutch Inds. Ltd.
• B A S F India Ltd.
• B O C India Ltd.
• Deepak Fertilisers & Petrochemicals Corpn. Ltd.
• Foseco India Ltd.
• Pidilite Industries Ltd.
• Sterling Biotech Ltd.
around 1.
Return on Equity of low debt company like BASF India Ltd over a period of
first 5 years was around 400% but since it started reducing the debt to euity
ratio the price more or less stabilize
Where as high debt to equity ratios like Hikal Ltd & Jubiliant Organosys Ltd
which were 2 times the Equity were more than 2000% over a period of 10 +
years.
5. G. DIVERSIFIED INDUSTRIES
BSE Prices
ANALYSIS
Diversified Business Companies like:-
• Aditya Birla Nuvo Ltd.

• Balmer Lawrie & Co. Ltd.
• D C M Shriram Consolidated Ltd.
• Kesoram Industries Ltd.
• Orient Paper & Inds. Ltd.
• Sintex Industries Ltd.
• Surya Roshni Ltd.
• Voltas Ltd.
around 2.5 times the Equity.
Return on Equity of low debt company like Aditya Birla Ltd was 400% for 5
years & for 15+ years is 2000%
Where as high debt to equity ratios like Orients Industries started improving
when they started more leveraging themselves since 2001
5. H. DRUGS & PHARMACEUTICALS
BSE Prices
ANALYSIS
Drugs & Pharmacy Companies like:-
• Alembic Ltd.
• Astrazeneca Pharma India Ltd.
• Aventis Pharma Ltd.
• Cipla Ltd.
• Dr. Reddy'S Laboratories Ltd.
• F D C Ltd.
• Glaxosmithkline Pharmaceuticals Ltd.
• Ipca Laboratories Ltd.
• J B Chemicals & Pharmaceuticals Ltd.
• Merck Ltd.
• Pfizer Ltd.
• Ranbaxy Laboratories Ltd.
• Unichem Laboratories Ltd.
• Wyeth Ltd.
• Zandu Pharmaceutical Works Ltd.
around 0.7 times.
Return on Equity of low debt company like Aventis, Cipla, Zandu regularly
improved their returns over the tenure of 18 years which more than 5000%
over the tenure
Returns on Equity of high debt company like Alembic Ltd which is more than
1.5 times is more than 700%
5. I. ELECTRICITY GENERATION
BSE Prices
ANALYSIS
Electricity Generation Companies like:-
• C E S C Ltd.
• Gujarat Industries Power Co. Ltd.
• N E P C India Ltd.
• Neyveli Lignite Corpn. Ltd.
• Reliance Infrastructure Ltd.
• Tata Power Co. Ltd.
around 0.6 times.
Return on Equity of low debt company like Reliance Infrastructure & Tata
power is more than 1000% for tenure more than 15 years
5. J. FERTILIZERS
BSE Prices
ANALYSIS
Fertilizers Companies like:-
• Chambal Fertilisers & Chemicals Ltd.

• Coromandel Fertilisers Ltd.
• Gujarat Narmada Valley Fertilizers Co. Ltd.
• Gujarat State Fertilizers & Chemicals Ltd.
• Nagarjuna Fertilizers & Chemicals Ltd.
• Oswal Chemicals & Fertilizers Ltd.
• Rashtriya Chemicals & Fertilizers Ltd.
• Tata Chemicals Ltd.
• Zuari Industries Ltd.
around 1.2 times.
All companies price was falling till 2001-2002 & started rising to 300% to
400%
5.K. GENERAL PURPOSE MACHINERIES
Debt To Equity Ratio
BSE Prices
ANALYSIS
Hotel & Restaurant Companies like:-

