completed project report

155
EXECUTIVE SUMMARY 1

Upload: sanjay-c-nadakavil

Post on 10-Apr-2015

2.480 views

Category:

Documents


0 download

TRANSCRIPT

Page 1: Completed Project Report

EXECUTIVE SUMMARY

1

Page 2: Completed Project Report

Executive summary

The report " Fundamental and Technical Analysis of Five Major Companies in the

Information Technology Sector" is a study to analyze the strength and weakness

of the scrip's of five major companies in the IT industry. The five major

companies include Tata Consultancy Services, Infosys, Oracle, HCL and Wipro.

The primary objective of the study to suggest the investors, whether to buy the

scrip or not, based on the valuation (Under priced or Over priced) of shares. Also

to analyze the trend (Bullish or Bearish) of this scrip's in the market. The

secondary objective of the study is Analyze the company's performance,

Understand the capital market and its functioning, and to compare theoretical

knowledge with actual industry practice.

To analyze the scrip, Fundamental and Technical analyses are used. In the

fundamental analysis the method of intrinsic value of calculation is used. For the

technical analysis, tools like Relative Strength Index (RSI), Moving Average

convergence and divergence(MACD), Moving average crossover, Stochastic and

Momentum are used. In the fundamental analysis the intrinsic value is compared

with the current market value to suggest the investor to buy or sell the share. In

the Technical Analysis, the movement of the corresponding graphs are studied to

interpret whether to buy sell or hold the share.

2

Page 3: Completed Project Report

1. INRODUCTION

3

Page 4: Completed Project Report

1. Introduction

An investor means people who invest savings. Investment is an activity, which is

different from savings. Savings are generated when a person abstains from

present consumption for a future use. Savings kept as cash are barren and do

not earn anything. Hence the saver has to find a temporary for his savings until

they are required for his future. This results in investment.

Today, investment has become a household word and is very popular with

people from all walks of life. It is because of increase in working population,

higher family incomes and consequent savings, availability of large and attractive

investment alternatives, increase in investment related publicity and so on.

Fundamental analysis is the process of looking at a business at the basic or

fundamental financial level. This type of analysis examines key ratios of a

business to detuning its financial health and gives you an idea of the value its

stock. Many investors use fundamental analysis alone or in combination with

other tools to evaluate stocks for investment purpose. The goal is to determine

the current wealth and more importantly, how the market values the stock. The

Return on Equity (ROE) is one measure of how efficiently a company uses its

assets to produce earnings . The fundamental forecast stock prices on the basis

of economic industry and company statistics. So this study also analyses the

economy, the industry and company analysis to know the behavior of stock

performance of the IT industry.

One of the primary assumptions of the fundamental analysis is the price of the

stock market does not fully reflect a stocks real value. In the financial jargon, this

true value is known as the intrinsic value. If the market price is less than intrinsic

value, then such shares are considered to be under priced and are suitable for

investment. Thus the shares have to be held in hand or if necessary more shares

can be brought as the share sis expected to move up in the future to match with

4

Page 5: Completed Project Report

its intrinsic value. If the market price is greater than the intrinsic value then such

shares is considered to be overpriced and it is not suitable for investment. The

market price of such shares may come down in future and the investors will sell

such a share. This leads us to the second major assumptions of fundamental

analysis: in the long run, the stock market will reflect the fundamentals. There is

no point in buying a stock based on intrinsic value if the price never reflected that

value.

1.1 Objectives of the study

1.1.1 Primary Objective

To carry out the fundamental analysis and technical analysis for five selected

companies in the IT sector and to suggest whether to buy the scrip or not to

invest based on the valuation(under priced or over priced) of shares. Also to

analyze the trend( bullish and bearish) of these scrip’s in the market.

1.1.2 Secondary Objectives

Analyze the companies performance

Understand the capital market and its functioning

To compare theoretical knowledge with actual industry practice

1.2 Scope of the study

The stock market is a major source of investment. The risk associated with the

investment is relatively high compared to bank deposit and real estate, with high

yield. Cochin stock exchange limited(CSE) is one of the premier stock exchange

of India established in the year 1978. CSE: introduced the facility for

computerized trading-“ Cochin Online Trading(COLT)”. CSE was one of the

promoters of interconnected stock exchange of India(ISE). CSE promoted a

100% subsidiary called the “Cochin stock brokers ltd(CSBL)” and started trading

in the national stock exchange(NSE) and Bombay Stock Exchange(BSE).

5

Page 6: Completed Project Report

Due to time restriction and resource constraints the study has been confined to

only one sector i.e., IT sector. The period of the study covers only 5 years

starting from 2005 to 2009. This study will cover % companies from the IT sector

selected based on the highest market capital in the industry. The most suitable

company to be invested and the performance of the company will be analyzed.

