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EXECUTIVE SUMMARY:
In the recent past, the bank interest rates have been increased steadily. But the
rate of Inflation has also been increased. There is no big difference between the
interest rate and Inflation rate. Because of inflation, value of money has been
decreased and cost of living has been increased. This has created panic among lower,
middle and upper middle class families who considered keeping their savings in banks
as safe as well as remunerative. So, the invertors are searching for proper investment
avenues. Here, an attempt is made to predict the future movement of scrips. This
study helps the investors to invest in shares.
The stock exchange comes in the secondary market. Stock exchange performs
activities such as trading in share, securities, bonds, mutual fund & commodities.
Stock Broking industry is growing at an enormous rate, as more and more people are
attracted towards stock exchanges with the hope of making profits.
But during this period the country also registered a fairly high industrial
growth. The old industries and business establishments who wanted to expand the
activities as well as the new industries and the business establishments floated shares
in the market to raise capital for their activities. The companies, which registered
steady growth, earned confidence of the people and their shares, were rated high in
the market.
Fundamental And Technical Analysis
This project report helps the reader to understand the techniques of investing
in the stock market particularly in the secondary market. Some of the proven
techniques have been used in this report to help the reader or investor.
Fundamental Analysis is the study of everything from the overall economy
and industry conditions, to the financial condition and management of specific
companies (i.e., using real data to evaluate a stock’s value).
To know the future movement of selected companies shares through fundamental and
technical analysis.
Sub objectives
o To predict the future price of the selected companies shares.
o To study the strategies to be adopted by the retail investors based on the technical
and fundamental analysis.
o To know the floor and cap price of the stock.
o To analyze individual company scrips by considering the factors relating to the
economy, industry and the respective company.
o To predict investor positions (Buy, sell & hold) based on historical price trends
and the likely company prospects.
Fundamental And Technical Analysis
Introduction:
For the premier Stock Exchange that pioneered the stock broking activity in India,
128 years of experience seems to be a proud milestone. A lot has changed since 1875
when 318 persons became members of what today is called "The Stock Exchange,
Mumbai" by paying a princely amount of Re1.
Since then, the country's capital markets have passed through both good and bad
periods. The journey in the 20th century has not been an easy one. Till the decade of
eighties, there was no scale to measure the ups and downs in the Indian stock market.
The Stock Exchange, Mumbai (BSE) in 1986 came out with a stock index that
subsequently became the barometer of the Indian stock market.
SENSEX is not only scientifically designed but also based on globally
accepted construction and review methodology. First compiled in 1986, SENSEX is a
basket of 30 constituent stocks representing a sample of large, liquid and
representative companies. The base year of SENSEX is 1978-79 and the base value is
100. The index is widely reported in both domestic and international markets through
print as well as electronic media.
The Index was initially calculated based on the "Full Market Capitalization"
methodology but was shifted to the free-float methodology with effect from
September 1, 2003. The "Free-float Market Capitalization" methodology of index
construction is regarded as an industry best practice globally. All major index
providers like MSCI, FTSE, STOXX, S&P and Dow Jones use the Free-float
methodology.
Due to its wide acceptance amongst the Indian investors, SENSEX is regarded
to be the pulse of the Indian stock market. As the oldest index in the country, it
provides the time series data over a fairly long period of time (From 1979 onwards).
Small wonder, the SENSEX has over the years become one of the most prominent
brands in the country.
Fundamental And Technical Analysis
The growth of equity markets in India has been phenomenal in the decade
gone by. Right from early nineties the stock market witnessed heightened activity in
terms of various bull and bear runs. The SENSEX captured all these events in the
most judicial manner. One can identify the booms and busts of the Indian stock
market through sensex.
NIFTY:
The Nifty is relatively a new comer in the Indian market. S&P CNX Nifty is a
50 stock index accounting for 23 sectors of the economy. It is used for purposes such
as benchmarking fund portfolios; index based derivatives and index funds. The base
period selected for Nifty is the close of prices on November 3, 1995, which marked
the completion of one-year of operations of NSE's capital market segment. The base
value of index was set at 1000. S&P CNX Nifty is owned and managed by India
Index Services and Products Ltd. (IISL), which is a joint venture between NSE and
CRISIL. IISL is a specialized company focused upon the index as a core product. IISL
Fundamental And Technical Analysis
have a consulting and licensing agreement with Standard & Poor's (S&P), who are
world leaders in index services.
India plays its cards right India may be the hub for the service sector. Still high end
manufacturing in auto parts and pharmaceuticals should be India’s target.
The FII (Foreign Institutional Investor) is monies, which chases the stocks in
the market place. It is not exactly brick and mortar money, but in the long run it may
translate into brick and mortar. Sudden influx of this drives the stock market up as too
much money chases too little stock. In last four months an influx of about $1.5 Billion
has driven the Indian stock market 20% higher.
Where FDI is a bit of a permanent nature, the FII flies away at the shortest
political or economical disturbance. The late nineties economic disaster of Asian
Tigers is a key example of the latter. Once this money leaves, it leaves ruined
economy and ruined lives behind. Hence FII is to be welcomed with strict political
and economical discipline.
China receives mainly the FDI. They do not have instruments to receive the FII i.e.
laws, institutions and political and judicial framework. On the contrary, India should
welcome both and work hard to retain both.
The Kotak Mahindra Group was born in 1985 as Kotak Capital Management
Finance Limited. This company was promoted by Uday Kotak, Sidney A. A. Pinto
and Kotak & Company. Industrialists Harish Mahindra and Anand Mahindra took a
stake in 1986, and that's when the company changed its name to Kotak Mahindra
Finance Limited.
Kotak Mahindra is one of India's leading financial institutions, offering
complete financial solutions that encompass every sphere of life. From commercial
banking, to stock broking, to mutual funds, to life insurance, to investment banking,
the group caters to the financial needs of individuals and corporates.
As on December 31, 2006, the group has a net worth of over Rs.3, 100 crore,
and the AUM across the group is around Rs. 225 billion and employs over 9,600
employees in its various businesses. With a presence in 282 cities in India and offices
in New York, London, Dubai and Mauritius, it services a customer base of over
around 2.2 million.
The group specializes in offering top class financial services, catering to every
segment of the industry. The various group companies include:
1. Kotak Mahindra Capital Company Limited
2. Kotak Mahindra Securities Limited
3. Kotak Mahindra Inc
4. Kotak Mahindra (International) Limited
5. Global Investments Opportunities Fund Limited
6. Kotak Mahindra (UK) Limited
7. Kotak Securities Limited
8. Kotak Mahindra Old Mutual Life Insurance Company Limited
9. Kotak Mahindra Asset Management Company Limited
10. Kotak Mahindra Trustee Company Limited
11. Kotak Mahindra Investments Limited
12. Kotak Forex Brokerage Limited
13. Kotak Mahindra Private-Equity Trustee Limited
14. Kotak Mahindra Prime Limited
Fundamental And Technical Analysis
Kotak Securities Ltd. is India's leading stock broking house with a market
share of around 8.5 % as on 31st March. Kotak Securities Ltd. has been the largest in
IPO distribution.
The accolades that Kotak Securities has been graced with include:
them.