• Elgi Equipments Ltd.
• F A G Bearings India Ltd.
• Ingersoll-Rand (India) Ltd.
• K S B Pumps Ltd.
• Kirloskar Brothers Ltd.
• N R B Bearings Ltd.
• S K F India Ltd.
• Shanthi Gears Ltd.
The above mention companies’ data of Debt to Equity Ratio & BSE Sensex
price from 1991 to 2008 is considered for Analysis.
Analysis shows that debt to equity ratio trend is reducing in all the
companies & has reach to Zero in some of the companies in yr 2008
Return on Equity is mostly cyclical where there is high than fall of 33% to
50%, than again reaching new high & than again fall of 33% to 50% & again
gaining momentum in almost all the companies of this sector
5.L. HOTEL & RESTAURANT INDUSTRY
BSE Prices
ANALYSIS
Hotel & Restaurant Companies like:-
• Asian Hotels Ltd.

• E I H Ltd.
• Hotel Leelaventure Ltd.
• Indian Hotels Co. Ltd.
• Oriental Hotels Ltd.
• Taj G V K Hotels & Resorts Ltd.
Analysis shows that debt to equity ratio trend is reducing in all the
companies & has even reach to Zero in some of the companies in yr 2008
All companies whether Zero Debt company or High Leverage companies is

giving good Return on Equity in last 5 years
5.M. INDUSTRIAL CONSTRUCTIONS
BSE Prices
ANALYSIS
Industrial Constructions Companies like:-
• Era Infra Engg. Ltd.

• Larsen & Toubro Ltd.
• Patel Engineering Ltd.
• Alfa Laval (India) Ltd.
• Lakshmi Machine Works Ltd.
• Praj Industries Ltd.
• Hindustan Construction Co. Ltd.
• I V R C L Infrastructures & Projects Ltd.
• Nagarjuna Construction Co. Ltd.
Hindustan Construction Company debt to equity ratio is highiest at 3 times

equity has given a very good return of more than 15000% over a tenure of 15
years
Zero Debt companies like Lakshmi Machine works Ltd & Praj Companies Ltd
has also give a handsome return of around 5000% over the tenure of 15
years.
5.N. NON-BANKING FINANCIAL COMPANIES (NBFC’S)
BSE Prices
ANALYSIS
NBFC’s Companies like:-
• Bajaj Auto Finance Ltd.

• Cholamandalam D B S Finance Ltd.
• First Leasing Co. Of India Ltd.
• S R E I Infrastructure Finance Ltd.
• Shriram Transport Finance Co. Ltd.
All companies in this sectors are highly Leveage & their Average Debt to
Equity ratios is around 5 times Equity
Most of the companies in this sector is giving returns on 3000% to 4000%

over a tenure of 15 years.
5.O. PLASTIC INDUSTRIES
BSE Prices
ANALYSIS
• Cosmo Films Ltd.

• Jindal Poly Films Ltd.
• Max India Ltd.
• Essel Propack Ltd.
• Paper Products Ltd.
• Uflex Ltd.
• V I P Industries Ltd.
• Jain Irrigation Systems Ltd.
• Nilkamal Ltd.
• Supreme Industries Ltd.
around 1.5 times Equity.
Price Trends shows price falling till 2001 & than again increasing in later
years.
Less Leverage company Jindal poly Films has low of Rs 27 in 01 & has
increase to 285 & consolidating since than. Growth is approx 1000%
More Leverage company like Jain Irrigation System has an Average price at of
16 to 17 rupees in 2000 & 2001 & has regularly increase since than to 520
Rupees showing an increase of more than 3000%
5.P. POLYMERS INDUSTRIES
BSE Prices
ANALYSIS
Polymers Companies like:-
• Bhansali Engineering Polymers Ltd.

• Chemplast Sanmar Ltd.
• D C W Ltd.
• Finolex Industries Ltd.
• Ineos A B S (India) Ltd.
• Supreme Petrochem Ltd.
In initial period companies like Bhansali Engineer Polymers & Finolex

Industries is highly Leverage & reduce it immediately, where Ineos A B S
(India) Ltd has made them as zero debt companies & Average Debt to Equity
Ratios is 1.2 times.
Zero debt company like Ineos A B S (India) Ltd has grown after the fall in
2000 – 2001 from Rs 21 to Rs 160 in 2008 almost showing the growth of
800%.
Initially highly leverage companies like Finolex Industries Ltd has grown from
8.75 to to Rs 70 in 2005 & than consolidating between 65 to 70 showimg
growth of approx 800% over the same period
5.Q. REFINERIES
BSE Prices
ANALYSIS
Refineries Companies like:-
• Bharat Petroleum Corpn. Ltd.