1.3 Limitations of the Study

The data collected is secondary in nature

Only 5 widely traded securities of the IT sector were taken for the study

The accuracy and correctness of the tools used depends on the accuracy

of the published accounts

A detailed study was not possible due to shortage of time

The inherent limitations of the fundamental and technical analysis also

exist here

1.4 Statement of the problem

Indian has a well developed capital market which provides huge investment

opportunity for investors. Indian IT sector is the centre of attraction for many

investors residing within and outside India. These days IT index is highly volatile.

So it is inevitable to evaluate the performance of each security before investing.

This study is an attempt to guide the investor to identify the best performing

security in the IT sector. The study includes the analysis of financial statement of

5 major companies in IT sector, evaluation of the shares that it posses.

6

Page 7: Completed Project Report

2. PROFILE

7

Page 8: Completed Project Report

2.1 Industry Profile

2.1.1 Indian capital market an overview

Indian stock market is one of the oldest market in Asia. Its history dates back to

nearly 200 years ago. The earliest record of security dealing in India is merger

and obscure. The east Indian company was dominant institution in those days

and business in its loan security used to be transacted towards close of the

eighteenth century.

By 18~0’s business on stock rates and shares initiated in Bombay. Though the

trading list was broader in 1839, there were only half a dozen brokers recognized

by banks and merchants during 1840’s. The 1850’s witnessed a rapid

development in commercial enterprise and brokerage business attracted many

men into the field and by 1860’s, the number of brokers increased into 60. In

1860-61, the American civil war broke out and cotton supply from United States

to Europe was stopped. This increased the brokers in India to about 200 to 250.

However by the end of the American Civil war in 1965, disastarous slumps

begain( for example, Bank of Bombay share that had reached Rs.2850 could

only be sold at Rs. 87).

At the end of Mexican civil war the brokers who thrived out of civil war in 1874

found a place in a street( now called the Dalal street) where they would

conveniently assemble and transact business. In 1887, they finally established in

Bombay, “The Native Share and stock Brokers Association”( which is attractively

known as “The Stock Exchange”).

8

Page 9: Completed Project Report

2.1.2 Stock Exchange

“Stock Exchange means any body of individuals whether incorporated or not,

consolidated for the purpose of assisting , regulating and controlling the business

of buying, selling and sealing with securities. It is a market where stocks, shares

and other securities are bought and sold and also to provide avenue for disposal

of securities, when owners feel like. It is an essential component of the economy

and indispensable for the proper functioning of corporate enterprise.

The business is done using a screen based trading technology through dually

authorized members of the exchange. The stock exchange is opened to anyone

big or small with money to invest or securities to sell. In modern capitalized

economy almost all commodities even in small are produced in large scale and

large scale means large amount of capital. The joint stock company or corporate

fund of organization is ideally suited for large amount of capital from all those

who have surplus fund. When a joint company issues stock and bonds, surplus

fund employed profitably in either of them according to convince and

temperament. The stock exchange enables the investigating to shift from one

business to another without any difficulty. An investor, who put his saving in a

companyby buying its securities, cannot get the amount back from the company

directly. The only way in which the capital invested in stock and shares of a joint

stock company may be realized by its owner is through the sale of those stock

and shares to others. The stock changes , but it circulates within the market only.

2.1.3 National stock exchange

National stock exchange(NSE) of India became operational in the capital market

segment on 3rd November 1994 in Mumbai. The genesis ot the NSE lies in the

recommendation of the Pherwani Committee. Apart from the NSE, it had

recommended for the establishment of the National Stock Market System.

The main objectives of NSE is

To establish a nation wide trading facility for equities, debt and hybrids.

9

Page 10: Completed Project Report

To ensure equal access to investors all over the country through

appropriate communication network.

To provide fair, efficient and transparent security market to investors by

using an electronic communication network.

To enable shorter settlement cycle and book entry system.

To meet current international standards of securities market.

2.1.4 Promoters of NSE

IDBI, ICICI, IFCI, LIC, OIC, SBI, Bank of Baroda, Canara Bank, Corporation

bank, Indian bank, Oriental bank of commerce, Union bank of India, Punjab

national bank, Infrastructure leasing and financial service, Stock holding

corporation of India and SBI capital market.

2.1.5 Membership criteria

Membership is based on factor such as capital adequacy, corporate structure,

track record, education, experience etc. Admission is a two stage process with

the applicant need to go through a written examination followed by an interview.

The exchange admits members separately to WDM segment and the Capital

market segment. Corporate members are admitted on the debt market segment

whereas individual and firms are also eligible on the capital market segment.

2.1.6 Trading System

The software in the NSE trading system is known as National Exchange for

automated trading(NEAT). The trade takes place through computers. The trading

members computer is connected with the central computer at NSE through

leased lines and VSAT, which are small dish antenna. Communication is carried

out with the help of satellites. Network management centre is setup to enable

remote diagnosing and solving problems related to network through out the day.