Kotak Securities has 195 branches servicing more than 2,20,000 customers
and a coverage of 231 Cities. Kotaksecurities.com, the online division of Kotak
Securities Limited offers Internet Broking services and also online IPO and Mutual
Fund Investments.
Kotak Securities Limited manages assets over 2500 crores of Assets Under
Management (AUM) .The portfolio Management Services provides top class service,
catering to the high end of the market. Portfolio Management from Kotak Securities
comes as an answer to those who would like to grow exponentially on the crest of the
stock market, with the backing of an expert.
Fundamental analysis
The basic purpose of buying a security is to earn dividends and ultimately sell
it at higher price. An investor therefore is interested in obtaining estimates of future
prices of the share. These in turn will depend upon the performance of the industry to
which the company belongs and the general economic situation of the country. The
multitude of factors affecting a company’s profitability can be broadly classified as:
1. Economic wide factors: these includes the factors like growth rate of the
economy, the rate of inflation, foreign exchange rates etc which affects
profitability of all companies.
3. Company wide factor: these factors are specific to a firm. The firm
specific factors like plant and machinery, the brand image of the product, and
ability of the management to affect the profitability.
Fundamental analysis considers the financial and economic data that may
influence the viability of a company. There are many flavors of fundamental analysis
centered on such concepts as value, growth and turnarounds. Technical analysis is the
study of the price chart. It assumes that by looking at the progress of that little
squiggly line you can forecast the future trend of a stock. Fundamental analysis is
essential to most investors, and technical analysis is essential to most traders and
speculators.
Fundamental And Technical Analysis
One of the major assumptions under fundamental analysis is that, even though
things get mis priced in the market from time to time, the price of an asset will
eventually gravitate toward its true value. This seems to be a reasonable bet
considering the long upward march of quality stocks in general despite regular
setbacks and periods of irrational exuberance. The key strategy for the fundamentalist
is to buy when prices are at or below this intrinsic value and sell when they got
overpriced.
TECHNICAL ANALYSIS:
Fundamental And Technical Analysis
Moving Average:
There are several popular ways to calculate a moving average. Meta Stock for
Java calculates a "simple" moving average--meaning that equal weight is given to
each price over the calculation period.
Interpretation:
This type of moving average trading system is not intended to get you in at the
exact bottom nor out at the exact top. Rather, it is designed to keep you in line with
the security's price trend by buying shortly after the security's price bottoms and
selling shortly after it tops.
The critical element in a moving average is the number of time periods used in
calculating the average. When using hindsight, you can always find a moving average
that would have been profitable. The key is to find a moving average that will be
consistently profitable. The most popular moving average is the 39-week (or 200-
Fundamental And Technical Analysis
day) moving average. This moving average has an excellent track record in timing
the major (long-term) market cycles.
Advantages:
The advantage of moving average system of this type (i.e., buying and selling
when prices break through their moving average) is that you will always be on the
"right" side of the market: prices cannot rise very much without the price rising above
its average price. The disadvantage is that you will always buy and sell some late. If
the trend does not last for a significant period of time, typically twice the length of the
moving average, you will lose your money.
Support and resistance represent key junctures where the forces of supply and
demand meet. In the financial markets, prices are driven by excessive supply (down)
and demand (up). Supply is synonymous with bearish, bears and selling. Demand is
synonymous with bullish, bulls and buying. These terms are used interchangeably
throughout this and other articles. As demand increases, prices advance and as supply
increases, prices decline. When supply and demand are equal, prices move sideways
as bulls and bears slug it out for control.
What Is Support?
Support does not always hold and a break below support signals that the bears
have won out over the bulls. A decline below support indicates a new willingness to
Fundamental And Technical Analysis
sell and/or a lack of incentive to buy. Support breaks and new lows signal that sellers
have reduced their expectations and are willing sell at even lower prices. In addition,
buyers could not be coerced into buying until prices declined below support or below
the previous low. Once support is broken, another support level will have to be
established at a lower level.
Support levels are usually below the current price, but it is not uncommon for
a security to trade at or near support. Technical analysis is not an exact science and it
is sometimes difficult to set exact support levels. In addition, price movements can be
volatile and dip below support briefly. Sometimes it does not seem logical to consider
a support level broken if the price closes 1/8 below the established support level. For
this reason, some traders and investors establish support zones.
What Is Resistance?
Resistance does not always hold and a break above resistance signals that the
bulls have won out over the bears. A break above resistance shows a new willingness
to buy and/or a lack of incentive to sell. Resistance breaks and new highs indicate
buyers have increased their expectations and are willing to buy at even higher prices.
In addition, sellers could not be coerced into selling until prices rose above resistance
or above the previous high. Once resistance is broken, another resistance level will
have to be established at a higher level.
Fundamental And Technical Analysis
Resistance levels are usually above the current price, but it is not uncommon
for a security to trade at or near resistance. In addition, price movements can be
volatile and rise above resistance briefly. Sometimes it does not seem logical to
consider a resistance level broken if the price closes 1/8 above the established
resistance level. For this reason, some traders and investors establish resistance zones.
Price Oscillator:
The Price Oscillator displays the difference between two moving averages of a
security's price. The difference between the moving averages can be expressed in
either points or percentages.
The Price Oscillator is almost identical to the MACD, except that the Price
Oscillator can use any two user-specified moving averages. (The MACD always uses
12 and 26-day moving averages, and always expresses the difference in points.)
Fundamental And Technical Analysis
Interpretation:
Moving average analysis typically generates buy signals when a short-term
moving average (or the security's price) rises above a longer-term moving average.
Conversely, sell signals are generated when a shorter-term moving average (or the
security's price) falls below a longer-term moving average. The Price Oscillator
illustrates the cyclical and often profitable signals generated by these one or two
moving average systems.
Price Rate-Of-Change:
Interpretation:
It is a well-recognized phenomenon that security prices surge ahead and retract
in a cyclical wave-like motion. This cyclical action is the result of the changing
expectations as bulls and bears struggle to control prices.
The time period used to calculate the ROC may range from 1-day (which
results in a volatile chart showing the daily price change) to 200-days (or longer).
The most popular time periods are the 12- and 25-day ROC for short to intermediate-
term trading. These time periods were popularized by Gerald Appel and Fred
Hitschler in their book, Stock Market Trading Systems.
Fundamental And Technical Analysis
The 12-day ROC tends to be very cyclical, oscillating back and forth in a
fairly regular cycle. Often, price changes can be anticipated by studying the previous
cycles of the ROC and relating the previous cycles to the current market
Interpretation:
When Wilder introduced the Relative Strength Index, he recommended using a
14-day Relative Strength Index. Since then, the 9-day and 25-day Relative Strength
Indexs have also gained popularity. The fewer days used to calculate the Relative
Strength Index, the more volatile the indicator.
impending reversal. When the Relative Strength Index then turns down and falls
below its most recent trough, it is said to have completed a "failure swing." The
failure swing is considered a confirmation of the impending reversal.
In Mr. Wilder's 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.
Trend lines:
In the preceding section, we saw how support and resistance levels can be
penetrated by a change in investor expectations (which results in shifts of the
supply/demand lines). This type of a change is often abrupt and "news based."