• Bongaigaon Refinery & Petrochemicals Ltd.
• Chennai Petroleum Corpn. Ltd.
• Essar Oil Ltd.
• Hindustan Petroleum Corpn. Ltd.
• Indian Oil Corpn. Ltd.
• Mangalore Refinery & Petrochemicals Ltd.
• Reliance Industries Ltd.
Most of the the companies have try to maintain Average Debt equal to Equity
that is 1 except Mangalore Refinery & Petrochemicals Ltd which has an
average debt to 3 to 4 times equity & Essar Oil which in later period has
increase it to 2.5 times
Reliance industries have grown by more than 2500% over the tenure. MRPL
& Essar oil has grown post 2001 by around 1000% & 2500% respectively
5. R. SHIPING INDUSTRIES
BSE Prices
ANALYSIS
Shipping Companies like:-
• Dredging Corpn. Of India Ltd.

• Essar Shipping Ports & Logistics Ltd.
• Great Eastern Shipping Co. Ltd.
• Mercator Lines Ltd.
• Seamec Ltd.
• Shipping Corpn. Of India Ltd.
• Varun Shipping Co. Ltd.
Average Debt to Equity Ratios in the Sector is around 0.7Analysis shows that
average debt to equity ratio of all the companies is around 1.2 times. Most of
the companies has reducing Trend of debt to Equity Ratios but companies
like Varun Shipping Co. Ltd. & Mercator Lines Ltd are going more leverage
Dredging Corpn. Of India Ltd has grown from 86.5 in yr 1998 to 647.5 in Yr
2008. While Varun Shipping Co. Ltd & Mercator Lines Ltd has grown from Rs
8 to Rs 72 & Mercator Lines Ltd has grown from Rs 0.29 to Rs 79 during
seme period
5.S. STEEL INDUSTRIES
BSE Prices
ANALYSIS
Steel Industries Companies like:-
• Ajmera Realty & Infra India Ltd.

• Bhushan Steel Ltd.
• Mahindra Ugine Steel Co. Ltd.
• Monnet Ispat & Energy Ltd.
• Steel Authority Of India Ltd.
• Tata Steel Ltd.
• Uttam Galva Steels Ltd.
• Electrosteel Castings Ltd.
• Jindal Saw Ltd.
• Maharashtra Seamless Ltd.
• Tube Investments Of India Ltd.
• Welspun-Gujarat Stahl Rohren Ltd.
Average Debt to Equity Ratios is 1.5 times. Companies like Bhusan Steel are
improving its leverage for last 10 years & SAIL has highiest leverage in the
sector, whereas Maharashtra Seamless Ltd is continuously reducing its debt
ratio.
Price of Ajmera Realty & Infra India Ltd has increase from Rs 8.77 to Rs 180
an increase of 2000% Bhusan Steel has increase from Rs 72 to Rs 662 & Sail
has grown from Rs 18 to Rs 6 to Rs 180 almost 3000%
5.U. TEA & SUGAR INDUSTRIES
10
Bajaj Hindusthan Ltd.
9
Balrampur Chini Mills Ltd.
8
Bannari Amman Sugars Ltd.
7
Dhampur Sugar Mills Ltd.
6
E I D-Parry (India) Ltd.
5
Sakthi Sugars Ltd.
4
Thiru Arooran Sugars Ltd.
3
S R F Ltd.
2
Harrisons Malayalam Ltd.
1
Jay Shree Tea & Inds. Ltd.
0
91 92 93 94 95 96 97 98 99OOO1O2O3 O4O5O6O7O8 Tata Tea Ltd.
BSE Prices
1600
1400 Bajaj Hindusthan Ltd.
Balrampur Chini Mills Ltd.