This helps the traders to carry out their activities with minimum interruption.

10

Page 11: Completed Project Report

2.1.7 Stock market indices

An Index is used to give information about the price movement of products in the

financial, commodities or any other markets. Financial Indices are constructed to

measure the price movement of stocks, bonds, T bills and other forms of

investments. Stock market indices are meant to capture the overall behavior of

equity market. A stock market is created by selecting a group of stocks that are

representative of the whole market or a specified sector or segment of the

market. An indices is calculated with reference to a base period and a base index

value.

2.1.8 Important Indian stock market Indices

S&P CNXNIFTY

BSE Sensex

CNXMIDCAP

BSE 100

BSE 200

NYSE Indexes

Dow Jones Industrial average

NASDAQ Index

2.2 Company Profile

2.2.1 Introduction

COCHIN STOCK EXCHANGE LTD, Is one of the premier stock exchanges in

India, established in the year 1978. The exchange had a humble beginning with

just 5 companies listed in 1978~79 and had only 4 members. Today the

exchange has more than 508 members and 240 listed companies. In 1980 the

exchange computerized its offices. In order to keep pace with the changing

scenario in the capital market, CSE took various steps including trading in

dematerialized shares. CSE introduced the facility for computerized trading

–“Cochin Online Trading (COLT)” on March 17, 1997. CSE was one of the

11

Page 12: Completed Project Report

promoters of “Interconnected Stock Exchange of India (ISE)”. The objective was

to consolidate the small, fragmented and less liquid markets into a national level

liquid market. With enforcement of efficient margin system and surveillance, CSE

has successfully prevented defaults. Introduction of the fast track system made

CSE the stock exchange with the shortest settlement cycle in the country at that

time. By the dawn of the new century, the regional exchanges faced a serious

challenge from the NSE and BSE. To face this challenge CSE promoted a 100%

subsidiary called the “Cochin Stock Brokers Ltd. (CSBL)’ and started trading in

the National Stock Exchange and Bombay stock Exchange.

CSBL is the first subsidiary of a stock exchange to get membership in both NSE

and BSE. CSBL also became a depository participant in the Central Depository

Services Ltd. The CSE has been playing a vital role in the economic

development of the country in general and Kerala in particular and striving hard

to achieve the following goals:

Providing investors with high level of liquidity whereby the cost and time

involved in the entry and exit from the market are minimized.

Bringing in high tech solution and making all operations transparent.

Building infrastructure for capital market by turning CSE into a financial

supermarket

Serve the investors of the region.

Professional stock broking and management.

Imparting capital market knowledge to all intermediates on a continuous

basis.

The CE is directly under the control and supervision of Securities and

Exchange Board of India (SEBI) and is today a demutualized entity in

accordance with the CSE (Demutualization) scheme and notified by SEBI

on 29th of august 2005. Demutualization essentially means de-linking and

separation of ownership and trading rights and restructuring the board in

accordance with the provision of the scheme. The exchange has been

demutualized and the notification thereof published in the Gazette.

12

Page 13: Completed Project Report

2.2.2 Management of CSE Ltd.

The policy decisions of the CSE are taken by the Board of Directors. The board

is constituted with 12 members of whom less than one-fourth are elected from

amongst the trading members of CSE, another one-fourth are public interested

directors selected by SEBI from the panel submitted by the exchange and the

remaining are share holder directors. The board appoints the executive director

who functions as an ex-officio member of the board and takes charge of the

administration of the Exchange.

3.2.3 Organisatinal structure

Board of Directors

Systems SettlementLegal Surveillance

Executive director

Administration Personal

Legal and Secretarial

Listing Marketing & Public Relations

Finance

13

Page 14: Completed Project Report

2.2.4 Various departments at CSE

Membership

The membership department screens application from prospective members to

ensure that they are eligible to be members of exchange as per provisions of the

Securities Contracts Regulations Act. It is also verified they are ‘Fit and Proper’

persons eligible to be member as per SEBI Regulation 2004. The eligible

application are processed and forwarded to SEBI for the purpose of obtaining

registration with SEBI. The department continuously follows up the status of the

applications with SEBI and provides necessary data if any required by SEBI. The

members are informed of their fee liability as and when information in this regard

is obtained from SEBI. The membership department also assist SEBI by

ensuring proper delivery of notices and letters issued by SEBI to the concerned

members. The changes in the status and constitution of the brokers are send for

the approval of the governing board of the Exchange and thereafter send to SEBI

and members are given necessary directions wherever required. Changes in

address and contact information are updated in the finance and accounting

system and SEBI intimated.

System

The system department is the heart of the various operations of the CSE. The

department provides the necessary technical support for the screen based

trading and the computerized functioning of all to other department.

The activities of the department includes:

Development of software needed for the functions of the Exchange.

Maintenance of Multex software, which enables online trading with NSE

and BSE.