The Bar chart is one of the most popular types of charts used in technical
analysis. As illustrated on the left, the top of the vertical line indicates the highest
price at which a security traded during the day, and the bottom represents the lowest
price. The closing price is displayed on the right side of the bar and the opening price
is shown on the left side of the bar. A single bar like the one to the left represents one
day of trading.
The advantage of using a bar chart over a straight-line graph is that it shows
the high, low, open and close for each particular day.
Candlestick charts have been around for hundreds of years. They are often
referred to as "Japanese candles" because the Japanese would use them to analyze the
price of rice contracts.
Similar to a bar chart, candlestick charts also display the open, close, daily
high and daily low. The difference is the use of color to show if the stock went up or
down over the day.
This is a bullish pattern - the stock opened at (or near) its low and
closed near its high
The point & figure (P&F) chart is somewhat rare. In fact, most charting
services do not even offer it. This chart plots day-to-day increases and declines in
price: increases are represented by a rising stack of "X"s, while decreases are
represented by a declining stack of "O"s. This type of chart was traditionally used for
intraday charting (a stock chart for just one day), mainly because it can be long and
tedious to create a P&F chart manually over a longer period of time.
The idea behind P&F charts is that they help you to filter out less significant
price movements and to focus on the most important trends. Below is an example of a
P&F chart for AT&T (T):
Fundamental And Technical Analysis
Technical analysts often use proven successful price patterns from great stocks
as tools to find new great stocks. Let's look at a few examples
Cup and Handle - This is a pattern on a bar chart that can be as short as seven
weeks and as long as 65 weeks. The cup is in the shape of a "U". The handle
has a slight downward drift. The right-hand side of the pattern has low trading
volume. As the stock comes up to test the old highs, the stock will incur
selling pressure by the people who bought at or near the old high. This selling
pressure will make the stock price trade sideways with a tendency towards a
downtrend for anywhere from four days to four weeks, then it will take off.
This pattern looks like a pot with a handle. It is one of the easier
patterns to detect; and investors have made a lot of money using it.
Double Bottom - This pattern resembles a "W" and occurs when a stock price
drops to a similar price level twice within a few weeks or months. You should
buy when the price passes the highest point in the handle. In a perfect double
bottom, the second decline should normally go slightly lower than the first
decline to create a shakeout of jittery investors. The middle point of the "W"
should not go into new high ground. This is a very Bullish indicator.
The belief is that, after two drops in the stock price, the jittery investors will
be out and the long-term investors will still be holding on.
Fundamental And Technical Analysis
Importance of project
Main objective:
To know the future movement of selected companies shares through fundamental and
technical analysis.
Sub objectives
o To predict the future price of the selected companies shares.
o To study the strategies to be adopted by the retail investors based on the technical
and fundamental analysis.
o To know the floor and cap price of the stock.
o To analyze individual company scrips by considering the factors relating to the
economy, industry and the respective company.
o To predict investor positions (Buy, sell & hold) based on historical price trends
and the likely company prospects.
Ex: if the closing prices are as follows: 10, 11, 12, 13, 14, 17, 12……………
10+11+12+13+14=60
(60/5)=12
Here 12 is a first moving average obtained from the given closing prices, next moving
average can be calculated by deducting first cl price i.e 10 and adding next cl. Price i.e 17 and
again dividing it by 5.
In order to reduce the lag in SMA, technicians often use EMA. EMA's reduce the lag by
applying more weight to recent prices relative to older prices. The weighting applied to the
most recent price depends on the specified period of the moving average. The shorter the
EMA's period, the more weight that will be applied to the most recent price. For example: a
10-period EMA weighs the most recent price 18.18% while a 20-period EMA weighs the
most recent price 9.52%. As such, it will react quicker to recent price changes than a SMA.
Here's the calculation formula
Fundamental And Technical Analysis
1. The above chart of BHEL is of short term analysis say for example 15 days to
60 days.
2. The above chart shows support and resistance level which is shown by arrow
mark above.
3. The chart shows the buying and selling signals which is shown in red green
and red arrow marks and circle is the point which specifies the exact price to
buy or sell the stock.
4. And from above chart one can see the trend line violation which is shown by
black arrow mark.
2. In the long term chart also we can see a trend violation at the stage of jan
2008.
3. Here in long term moving average chart one can see that the 25 days SMA
going upwards and 125 days EMA coming downwards. So if in future the 25
days SMA goes upwards and crosses the 125 days EMA then again the bull
run rally start.
Resistance- 2150
Target price- 2150-1800=350
There for = 350 + 2150= 2500
Long term target
Support- 1850
Resistance- 2800
Target price- 2800-1850=950
There for = 950 + 2800= 3750
Fundamental And Technical Analysis
Interpretation:
1. Here we can see that the stock has gone for correction over a period and the
present RSI is around 50 and which is very attractive.
2. From the above chart we can say that the stock is under consolidation and it is
a best time to enter into this script at present market price.
Fundamental And Technical Analysis
Support- 2800
Resistance- 3650
Target price- 3650-2800=850
There for = 850+3650=4450
Long term target
Support- 2800
Resistance- 4300
Target price- 4300-2800=1500
There for = 4300-1500=5800
1. At present the L&T Company RSI is very reasonable and started rally so one
should see the market condition and invest in the script.
2. The RSI going upward and at present the RSI is around 45 levels.
So one should invest at current market price.
Fundamental And Technical Analysis
Fundamental And Technical Analysis
Nifty Charts
Immediate Future:
As we can see from the graph it is clear that market is finding support at 4450 to
4600(which is previous resistance for the market). At this level market is likely to
consolidate for the medium time period.
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 to
6980-7020. (Target)
1) Trend short term or intermediate trend for the scrip has been flat. Now
turning 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.
In the month Feb 2008 the scrip has broken the key support (130-140) and
turned out to be bearish
Future; as the scrip has already broken the key support, the short term traders
should sell it 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 should still 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 in the scrip one should look for key support and also look for cue from
RSI. If the stock is at support and selling pressure is high i.e. RSI value 30 and
below, it should be bought and sold 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 was undergoing phase of consolidation and has no established resistance
level.
Fundamental analysis
The basic purpose of buying a security is to earn dividends and ultimately sell
it at higher price. An investor therefore is interested in obtaining estimates of future
prices of the share. These in turn will depend upon the performance of the industry to
which the company belongs and the general economic situation of the country. The
multitude of factors affecting a company’s profitability can be broadly classified as:
1. Economic wide factors: these includes the factors like growth rate of the
economy, the rate of inflation, foreign exchange rates etc which affects
profitability of all companies.
Fundamental And Technical Analysis
3. Company wide factor: these factors are specific to a firm. The firm
specific factors like plant and machinery, the brand image of the product, and
ability of the management to affect the profitability.
The economy has been growing at an average growth rate of 8.8 per cent in
the last four fiscal years (2003-04 to 2006-07), with the 2006-07 growth rate of 9.6
per cent being the highest in the last 18 years. Significantly, the industrial and service
Fundamental And Technical Analysis
sectors have been contributing a major part of this growth, suggesting the structural
transformation underway in the Indian economy.