1200
Bannari Amman Sugars Ltd.
1000 Dhampur Sugar Mills Ltd.
E I D-Parry (India) Ltd.

800
Sakthi Sugars Ltd.
600 Thiru Arooran Sugars Ltd.
S R F Ltd.
400
Harrisons Malayalam Ltd.
200 Jay Shree Tea & Inds. Ltd.
Tata Tea Ltd.

0
91 92 93 94 95 96 97 98 99 OO O1 O2 O3 O4 O5 O6 O7 O8
ANALYSIS
• Bajaj Hindusthan Ltd.

• Balrampur Chini Mills Ltd.
• Bannari Amman Sugars Ltd.
• Dhampur Sugar Mills Ltd.
• E I D-Parry (India) Ltd.
• Sakthi Sugars Ltd.
• Thiru Arooran Sugars Ltd.
• S R F Ltd.
• Harrisons Malayalam tea Ltd.
• Jay Shree Tea & Inds. Ltd.
• Tata Tea Ltd
Average debt to equity ratio is 1.5 tomes. But Sakthi Sugars has high Debt to
Equity Ratios of around 4 Times
All prices of tea sector companies are cyclical as there was steep fall in Prices
of all the stocks from 1996 to 2003 & sudden rise than on till 2006 & again
fall. Bannari Amman Sugars Ltd price rise from Rs 41 to Rs1390. Tata Tea is
only company having strong price haolding capacity with ver less variation in
price during the fall & increase by decent size when sector move up
6. CONCLUSION
After Collecting, Comparing & Analyzing data of 400 + Companies

in 20 different Sectors & over a period of 18 years about each company
individual debt to equity ratios & its Market price of each stocks in BSE
Sensex.
I had seen that the Business was Cyclical in Nature. Stock Market
of almost all the companies was on rise till 1991-1992 & than there was fall
of stock market price in most of the companies till 1996-1997 & than
Consolidation till 2000-2001 & than again steep growth in prices till 2007-
2008
In Some Sectors like Computers & Peripherals there is very low or

negligible Debt to Equity Ratios where as Non Banking Financial Companies
Sector the Debt to Equity ratios is very high at 5 times Equity.
There was variance on Returns on Equity on the basis of Debt to

Equity in different Sector like Computers & peripherals has give good
returns to equity even with very low debt ratios. But Most of companies in
the same sector move in the same manner on the basis of their Debt to
Equity.
It has been observed that:
“Returns on Equity of Low Debt Company is more than

Returns on Equity of High Debt Company
for smaller period of 5-8 years
But
Returns on Equity of High Debt Company is more than

Returns on Equity of Low Debt Company
for longer period of 15+ years”
10000
12000
14000
16000
18000
20000
22000
2000
4000
6000
8000
10000
12000
14000
16000
18000
20000
22000
8000
01-07-1997
31-01-2006
01-01-1998
31-03-2006
01-07-1998
31-05-2006 01-01-1999
01-07-1999
31-07-2006
01-01-2000
30-09-2006 01-07-2000
30-11-2006 01-01-2001
01-07-2001
31-01-2007
01-01-2002
31-03-2007 01-07-2002
01-01-2003
31-05-2007
01-07-2003
31-07-2007
01-01-2004
BSE Sensex Price
30-09-2007 01-07-2004
01-01-2005
30-11-2007
BSE Sensex Price (1997 -2008) 01-07-2005
7. CURRENT SCENARIOS.
31-01-2008 01-01-2006
01-07-2006
31-03-2008
01-01-2007
31-05-2008
01-07-2007
31-07-2008 01-01-2008
01-07-2008
30-09-2008
Current Scenario:
By going through history of prices of BSE Sensex, I observe that
Stock Market is going through cycle which is as follows:-
Year 1992
Peaked – Apr 1992
40% correction – Jul 1992 (3 months)
Bottomed – Apr 1993 @ 60% of peak level
Back to previous high – Oct 1999
6.5 years from bottom to reach Apr 1992 highs
Year 2000
Peaked – Feb 2000
40% correction – Oct 2000 (8 months)
Bottomed – Sep 01 @ 58% of peak level
Back to previous high – Jan 04
4.25 years from bottom to reach Apr 1992 highs
Year 2008
Peaked – Jan 2008
50% correction – Oct 2008 (10 months)
Still Correction going on because of:
- World economy slowing down & major bankers has gone bankrupt
- FIIs selling, liquidity drenching out
- Risk premiums on the way down
- Inflation issue
- Top line growth is primarily price growth, not volume
- Inventories on the rise
"People should be more concerned with the return of their principal
than the return on their principal."
In current scenario an intelligent investor, if wants to invest he