Maintenance of an efficient computer network for the smooth working of

the exchange.

Providing the necessary services to the settlement and surveillance

departments.

14

Page 15: Completed Project Report

The support for maintenance of the depository participants accounts with

the CSBL DP.

The major office system software’s used are NESS and BOSS respectively for

NSE and BSE trades calculations. These software’s are developed in-house by

software professional at the exchange and are used to maintain the entire

records of all trades that occur each day.

It also does all the required calculations for the deductions and also generates

the reports required by the brokers and their clients.

The trading software used in CSBL is Multex, developed by CMC. The

advantage of using it is that both BSE and NSE scrips can be traded using this

facility.

CSBL has trading facility in equities through Multex to a large number of their

clients over the WAN. Currently, the clients are connected by VPN, VSAT etc.

Legal

Guided by the Officer-Legal, the Legal Department is primarily responsible for

advising the management about the merits and demerits of legal issues involving

the Exchange. The department consistently monitors the compliance parameters

in the terms of Companies Act, SEBI Act, Securities Contracts Regulation Act,

and other related statutes. Listing guidelines and related criteria stipulated by

SEBI, and the rules, regulations, directives and circulars issued by SEBI with

regards to trading in the capital market are consistently scrutinized and

necessary directions are given to the concerned departments to ensure strict and

continued compliance. Relevant developments are brought to the notice of the

members and the investing public. Officer-Legal is the Compliance officer as per

the provision of SEBI regulations and also functions as Secretary to the Board of

Directors. Other major activities undertaken by the department relate to Investor

Grievance Services, arbitration and Resolution of issue pertaining to declare

defaulters.

15

Page 16: Completed Project Report

Listing

The listing department guides prospective companies desirous of being listed on

the exchange by providing the knowledge base and information on the statutory

requirements that have to be compiled with. The major functions undertaken by

the department include post-listing monitoring and compliance with the listing

agreement, monitoring the listing agreement and reviewing the provisions of the

listing agreement from time to time with specific reference to SEBI

regulation/circulars that are in force. The department also ensures diligence in

scrutinizing listing applications and adhering t the listing norms.

Finance

The finance department controls the financial transactions of the exchange and is

the life line of the organization. The department is headed by a Finance Officer.

The activities of the department includes:

Fund management

Interaction with bankers

Maintaining general account of the exchange

Preparation of various financial statements

Maintaining payrolls and cash registers

Coordinating accounting transactions of different branches and

departments

Taxations

Budgeting and expense research

Settlement

Settlement Department is a key department of the exchange, dealing with cash

and securities. It assist the brokers in settling the matters related to their pay-in

and payout, recovery of dues and settlement issues related to bad deliveries.

This department is headed by a Deputy Manager assisted by two Senior Officer

who take care of the operations involved in the settlement activities in CSE. The

Exchange follows the T+2 settlement system.

16

Page 17: Completed Project Report

Marketing

The Marketing Department interacts with the brokers of the exchange, trading

both within the state and outside and collects their opinion and suggestions.

These are brought to the notice of the committee constituted for the purpose and

decisions of the committee are placed for approval of the governing of the

exchange. The efforts are aimed at improving the quality and efficiency of the

services offered. I addition the department conducts extensive surveys and

campaigns in remote areas ad wherever necessary, conducts awareness

programs about Capital Market. Experts with sufficient experience in the trade

brief the participants and address their queries. Talk shows and interviews are

conducted on television channels, clipping are displayed in theatres all with an

intension to increase public awareness and motivate their interest in capital

market. The marketing wing also coordinates the of campus programmes of

CSE. Institutes and organizes regular classes at authorized centers after

verifying the availability of suitable infrastructure and facilities.

Surveillance

The exchange has set up the surveillance department to keep a close watch on

price movement of scrip and to detect market abuse like price rigging, monitor

abnormal prices and volumes which are not consistent with the normal trading

patterns etc. The main objective of the department is to ensure a free and fair

market, to avoid manipulation and to manage risk. The surveillance functions at

the exchange has assumed greater importance in the last few years. SEBI has

directed the exchange to set up a separate surveillance department with staff

exclusively for this function.

The surveillance department

Keeps a close watch on the price movement of the scrips

Detects market manipulations like price riggings

Monitors abnormal changes in price and volumes which are not

consistent with normal trading pattern

17

Page 18: Completed Project Report

Monitors the member brokers position to ensure that defaults do not

occour

The department conducts in-depth investigation based on preliminary enquires

made into trading of the scrip as also at the instance of SEBI. Conducting

investigation involves the following stages:-

Identification of scrip based on the alerts thrown by the online system and

offline reports

Identification of members from whom the client details have to be called

for.

Preparation of company profile including Corporate news and Financial

results.