For example, industrial and services sectors have logged in a 10.63 and 11.18
per cent growth rate in 2006-07 respectively, against 8.02 per and 11.01 cent in 2005-
06. Similarly, manufacturing grew by 8.98 per cent and 12 per cent in 2005-06 and
2006-07 and transport, storage and communication recorded a growth of 14.65 and
per cent 16.64 per cent, respectively.
Another significant feature of the growth process has been the consistently
increasing savings and investment rate. While the gross saving rate as a proportion of
GDP has increased from 23.5 per cent in 2001-02 to 34.8 per cent in 2006-07, the
investment rate-reflected as the gross capital formation as a proportion of GDP-has
increased from 22.8 per cent in 2001-02 to 35.9 per cent in 2006-07.
The process continues in the current fiscal year. On the back of 9.9 per cent growth in
the first half of 2006-07, GDP grew by 9.1 per cent during April-September 2007.
While exports grew by 21.76 per cent during April-December 2007, imports
increased by 25.97 per cent in the same period.
Money Supply (M3) has grown by a robust 22.8 per cent growth (year-on-
year) as of December 21, 2007 compared to 19.3 per cent last year.
The annual inflation rate in terms of WPI was 3.5 per cent for the week ended
December 29, 2007 as compared to 5.89 per cent a year ago.
Fiscal and revenue deficit decreased by 11 per cent and 17.2 per cent,
respectively, during April-November 2007-08 over corresponding period last
year.
With such a robust growth rates, the advance estimates of the Central Statistical
Organization (CSO) expects the economy to grow by 8.7 per cent in 2007-08.
Along this significant acceleration in the growth rate of Indian economy, India's per
capita income has increased at a rapid pace, exceeding an earlier forecast made by
Goldman Sachs BRIC report which estimated India's per capita to touch US$ 800 by
2010 and US$ 1149 by 2015.
Per capita income has increased from US$ 460 in 2000-01 to almost double to US$
797 by the end of 2006-07. In 2007-08, India's per capita income is estimated to be
over US$ 825.07, according to the advance estimates of the Central Statistical
Organisation (CSO). Further, India's per capita income is expected to increase to US$
2000 by 2016-17 and US$ 4000 by 2025. This growth rate will, consequently, propel
India into the middle-income category.
Some Highlights
Fundamental And Technical Analysis
Reflecting the favorable prospect of growth rate of Indian economy, the orders
received Indian companies have increased by a whopping 68.6 per cent to US$ 32.48
billion during January-October 2007 compared to US$ 19.26 billion in the same
period last year.
India is among the five countries sharing 50 per cent of the world production
(or GDP).
FDI inflows have jumped by almost three times to US$ 15.7 billion in 2006-07
as against US$ 5.5 billion in 2005-06.
The aggregate income of the top 500 companies rose by 28.4 per cent in 2006-
07 to total US$ 469.51 billion.
India's National Stock Exchange (NSE) ranks first in the stock futures and
second in index futures trade in the world.
Twenty Indian firms have made it to the list of Boston Consulting Group's 100
New Global Challenger Giants list.
According to a study by the McKinsey Global Institute (MGI), India's
consumer market will be the world's fifth largest (from twelfth) in the world
by 2025.
The number of companies incorporated has increased at an annual average of
55,000 companies in the last two years to 865,000, from 712,000 companies at
the end of 2005.
Four Indians and seven Indian microfinance companies make it to the Forbes
list of Top10 world's wealthiest CEOs World's Top 50 Microfinance
Institutions, respectively.
India has the most number of private equity (PE) funds operating amongst the
BRIC markets.
Mumbai has been ranked tenth among the world's biggest centers of
commerce in terms of the financial flow volumes by a survey compiled by
MasterCard Worldwide.
Another significant aspect has been the broad-based nature of the growth process.
While new economy industries like Information Technology and biotechnology have
Fundamental And Technical Analysis
been growing around 30 per cent, significantly old economy sectors like steel have
also been major contributors in the Indian growth process. For example, India has
moved up two places to become the fifth largest steel producer in the world.
And with its manufacturing and service sectors on a searing growth path, Lehman
Brothers Asia estimates India to grow by as much as 10 per cent every year in the next
decade.
Industry
Industry
YoY % change FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07
Mining &
Quarrying 1 3.7 0.5 5.8 5.3 4.4 1 5
Electricity 7.3 4 3.1 3.2 5 5.2 5.2 6.5
Manufacturing 7.2 5.4 2.9 6 7.4 9.1 9.1 10.7
IIP 6.6 5.1 2.6 5.8 7 8.4 8.2 9.7
2. Inflation
Year Inflation rate (consumer prices) Rank Percent Change Date of Information
2003 5.40 % 64 2002 est.
2004 3.80 % 92 -29.63 % 2003 est.
2005 4.20 % 134 10.53 % 2004 est.
2006 4.20 % 125 0.00 % 2005 est.
2007 5.30 % 139 26.19 % 2006 est.
3. Interest rates
Interest rates reflect the cost and availability of credit to the companies
operating in the economy. The interest rates and the volume as well as direction of the
credit supply in the economy is influenced by monitory policy of the reserve bank of
India (RBI). If the cheap money policy is pursued the interest rates are likely to be
lower and larger volume of money supply is expected to be there in the economy.
The lower rate of interest implies lower cost of financing the company’s
operations and assures higher profitability, higher the rate of interest higher will be the
costs of manufacturing and sale, which is expected to lead lower profit.
Interest Rates
(% per annum) 2-Apr 3-Apr 4-Apr 5-Apr 6-Apr 6-Dec
Cash Reserve Ratio 5.5 4.8 4.5 5 5 5.3
Bank Rate 6.5 6.3 6 6 6 6
Reverse Repo rate
(Absorption rate) 6 5 4.5 4.8 5.5 6
Repo rate (Injection rate) 8 7 6 6 6.5 7.3
IDBI MT lending rate 12.5 12.5 10.3 10.3 10.3 10.3
PLR of 5 major banks 11.0-12.0 10.8-11.5 10.3-11.0 10.3-10.8 10.3-10.8 11.0-11.5
Fundamental And Technical Analysis
5. Government budget.
The capital market is channel through which the savings of households are
made available to corporate for investment. Therefor the trends in saving and
investment are significant in studying their impact on capital market.
Industrial analysis
Engineering:
Order book size determines the performance of the company in the short to
medium-term. In order to bag big contracts, companies need to have a big balance
Fundamental And Technical Analysis
sheet size and proven execution capabilities. They need huge working capital in order
to execute bigger contracts, as initially they receive only part payment and the
remaining comes as projects get executed.
The high global crude prices on account of growing demand has led to increased
activities in the exploration and development space. This has helped the engineering
companies in this space. More importantly, this segment of the engineering business
has relatively higher margins than infrastructure, owing to more complex tasks
involved.
Key Points
Fundamental And Technical Analysis
Supply: Abundant supplies available across most segments, except for technology
intensive executions
Demand: Demand growth in this sector is fuelled by expenditure in core sectors such
as power, railways, infrastructure development, private sector investments and the
speed at which the projects are implemented.