should target Low debt or Zero debt company which is having good
sustaining capacity as it is a time for Survival & jungle rule follows here
Survival of the fittest & low debt companies is more Stronger than High debt
companies.
But as cycle continues & market starts consolidating & see good
economic factor for future growth than should shift its investment to the
companies which are good at Fundamentals & starts increasing their debt
to equity ratio because of their Long term Growth Plans & this are the
companies which will give heavy returns on the Principal than low debt
companies.

Returns On Equity - Vikas Ladhe - MFM - JBIMS

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“Returns on Equity of High/Low

Under the guidance of

Jamnalal Bajaj Institute of Management studies

a. Short Term (Less Than 1 yr)

b. Medium Term (2-5 year)

c. Long Term Investors (more than 5 yrs)

5. Sector Wise Analysis

D. Cloth & Textiles

E. Computers & Peripherals

F. Chemicals & Dyes

H. Drugs & pharmaceuticals

K. General purpose machinery

L. Hotels & restaurants

N. Non-banking financial cos. (NBFCs)

T. Tea & Sugar Industries

“Returns on Equity of Low Debt Company is more than

To prepare the Topic had collected Data of around 400+ Companies

Project has been done under guidance of Prof Chaya Sehgal.

A market is any place where the sellers of a particular good or service

Marketing Dictionary: Market

Banking Dictionary: Market

1. Aggregate of supply and demand that brings together informed buyers

2. Public place, such as a stock exchange, or futures exchange, where

3. To sell anything of value to a willing buyer at a mutually agreeable

A Company always requires Capital for to generate more Income or

1. Owners Capital – Equity Shares & Preference Shares

Borrowed Capital is also known as Debt Capital. Debt Capital is fund

Owners Capital does not require to be repaid in abnormal situation. It

A market in which shares are issued and traded either through

Major Stock Markets of India are:-

Nordic Stock Exchange Group

Total World Stock Market is estimated about 51 Trillion

Each & every country goes to different market condition at

• 1000, July 25, 1990 -

• 2000, January 15, 1992 -

• 3000, February 29, 1992 -

• 4000, March 30, 1992 -

• 6000, February 11, 2000 -

• 7000, June 21, 2005 -

• 8000, September 8, 2005 -

• 9000, December 9, 2005 -

• 10,000, February 7, 2006 -

• 11,000, March 27, 2006 -

• 12,000, April 20, 2006 -

• 14,000, December 5, 2006 -

• 15,000, July 6, 2007-

• 16,000, September 19, 2007-

• 17,000, September 26, 2007-

• 18,000, October 9, 2007-

• 19,000, October 15, 2007-

• 20,000, October 29, 2007-

• 21,000, January 8, 2008 Business Standard

Bear market is described as being accompanied by widespread pessimism.

The biggest stock market falls of all time.

Name Dates Duration Causes

The effects of the deflation of the Bank of England

The Embargo Act of 1807 was passed by the

The first major financial crisis in the United States

A sharp downturn in the American economy was

Failure of the Ohio Life Insurance and Trust

Economic problems in Europe prompted the

The collapse of the Vienna Stock Exchange caused

Failure of the United States Reading Railroad and