Compilation of Client details

Preparation of reports

18

Page 19: Completed Project Report

2.3 PROFILE OF THE SELECTED IT COMPANIES

3.3.1 INFOSYS

Infosys technologies limited, is a public limited and India's second largest

software exporter company incorporated in the year 1981 as Infosys consultants

private limited by Mr.N.R.Narayana Murthy at karnataka, who is chairman and

chief mentor of the company. It became public limited company in the year 1992.

It has received CMM-5 status and it functioning collaborated with ANALOG

DEVICES INC of USA. Infosys is a groundbreaking company in the field of

information technology and it enjoys the privilege of being a dept free company.

It's only the company to be part of the major global index. Company offers the

services of consulting, process re-engineering, modular global sourcing and

Business Process Outsourcing services. It has developed finacle, a universal

banking solution to large and medium size banks across India and oversees. The

company has entered in marketing and technical alliance with FileNet, IBM, Intel,

Microsoft, Oracle and System Application Products. Infosys is listed in BSE, NSE

and NASDAQ.   

Infosys, the country's second-biggest IT/ITES services companies, which was the

first Indian company to be listed on the NASDAQ at the year 1999. Infosys also

forms a part of the NASDAQ-100 index. Continuously the year 2001, 2002 and

2003 company wins the National award for excellence in corporate governance

conferred by the Govt of India. In the year 2003 it acquired Expert Information

Services in Australia for $22.9 million. Its has five wholly owned subsidiaries

namely as Infosys technologies China, Infosys technologies Australia, Infosys

consultancy INC, Infosys BPO SRO and Infosys BPO Ltd previously known as

progeon. CRISIL assigned the ' CRISIL GVC level 1' rating for corporate

governance. In the year 2004 company crosses US $ 1 billion in revenue. 2005

was the year the largest international equity offering of US $ 1 billion from India

by Infosys and in 2006 company celebrated 25th year. Infosys selected as 'Best

Outsourcing Partner' by the readers of Waters, a publication covering the needs

19

Page 20: Completed Project Report

of chief information officers in the capital market firms. In 2007 it increased stake

value in progeon to 98.9 % after acquiring shares from Citicorp International

Financial Company and a subsequent buy back offer to its share holders. Infosys

had taken over Philips' finance and administration business process outsourcing

(BPO) centers spread across India, Poland and Thailand for $28 million. A

Finacle from Infosys completes Phase 1 of implementation in Stroyvestbank

subsidiary structure of URALSIB BANK.  

 

 Infosys Technologies has 47% of core business assets stagnating. The

company scanning the markets of Europe and Japan for acquisitions in the price

band of $200-$300 million to energies its non-linear business strategy as well as

to expand its geographic reach. Infosys set up various Special Economic Zone

that for the company has an additional tax benefit. It set up another Special

Economic Zone unit in Chandigarh which will be eligible for 100 % deduction of

profit from exports tax calculation for the first five years followed by 50%

deduction for next five years. Infosys has been pursuing its expansion plans over

the past few years. As of March 2007 it has a capital expenditure commitment of

Rs 655 crs, it is in the process of expanding its operations by adding amount

32,967 seats to its completed 58.488 seats. The entire capital expenditure was

funded out of internal cash flows. The future enhancement of the company is to

emerge the developing economies changing the business landscape with help of

accessible talent pools and the adoption of non-linear growth model, it is a long

term strategy. Infosys Technologies Ltd has partnered with ACDI/VOCA for

promotes broad-based economic growth and to develop information and

communication technology- enabled application to improve efficiencies in the

agro supply chain in India. As of April 2008 the company acquired Internet

Protocol (IP) from an Australian company to add more functionality to finacle.

The IP, that provides a comprehensive set of financial tools to company's existing

product line. As on May 2008 the company ranked third in the largest 2008

Global Outsourcing 100, compiled by the International Association of

Outsourcing Professionals (IAOP).

20

Page 21: Completed Project Report

2.3.2 TCS

Established in 1968, Tata Consultancy Services has grown to its current position

as the largest IT services firm in Asia based on its record of outstanding service,

collaborative partnerships, innovation, and corporate responsibility. TCS is

headquartered in Mumbai, and operates in more than 50 countries and has more

than 170 offices across the world. In the year 1979 it established its first office in

New York City. It is the world's first organization to achieve an enterprise-wide

Maturity Level 5 on quality improvement models, CMMI and P-CMM, using the

most rigorous assessment methodology, SCAMPISM. TCS Division of Tata Sons

Ltd was transferred to TCS as on April 2004 for a consideration of Rs.2300

crores and the company went to public in the same year 2004.  

 

 The company's major areas of business are comes under five services, such as

Consulting, Information Technology Services, Business Process Outsourcing,

Infrastructure Outsourcing, Engineering and Industrial Services which covers the

industries namely Banking and Financial Services, Energy and Utilities,

Government, Healthcare and Life Sciences, Hi Technology, Insurance,

Manufacturing, Retail, Telecom, Travel and Hospitality. 