Barriers to entry: Barriers to entry are high at upper end of the industry as skilled
manpower and technologies, and ability to fund large projects are a prerequisite
FY07 proved to be yet another good year for the Indian engineering and
capital goods industry. Strong growth in industrial and manufacturing industries
reflected in the picking up of investment activities in areas like power, infrastructure
and processes. The capital goods index recorded strong growth during the entire year,
though with some blips during the months September and October 2006.
The order books of almost all companies witnessed healthy growth. For
engineering majors like BHEL and L&T, at the end of March 2007, the value of
outstanding orders stood at nearly 3 times and 2 times respective FY07 revenues. In
general, the growth in order book came from both power and industrial businesses.
Fundamental And Technical Analysis
The companies were able to bag international orders. The topline of the engineering
majors witnessed double-digit growth during the fiscal.
While the industry continued the trend of cost cutting through reducing debt
and restructuring operations and manpower rationalization, rising input costs dented
pared the improvement in profitability. Sharp rise in costs of steel and crude on the
back of buoyant global demand and inadequate supplies, was the biggest dampener to
profit growth
The fiscal also witnessed majors like Suzlon and Crompton Greaves chart out
aggressive acquisitions in the international arena. The major focus area for these
companies was to fill in the niches by way of acquiring new technologies and clients
and having a diversified geographical presence.
Budget 2008-09:
Budget Measures
Fundamental And Technical Analysis
Budget Impact
Company Impact:
Power play: Since power utilities are one of the biggest consumers (generation,
transmission and distribution) for engineering companies, reforms introduced in the
power sector like privatisation of SEBs will help in strengthening the order book size.
Huge addition in power generation capacity, in order to meet the demand supply gap
will be a big positive for the sector.
People problem: Engineering companies, across the board, are facing troubled times
retaining key employees. This is due to increased levels of competition for talent from
MNCs, who have deep pockets and thus better paying capabilities. As a result of
increasing levels of attrition, some companies are facing execution issues.
Prospects:
World-class infrastructure has emerged as one of the most important necessities for
unleashing high and sustained growth and alleviation of poverty in any economy. And
with poor infrastructure to support other growth initiatives, the Indian economy
continues to be a laggard when compared to its developing peers. From a policy
perspective, however, there has been a growing consensus that a private-public
partnership is required to remove difficulties concerning the development of
infrastructure in the country. The realisation finally seems to be setting in. This makes
the future of the Indian engineering sector extremely bright. Apart from highway
development and construction and modernisation of airports, the potential for the
sector lies in the oil and gas space, where high global demand has led to increased
action in exploration and production activities. Considering these factors, we expect
the sector to grow strongly into the future. However, scale and execution capabilities
will be the key mantras for success for the engineering companies
Impetus given for growth of infrastructure and core industry in the last two budgets of
the central government is expected to increase capacity utilisation of producers of
coal, cement, iron ore and likely to increase demand for construction and mining
Fundamental And Technical Analysis
equipments. Industrial growth and capital investment levels have improved and this
will drive the growth in the coming years.
The government's initiative to bring clarity to the power sector reforms is a welcome
sign for the industry. More coordination between the Centre and states for
infrastructure development is a step in the right direction. The Electricity Act 2003
has introduced a lot of reforms in the power sector. The unbundling in the sector will
definitely boost private investment. PSUs like NTPC are expected to almost double
their generation capacity in next few years, which is a good sign for the engineering
companies.
The shift in focus towards reducing T&D losses will further increase the order book
size of the companies operating in this realm. With power generation and distribution
looking up, power equipment companies can look forward to a promising future
Deregulation combined with high global demand for crude has led to a surge in
exploration and production activities in India and globally. Also, there has been a
radical change in the government’s approach to E&P (exploration and production)
activities in the country. This thrust in development of new wells and improvement of
output from old wells promises bright prospects for engineering companies
Automation business has perked as the user industries started realising its benefits.
With increasing competition among the power companies, the consumers will demand
better quality and uninterrupted power supply. In such a scenario automation will play
an important role. With the automation technologies gaining momentum, companies
like ABB and Siemens will benefit a lot going forward.
Capacity addition and de-bottlenecking exercise being carried by various industries
like steel, power, refineries, chemicals etc is likely to provide a fillip to the industrial
segment of the engineering companies
Performance of Industry
The industrial sector recorded a healthy growth of 10.3% (measured in terms of the
Index of Industrial Production) during the period April-Oct. 2006-07 as compared to
8.6 percent achieved during the corresponding period last year. Capital goods sector,
which posted a robust growth of 16.9 per cent in 2005-06, has maintained its growth
momentum during the current year as well. According to the Index of Industrial
Fundamental And Technical Analysis
Production, capital goods sector posted a growth of 15.0 per cent during April-Oct.
2006-07. The growth trends during Apr-Oct 2006-07 as compared to Apr-Oct 2005-06
are given in the table below:
Growth
Apr-Oct Apr-Oct
Rate (%)
2005-06 2006-07
Turbines
Rs. lakhs 38443.43 56947.33 48.13
(Steam/Hydro)
Telecommunication Mill.
7778.79 4813.09 -38.20
Tables Mtr.
Textile Machinery
There are over 600 units engaged in the manufacture of Textile Machineries,
their components, accessories and spares,and out of these about 100 units are
manufacturing the complete textile machinery. The range includes textile machinery
required for sorting, cording,processing of yarns/ fabrics and weaving. The industry is
gearing itself to avail the opportunities of supplying machines required to cater the
export target of garment manufacturers post Multi Fibre Agreement (MFA).With a
capital investment of Rs. 1500 crore and an installed capacity of Rs. 3050 crore per
annum.
(Rs. in crore)
Year Production Exports Imports
2003-2004 1339 535 2179
2004-2005 1685 457 3299
2005-2006 2212 476 6768
Cement Machinery
Cement plants based on dry processing and precalcination technology for capacities
upto 7500 TPD are being manufactured in the country.Modern cement plants are
designed for zero downtime, high product quality and better output with minimum
energy consumed per unit of cement production etc. At present, there are 18 units in
the organized sector for the manufacture of complete cement plant machinery. With an
installed capacity of around Rs. 600 crore/annum, the industry is fully capable to meet
the domestic demand.
Fundamental And Technical Analysis
Sugar Machinery
Domestic manufacturers occupy predominant position in the global scenario and are
capable of manufacturing from concept to commissioning stage sugar plants of latest
design for a capacity upto 10,000 TCD (tons crushing per day). There are presently 27
units in the organised sector for the manufacture of complete sugar plants and
components with an installed capacity of around Rs. 200 crore per annum.
(Rs. in lakh)
2003-2004 2004-2005 2005-2006
Import 427 1259 905
Export 1139 2682 3767
Rubber Machinery
There are at present 19 units in the organized sector for the manufacture of
rubber machinery mainly required for tyre/tube industry. The range of equipments
manufactured in the country includes inter-mixer, tyre curing presses, tube splicers,
bladder curing presses, tyre moulds, tyre building machines, turnet servicer, bias
cutters, rubber injection moulding machine,bead wires etc.