 

During the year 2004-05 the company has acquired WTI Advanced Technology

LTD and TCS Business Transformation Solutions Ltd (Previously, Phoenix

Global Solutions (India) LTD), subsequently these two companies have turned as

the subsidiaries of the company. In between 2005-06, the year covers the

acquisitions of three companies Comicrom S.A., Chile, Financial Network

Services (Holdings) Pty Ltd, Australia (FNS) and Swedish Indian IT Resources

AB (SITAR). Tata Infotech Limited and three wholly owned subsidiaries of the

company, viz Airline Financial Support Services (India) Ltd (AFSL), Aviation

Software Development Consultancy India Ltd (ASDC) and TCS Business

Transformation Solutions Ltd (TCS BTS) have amalgamated with the company

on April 2005. Apart from this the company made strategic alliances during the

year with Diligenta Limited for Life Insurance business and entered into a Joint

21

Page 22: Completed Project Report

Venture Agreement with the State Bank of India (SBI). The new company was

formulated and named C-Edge Technologies Limited (C-Edge) to provide

advanced technology solutions and world-class domain consulting for the

banking and financial services sector.  

 

 In the year of 2006, TCS formed a company as MP Online Limited, partnership

with the Government of Madhya Pradesh, offering a wide range of computer

enabled services in the State of Madhya Pradesh. The company, through its

wholly owned subsidiaries Tata Consultancy Services Asia Pacific Pte Ltd and

Tata Consultancy Services Malaysia Sdn Bhd, subscribed to 100% share capital

of PT Tata Consultancy Services, Indonesia, a Company formed to provide

consulting and IT related services in Indonesia. Through its wholly owned

subsidiary Tata Consultancy Services Netherlands B.V., acquired 75% equity

interest in Switzerland based TKS - Teknosoft S.A., for a consideration of Rs.

368.06 crores The company, through its wholly owned subsidiary TCS FNS Pty

Limited, acquired 100% equity interest in an Australia based company TCS

Management Pty Ltd., for a total consideration of Rs. 15.75 crores. TCS's share

capital of Tata Consultancy Services (China) Co., Ltd leads the company to

frame a partnership with Chinese companies to provide IT outsourcing services

and solutions. The Company, through its wholly owned subsidiaries Tata

Consultancy Services BPO Chile S.A. and TCS Inversiones Chile Limitada,

subscribed to 100 % share capital of Tata solution Center S.A., a Company

formed to provide BPO services in Ecuador. Another one of its wholly owned

subsidiary TCS FNS Pty Limited, subscribed to 100% share capital of Financial

Network Services Beijing Co. Ltd., a company formed to provide consulting and

IT related services in China and the company has increased its investment in

TCS Iberoamerica to Rs. 165.23 crore as on March 31, 2007 

 

 The company received International Credit Rating from Moody's Investors

Service and has assigned an investment-grade issuer rating of A3 as well an

indicative foreign currency debt rating of Baa1. TCS gathered various awards

22

Page 23: Completed Project Report

and recognitions, significant amongst which are Special Award by the UK Prime

Minister, Tony Blair 'Outstanding Contribution to UK Knowledge Industry' in 2005,

Company of the Year - 2006 from the Economic Times, Dataquest Best IT

Employer for 2006, CII-EXIM Bank Award for Business Excellence 2006, Golden

Peacock Global Award for Corporate Social Responsibility, Ranked among the

Top 10 US application management services vendors India's largest e-

governance initiative of the Ministry of Company Affairs, which is implemented by

TCS, Most Distinguished Achievement Award in Information Management

(APAC) - 2006' from IBM and Verizon's Supplier Excellence Award for the third

consecutive year. Eaton Premier Supplier Award 2007 for the Indirect Supplier

for Information Technology Services category honored by Eaton Corporation.  

 

 As on 2008 TCS has signed a new multi-year contract with Chrysler LLC to

provide a comprehensive portfolio of IT services, in March 2008 opened its North

America Delivery Center called TCS Seven Hills Park. Located in Milford, Ohio, a

suburb of Cincinnati, the facility sits on 220 wooded acres and is the largest TCS

facility in North America. As on May 2008 the company ranked sixth in the largest

2008 Global Outsourcing 100, compiled by the International Association of

Outsourcing Professionals (IAOP). In June of the year 2008, the company gets

$11.5 million transformational deal to design, install and integrate a tax

administration system for the Uganda Revenue Authority (URA). TCS is going

with certainty, lot of innovations and strategies to attain the vision of Global Top

10 by the year 2010.