(Rs.in crore)
2003-2004 2004-2005 2005-2006
Import 25.91 36.75 12.02
Export 22.29 46.15 50.32
Fundamental And Technical Analysis
(Rs.in crore)
2003-2004 2004-2005 2005-2006
Import 242.58 261.44 545.54
Export 41.54 80.16 77.91
The petroleum industry in India is undergoing a major change. With the ongoing
process of liberalisation, the industry has been thrown open for private sector in all
major areas of exploration,production, refining and marketing, and this has resulted in
increased demand for the oil field and related equipments. Domestic production
covers mainly the on-shore drilling equipment.Under Offshore drilling only offshore
platforms and some other technological structures are being produced locally. The
major producers of these equipments are BHEL,Hindustan Shipyard, Mazagaon Dock
and Larsen & Toubro.
Fundamental And Technical Analysis
(Rs.in crore)
2003-2004 2004-2005 2005-2006
Import 142.49 638.20 352.84
Export 165.81 300.47 71.87
Metallurgical Machinery
(Rs.in crore)
2003-2004 2004-2005 2005-2006
Import 495.28 454.40 1200.65
Export 434.23 370.70 535.04
Fundamental And Technical Analysis
Mining Machinery
The major mining equipments are Longwall Mining Equipment, Road Header,
side discharges Loader (SDL), Haulage Winder, Ventilation Fan,Load Haul dumper
(LHD), Coal Cutter,Conveyors, Battery Locos, Pumps, Friction Prop,etc. At present
there are 32 manufacturers in the organized sector both in public and private sector for
underground and surface mining equipment of various types. Out of these, 17 units
manufacture underground mining equipment.Majority of the requirement of the
mining industry is being met by the indigenous manufacturers.
(Rs.in crore)
2003-2004 2004-2005 2005-2006
Import 16.80 39.01 41.99
Export 1.15 1.55 5.90
Dairy Machinery
At present, there are 16 units in the organized sector, both in private and public
sector, manufacturing Dairy Machinery equipments such as evaporators, milk
refrigerators andstorage tanks, milk and cream deodorizers, centrifuges, clarifiers,
agitators , homogenisers, spray dryers and heat exchangers. Small Scale units are also
contributing to the indigenous production. The spray dryers, plate type heat exchanger
and other core equipment for milk powder plant call for high degrees of polish
requirement on the equipment because the presence of any micro crevices resulting
from inadequate polish tends to be the incubation and breeding ground for the
bacteria. The technology gaps exist for handling equipments such as self cleaning
cream, separator, aseptic processing systems, and for the equipment required for
manufacture of yoghurt and traditional Indian sweets.
Fundamental And Technical Analysis
(Rs.in crore)
2003-2004 2004-2005 2005-2006
Import 18.15 21.05 52.36
Export 10.54 8.08 5.95
Machine Tools
Performance of the industry during the last three years is tabulated below:
(Rs. in crore)
2003-2004 2004-2005 2005-2006
Production
797.00 1089.04 1342.00
Import 965.00 1820.83 2899.00
Export 55.00 52.61 50.00
Company analysis
Income
Sales Turnover 7,727.79 8,893.17 10,682.15 14,739.46 19,058.33
Excise Duty 728.49 856.44 1,043.15 1,298.01 1,695.44
Net Sales 6,999.30 8,036.73 9,639.00 13,441.45 17,362.89
Other Income 69.08 14.61 259.98 342.00 482.32
Stock Adjustments -45.32 -30.63 539.77 386.01 181.37
Total Income 7,023.06 8,020.71 10,438.75 14,169.46 18,026.58
Expenditure
Raw Materials 3,160.38 3,634.66 5,097.68 7,099.40 8,561.41
Power & Fuel Cost 199.96 196.81 220.54 229.01 259.08
Employee Cost 1,504.64 1,639.51 1,650.38 1,878.51 2,366.93
Other Manufacturing Expenses 478.10 598.67 783.44 1,054.67 1,733.59
Selling and Admin Expenses 532.98 888.89 1,006.38 1,216.00 887.55
Miscellaneous Expenses 81.56 193.58 116.98 126.27 190.50
Preoperative Exp Capitalised 0.00 0.00 0.00 0.00 0.00
Total Expenses 5,957.62 7,152.12 8,875.40 11,603.86 13,999.06
Operating Profit 996.36 853.98 1,303.37 2,223.60 3,545.20
PBDIT 1,065.44 868.59 1,563.35 2,565.60 4,027.52
Interest 54.78 60.08 81.41 58.75 43.33
PBDT 1,010.66 808.51 1,481.94 2,506.85 3,984.19
Depreciation 185.35 198.00 218.87 245.93 244.61
Other Written Off 0.00 0.00 0.00 0.00 0.00
Profit Before Tax 825.31 610.51 1,263.07 2,260.92 3,739.58
Extra-ordinary items -49.01 396.59 306.60 299.86 -13.79
PBT (Post Extra-ord Items) 776.30 1,007.10 1,569.67 2,560.78 3,725.79
Tax 291.51 348.93 616.30 881.61 1,311.09
Reported Net Profit 444.51 658.15 953.40 1,679.16 2,414.70
Total Value Addition 2,797.24 3,517.46 3,777.71 4,504.46 5,437.65
Preference Dividend 0.00 0.00 0.00 0.00 0.00
Equity Dividend 97.90 146.86 195.81 354.90 599.66
Corporate Dividend Tax 12.54 19.00 26.64 49.78 92.83
Per share data (annualised)
Shares in issue (lakhs) 2,447.60 2,447.60 2,447.60 2,447.60 2,447.60
Earning Per Share (Rs) 18.16 26.89 38.95 68.60 98.66
Equity Dividend (%) 40.00 60.00 80.00 145.00 245.00
Book Value (Rs) 196.26 216.37 246.24 298.31 359.06
Interpretation:
the day to day needs of business. The greater is the amount of NWC greater is the
liquidity of the firm. In BHEL company the three year NWC is as follows.
Year
Sl.no Ratio Formula 2007 2006 2005
1 Net working capital CA-CL 7574.42 6678.22 5413.01
The company from 2005 to 2007 has increased its NWC which shows that the
company has good liquidity to its creditors.
Current ratio:
The Current Ratio expresses the relationship between the firm’s current assets and its
current liabilities. The rule of thumb says that the current ratio should be at least 2 that
is, the current assets should meet current liabilities at least twice.
Year
sl.no Ratio Formula 2007 2006 2005
2 current ratio CA/CL 1.43:1 1.53:1 1.63:1
Here we can see that the company’s current ratio decreasing gradually.
Quick ratio:
The quick ratio, also referred to as acid test ratio, examines the ability of the business
to cover its short-term obligations from its “quick” assets only (i.e. it ignores stock).
Clearly this ratio will be lower than the current ratio, but the difference between the
two (the gap) will indicate the extent to which current assets consist of stock.
year
sl.no Ratio Formula 2007 2006 2005
3 Quick ratio CA - (stock + prepaid exp)/CL 1.13:1 1.17:1 1.22:1
Here we can see that the company’s quick ratio is bit constant for three years and
company is able to satisfy its creditors with this ratio.