23

Page 24: Completed Project Report

2.3.3 ORACLE

Oracle Financial Services Software Limited (erstwhile i-flex solutions) (OFSSL) is

a world leader in providing IT solutions to the financial services industry. The

Company was incorporated in September 27, 1989 as Citicorp Information

Technology Industries Ltd. The Company addressing the entire financial services

space through a comprehensive portfolio of products, IT services, consulting and

knowledge process outsourcing services. With the experience of delivering

value-based IT solutions to over 810 financial institutions across 130 countries.

OFSSL has 14 development centers across India, Singapore and the USA. The

Company has a strong global reach with a sales, marketing and support

presence in 27 overseas locations operating across four subsidiaries (i-flex

solutions inc. in the USA, i-flex solutions b.v. in the Netherlands, i-flex solutions

ltd. in Singapore and iPSL in India). In addition, 30 corporate business partners

and 32 implementation partners represent i-flex across the globe. The Company

also has strong alliance and/or implementation relationships with industry leaders

such as Hewlett-Packard, IBM, Sun Microsystems and Intel. 

 

 CITIL (Citicorp Information Technology Industries Limited), spun off from COSL

(Citicorp Overseas Software Limited), commences first year of operations in the

year 1992. In 1995, CITIL gains recognition for establishing world-class

processes and quality Standards, It attained SEI CMM Level 4, becomes the first

financial software firm in the world and one out of six companies worldwide to

achieved this distinction at that time. CITIL established the Center of Excellence

during the year 1996 for business intelligence to provide specialized consulting

and software products, as well as services in data warehousing and business

intelligence. A complete banking product suite for retail, consumer, corporate,

investment and internet banking, consumer lending, asset management and

investor servicing, including payments (SWIFTNet and SEPA) was launched in

the year 1997 under the name of FLEXCUBE. MicroBanker becomes the 6th

international banking product in the world to be used by 100 customers in 1998

and the FLEXCUBE starts gaining traction and international leadership.  

24

Page 25: Completed Project Report

 During the year 1999, FLEXCUBE Information Center, a Web-enabled business

intelligence system was launched along with a Center of Excellence for CRM and

the Java Center for financial services also established. CITIL was renamed as i-

flex solutions limited in the year 2000. During the same year 2000, Center of

Excellence for e-services launched Separate business unit established to

address the Applications Services Provider (ASP) market. i-fl ex solutions b.v., a

100 percent subsidiary of the company opened in Amsterdam, The Netherlands.

The company's financial software development facilities were established in the

year 2001 at Pune and Chennai and fully owned subsidiaries set up in USA and

Singapore, i-flex solutions b.v. in Amsterdam, The Netherlands, becomes

operational, i-fl ex Consulting was launched. EBZ Online, a software company

was joined with the company during the year 2002 through which i-flex's product,

Flexcube, for made available to cooperative banks. Dotex International, a joint

venture company supported by NSE.IT and i-flex Solutions Ltd, signed a

memorandum of understanding (MoU) with BgSE Financials Ltd, a subsidiary of

the Bangalore Stock Exchange, to give Internet trading service to the members

of the exchange. The Company entered into capital market with Initial Public

Offering (IPO) of an issue of 3,961,700 equity shares. I-flex opened its first

Overseas Software Development Center in Singapore in the year 2002.  

 

 In the year 2003, the company's flagship product FLEXCUBE ranked the world's

No.1 selling Universal Banking Solution and during the same year 2003, I-flex

sets up development centre in New York, Wins a major order from

HypoVereinsbank Group (HVB Group), Germany, Inaugurated FLEXCUBE

Support & Prime Sourcing Solutions Centre in London and acquisition of Super

Solutions Corporation in all cash deal of .5 million was made. Waters Magazine

ranked Mantas as the Best Anti-Money Laundering Solution and Best

Compliance Solution for 2003.  

 

25

Page 26: Completed Project Report

Waters Magazine ranked Mantas as the Best Anti-Money Laundering Solution for

2003 and also for 2004. During the year 2004, i-flex opened its wholly owned

holding company in US, namely i-flex America, for carrying out all future

acquisitions in the USA. The Golden Peacock National Quality Award was

awarded to the company. i-flex Solutions ties up with Barbados-based first

Caribbean International for internet banking and e-finance platform of i-flex

Solutions. The core banking solution Flexcube had won The Banker Core

Banking Solution of the Year and Application of the Year'' awards. The Company

and YES Bank has signed Global Strategic Memorandum to collaborate on

technology led innovations to enhance quality and efficiency in banking products

and delivery processes. i-flex joined hands with People Soft to develop and

market an integrated solution for the banking industry.  