Return on Equity:
This ratio shows the profit attributable to the amount invested by the owners of the
business. ROE measures the amount of money that the company has managed to
generate for its shareholders.
year
sl.no Ratio Formula 2007 2006 2005
11 return on equity Net profit/ share holders equity 27.48 23.00 15.82
Fundamental And Technical Analysis
Here we can see that the companies return on equity is increasing constantly so we
can say that the profitability to ordinary shareholders is strong and showing an
upward trend.
Return on assets:
This ratio gives you an idea on the company's management effectiveness in utilizing
its assets to make a profit for its shareholders.
year
sl.no Ratio Formula 2007 2006 2005
12 return on assets Net profit/total assets 27.69 22.11 15.77
The company ROA has increased constantly which its management efficiency in
getting good returns from its assets.
P/E Ratio:
P/E ratio is a useful indicator of what premium or discount investors are prepared to
pay or receive for the investment. The higher the price in relation to earnings, the
higher the P/E ratio which indicates the higher the premium an investor is prepared to
pay for the share. This occurs because the investor is extremely confident of the
potential growth and earnings of the share.
year
sl.no Ratio Formula 2007 2006 2005
16 P/E MPS/EPS 22.91 32.75 19.70
The above ratio shows that the shares were traded at a much higher premium in
2007 than were in 2005. In 2005 the price was 19.7 times higher than earnings
while in 2007, the price is 22.91 times higher.
with low P/B ratio had consistently higher returns compared to the firms with high
P/B ratio.
Book value per share:
year
sl.no Ratio Formula 2007 2006 2005
18 Book value per share Net worth / no of shares 359.06 298.31 246.24
This ratio indicates the net asset value of a company’s share. A high book value
indicates that the company has strong reserves, indicating scope for bonus shares, of
course subject to necessary guidelines of the SEBI.
Earning yield:
This ratio highlights as a percentage a company’s earnings vis-a-vis the current
market value of its share. For blue chip companies this ratio tends to be around 5 per
cent to 6 per cent.
Year
sl.no Ratio Formula 2007 2006 2005
20 earning yield EPS/MPS *100 4.36 3.05 5.08
Dividend yield:
The dividend yield ratio indicates the return that investors are obtaining on their
investment in the form of dividends. This yield is usually fairly low as the investors
are also receiving capital growth on their investment in the form of an increased share
price.
Year
sl.no Ratio Formula 2007 2006 2005
21 dividend yield DPS/MPS*100 1.08 0.65 1.04
Fundamental And Technical Analysis
received gold medals. The awards have been given for meritorious and efficient
performance based on account of reduced inputs.
The company already manufactures products required by the
distribution systems like transformers, switchgears etc. The company is planning
towards becoming an application service provider. The company will continue to
focus on project management, reducing cycle time and cost control. In the power
sector, the company plans to obtain a part of the business generated by independent
power producers through a combination of approaches including consortium route,
equity participation and limited financial syndication.
I It has equipped itself with the new type of once-through design boiler
technology, and for pollution control - bag filter technology. BHEL entered into new
business in integrated gasification combined cycle systems, coal washeries, and LRT
systems. In it's existing businesses of transportation, transmission & industry. BHEL
is pursuing opportunities in EMU coaches, loco refurbishment, gas-insulated switcher,
HVDC insulators, and electronic meters. The company will continue to focus on
product developments in order to foster its growth strategy. The electronics division
has forayed into traction business and received a large order from DoT for switching
equipment.
BHEL has developed a new series compensation scheme Flexible AC
Transmission System (FACTS) for reducing power losses and speedy transmission.
The FACTS will enhance power transfer capability of the system and reduce
transmission losses in 400 kV lines considerably. The company has also developed an
automatic device that adjusts itself to the system’s requirement in less than 10
milliseconds. It reduces system losses and improves power system stability in high-
voltage transmission lines.
Fundamental And Technical Analysis
Key Risks
Delay in capacity expansion
The company’s 37,000 MW of order flow for BHEL over FY09-12E, in addition to
the existing strong order backlog. Any delay in second phase of expansion from
10,000 MW to 15,000 MW could severely impact BHEL’s earnings, given the strong
deliverables over next three-four years. The first phase of expansion from 6,000 MW
to 10,000 MW had been delayed by nine months.
valuations over the past one year builds in strong visibility over the next few years.
The key concern now is BHEL’s ability to execute this huge opportunity, failing
wherein could lead to the stock being de-rated.
Value anchor
Ratios calculations
Year
Sl.no Ratio Formula 2007 2006 2005
1 Net working capital CA-CL 2,507.21 2,547.72 3,144.77
2 Current ratio CA/CL 1.26 1.36 1.54
3 Quick ratio CA-(stock+prepaid exp)/CL 0.93 1.03 1.12
4 Inventory turnover ratio COGS/avg INV 5.24 6.06 5.30
5 Debt equity ratio Long trm DBT/ Sh holders eq 0.36 0.31 0.55
6 Interest coverage ratio EBIT/INTERST 7.52 5.03 4.43
7 Gross profit margin Gross profit / sales 10.61 7.91 7
8 Net profit ratio EAT/ Net sales 7.74 6.69 7.33
9 Cost of goods sold ratio COGS/ net sales*100 89.11 90.61 92.94
10 Operating profit ratio EBIT/ Net sales 11.52 8.63 7.66
Net profit/ share holders
11 Return on equity equity 24.44 21.95 29.47
12 Return on assets Net profit/total assets 22.11 21.88 24.18
Return on capital
13 employed EBIT/ Total capital 54.98 44.08 37.61
Net profit available eq sh/
14 EPS NO shares 49.53 73.67 75.72
Div paid to ord sh / No of
15 DPS shares 13 22 27.5
16 P/E MPS/EPS 32.69 33.02 13.14
17 Price to book value ratio MPS/BPS 7.99 7.25 3.87
18 Book value per share Net worth/ no of shares 202.65 335.61 256.94
19 Dividend payout ratio DPS/EPS*100 26.25 29.86 36.32
20 Earning yield EPS/MPS *100 3.06 3.03 7.61
21 Dividend yield DPS/MPS*100 0.80 0.90 2.76
Fundamental And Technical Analysis
2. Current ratio
Year
Sl.no Ratio Formula 2007 2006 2005
2 Current ratio CA/CL 1.26 1.36 1.54
The short term creditors prefer high current ratio since it reduces their risk. As a share
holder one should prefer low current ratio so that the company may use its current
assets for expansion purpose. Here we can see that the company’s current ratio has
reduced over a period of time so we can say that the companies using its current assets
for expansion purpose.
3. Quick ratio
Year
Sl.no Ratio Formula 2007 2006 2005
3 Quick ratio CA-(stock+prepaid exp)/CL 0.93 1.03 1.12
Measures assets that are quickly converted into cash and they are compared with
current liabilities. This ratio realizes that some of current assets are not easily
convertible to cash e.g. inventories. In the ratio above we can see that the company’s
quick ratio reduced over a period of time.
This ratio measures the stock in relation to turnover in order to determine how often
the stock turns over in the business. This ratio should be higher because it indicates
that the company is efficiently converting its inventory into sales.
2007: 12/5.24 = 2.29 times
2006: 12/6.06 = 1.98 times
2005: 12/5.30 = 2.26 times
Year
Sl.no Ratio Formula 2007 2006 2005
8 Net profit ratio EAT/ Net sales 7.74 6.69 7.33
The net margin ratio shows that the margin is fairly stable over time with slight
improvement to 7.74% in 2007. However, to know how well the firm is performing
one has to compare this ratio with the industry average or a firm dealing in a similar
business
16. PE ratio
Sl.n Year
o Ratio Formula 2007 2006 2005
16 P/E MPS/EPS 32.69 33.02 13.14
The P/E ratio reflects the price currently being paid by the market for each rupee of
currently reported EPS. High P/E generally reflects lower risk and/or higher growth
prospects for earnings.
The above ratio shows that the shares were traded at a much higher premium in 2007
than were in 2005. In 2005 the price was 13.14 times higher than earnings while in
2007, the price is 32.69 times higher.
Year
Sl.no Ratio Formula 2007 2006 2005
17 Price to book value ratio MPS/BPS 7.99 7.25 3.87
It measures the relationship between the market price of an equity share with book
value per share. The P/B ratio is significant in predicting future stock return. Firms
with low P/B ratio had consistently higher returns compared to the firms with high
P/B ratio.
Fundamental And Technical Analysis
Notice here there is a decrease in the yield from 2005 to 2007. The main reason for
this is that the dividend per share decreased while at the same time, the price of a
share increased.
Year
Sl.no Ratio Formula 2007 2006 2005
22 Total asset turnover ratio COGS/total asst 2.00 2.20 2.34
Total asset turnover ratio measures the efficiency of a firm in managing and utilizing
its assets. The higher ratio indicates the more efficient management.
Capital turnover ratio measures the efficiency of a firm in managing and utilizing its
capital. The higher ratio indicates the more efficient management.
The following table shows the expected market prices of L&T Company.
year 2008 2009 2010
value anchor 2325.33 2451.38 2584.41
The following lines explain the chairman’s speech of L&T Company it tells
about the company’s strategy of future expansion and development strategy.
Performance overview:
India is one of the fastest growing economies globally with GDP growing at
9.4% last year. High capacity utilisation across various sectors is fuelling an up trend
in capital expenditure. The scale of investment in infrastructure envisaged in the 11th
Five Year Plan (2007-2012) will call for greater engagement by the private sector and
international institutions. All these are lead indicators for growth.
The conducive business environment coupled with a slew of measures taken by the
Company for improvement of operational efficiency, institutionalization of a risk
management framework and more judicious selection of projects, have yielded
significant benefits. In Financial Year 2006-2007, the Company's order inflows &
sales have grown by 37% and 19% respectively. The Company bagged its largest ever
order in domestic & international markets such as expansion & modernisation of
Fundamental And Technical Analysis
Delhi International Airport and an offshore platform project in Qatar. The order book
as on March 31, 2007 stood at Rs. 369 Bn including Rs. 61 Bn from international
business. The Company has achieved improvement in margins in all its business
segments for the second year. The Subsidiary and Associate Companies have also
performed well. During the year, the Company issued bonus shares in the ratio of 1:1
and recommended/paid dividend of-Rs. 13 per share on a face value of Rs. 2 per
share. The market capitalization of the Company has increased further from Rs. 334
Bn to Rs. 456 Bn during the year and has outperformed the Sensex.
Investments are the oxygen of growth. Within the larger context of the
country's increasing investments in building a brighter future, the Company is also
investing in multiple spheres - people, technology, capacity expansion both
domestically & internationally and brand building. This is essential for sustaining the
growth momentum and continuous value creation.
Talent acquisition and retention is one of the key result areas for our senior
managers. On an on-going basis, the Company renews, rejuvenates and adds Human
Resource Management & Development systems, processes and practices to its
repertoire and periodically does compensation benchmarking so as to ensure a vibrant
and motivated workforce. The Company is constantly honing people management
leadership skills of the employees and is increasingly investing in training centers
across India. Innovative human resource initiatives like 'Campus to Corporate', launch
of an e-learning portal - 'Any Time Learning', buddy referrals for talent acquisition,
have been launched. As a result, the Company has been able to substantially increase
its human resource.
Technology - Building on core engineering strength:
Fundamental And Technical Analysis
Capacity Expansion:
The Company is expanding capacity internationally and within India.
Substantial capacity augmentation at Hazira will help us address the growing demand
in oil & gas industry. The Electrical & Electronics division is expanding its capacity at
Mysore, Ahmednagar and Mahape to take care of rapid growth in the sector. The
Company crossed a major milestone with the inauguration of the first two units at its
300-acre campus in Coimbatore. The facilities for the manufacture of industrial valves
and switchboards are already accomplished. The campus will progressively see the
establishment of manufacturing facilities for advanced tooling and high precision
Fundamental And Technical Analysis
Looking Ahead:
I am happy to share that the Company was ranked number 1 in two critical attributes -
'Quality' and 'Reputation' over a host of other corporates, in The Wall Street Journal
Asia's nationwide survey of Indian companies.
To conclude, I wish to place on record my appreciation for the outstanding
commitment and smart work of all our employees. I am also grateful for the
continuing support of my colleagues, our customers, business associates, shareholders
and members of the Board. It is this collective effort and support of each member of
L&T Group's extended family that instills confidence in our ability for building on the
profitable growth momentum into the future.
Fundamental And Technical Analysis
1. The following table shows the expected market of the BHEL stock for the
period of 3 years i.e 2008 to 2009
Analysis:
2. The following table shows the expected market of the L&T stock for the period
of 3 years i.e 2008 to 2009
Analysis:
Above table shows the company script is mainly technical driven there is less scope
for fundamental analysis. Company’s intrinsic value is Rs. 2325.33 but the current
market price is Rs. 3024.8. By this we can say that the company is overvalued
according to fundamental analysis.
But when we analyze by technically the stock is having good support and resistance
so we can say that the stock moves upto 4450 in short run and in long term the stock
is predicted to go around 5800.
Suggestion: If investor at present holding this stock should wait for some time to get
good return in short term the stock may go for Rs. 4450 and in the long run the stock
may go to Rs. 5800.
Suggestion: Hold for time being and sell when stock breaks its previous
support.
Conclusion
Fundamental And Technical Analysis
The economy has been growing at an average growth rate of 8.8 per cent in
the last four fiscal years (2003-04 to 2006-07), with the 2006-07 growth rate of 9.6
per cent being the highest in the last 18 years. Significantly, the industrial and service
sectors have been contributing a major part of this growth, suggesting the structural
transformation underway in the Indian economy.
Technical and fundamental analysis is the strong theory accepted world wide
some investor strongly believes on fundamentals of company and some believe
technical plays very important role in investing. But it is mainly depends on demand
and supply for the stocks in the stock market.
Bibliography
Fundamental And Technical Analysis
1. Kotak securities.com
2. equitymaster.com
3. icicidirect.com
4. nseindia.com
5. bseindia.com
6. bhel.com
7. larsentabro.com
Reference Books
o Security Analysis and Portfolio Management.
Prasanna Chandra
o Financial management.
Khan and jain
Software used
Ms-Office 2003
Microsoft Excel
Microsoft Word
M S power point
Paint