 

 Entered into strategic alliance with Castek Software Inc., a Toronto based

provider of insurance systems for the global Property & Casualty (P&C) in the

year 2005. The decade-old relationship between Oracle and i-flex was further

strengthened in 2005 at a strategic level. In August 2005, Oracle Corporation

bought Citigroup's 41 percent equity interest in i-flex and floated an open offer to

purchase up to an additional 20 percent ownership from existing shareholders. i-

flex assessed at CMMi Level 5 also certified BS 7799 compliant. BS 7799 is

security standards and policies addressing information security. In the same year

i-flex and EDB Business Partner ASA had entered into an agreement to jointly

offer comprehensive retail banking solutions to financial institutions in the Nordic

region. Reveleus was positioned in Gartner's 'Leaders Quadrant' in its 'Basel II

Risk Management Application Software Magic Quadrant for 2005' and '2006

Basel II Software Applications Magic Quadrant'. Reveleus was also 'Highly

Commended' for its Compliance Initiative Innovation in The Banker Technology

Awards for 2006. The Black Book of Outsourcing, ranked i-flex BPO as the top

outsourcing vendor to the Mortgage Banking Industry in 2006. The FLEXCUBE

10.0 was released in 2007, it helps financial institutions respond faster to market

dynamics and define and track processes, while ensuring compliance. The suite

26

Page 27: Completed Project Report

also equipped with SWIFT 2007 enhancements and supports SEPA payment

processing. New Version of FLEXCUBE Core Banking for IBM System z active

from April 2008. During August of the year 2008, the company changed its name

from I-flex solutions Limited to Oracle Financial Services Software Limited.  

 

 FLEXCUBE, Reveleus, Daybreak, Mantas, PrimeSourcing, i-flex Consulting and

iPFB are trademarks of i-flex solutions and are registered in several countries.

Together, Oracle and i-flex solutions offer financial services institutions the

world's most comprehensive and contemporary banking applications and want to

embark technology footprint that address their complex IT and business

requirements.

27

Page 28: Completed Project Report

2.3.4 HCL

HCL Technologies Limited was incorporated in 1991, as HCL Overseas Limited.

The certificate of commencement of business was received on 10th February

1992. On July 14, 1994, the name of the Company was changed to HCL

Consulting Limited. The company provides software-led IT solutions, remote

infrastructure management services and BPO. In 1996 the 50:50 joint venture

with Perot Systems Corporation was formed to provide access to high value

client base of Perot Systems under the name of HCL Perot Systems NV. HCL

Technologies focuses on Transformational Outsourcing, working with clients in

areas that impact and re-define the core of their business after its IPO in 1999

with aim of foray into the global IT landscape and in the same year again the

Company changed its name to HCL Technologies Limited. The company

encompasses global offshore infrastructure and its global network of offices in 18

countries to deliver solutions across selected verticals including Financial

Services, Retail & Consumer, Life Sciences & Healthcare, Hi-Tech &

Manufacturing, Telecom and Media & Entertainment (M&E).  

 

 HCL Tech started to create wholly owned subsidiaries to cater specific

geographic regions from the year 1999. HCL has the widest service portfolio

among Indian IT service providers, with each of its services having attained

critical mass. In the year of 2000 the company has set up a dedicated offshore

development centre in Chennai for KLA-Tencor Corporation, a supplier of

process control and yield management solutions for the semiconductor and

related microelectronics industry and HCL Comnet, the wholly owned subsidiary

of HCL Technologies in association with its new partner Globeset Inc for scouting

largest Internet Service Providers and payment gateways in India to introduce

Net security management solutions. The Company launched the Nokia

professional centre in New Delhi, second among the chain of centres across the

country. HCL Technologies has entered into a strategic alliance with Nasdaq-

listed Vitesse Semiconductor to develop software solutions for global networking

markets in the year 2001 and also entered into a strategic alliance with Toshiba

28

Page 29: Completed Project Report

Information Systems (Japan) Corporation to set up a dedicated offshore software

development centre for developing embedded software for the Japanese

company. HCL Comnet Systems & Services Ltd., a fully owned subsidiary of

HCL Technologies was gone into the business of Web-enabling applications

through the launch of demand-chain management solutions.  

 

 In 2002 the company acquired Gulf Computers Inc, USA and formed a JV with

Answerthink, Inc., a leading US based provider of technology enabled business

transformation solutions to Global 2000 firms. A strategic technology joint venture

was made with Jones Apparel Group, Inc. Jones Apparel Group, Inc. a Fortune

500 Company in the same year and also entered into a joint venture with M.A.

Partners, a management consulting firm to address software services

opportunities in Global Finance Markets, especially in the areas of Investment

Banking, Asset Management and Private Banking. M.A. Partners brings a wealth

of domain expertise and clients including many of the top Global Investment

Banking firms to the JV. In the year 2003, BT Group UK's telecom service

provider gave a contract worth of $160 million for BPO service operations and

the company has set up an exclusive centre in Noida for exeucting the orders

given by BT Group. The software business of HCL Infosystems Limited was

transferred to HCL Technologies Limited additionally. HCL Comnet, a wholly-

owned flagship of HC Technologies, secured Rs 31 crore network management

order from National Insurance Corporation (NIC).   

 

HCL Technologies sets up Insurance Solutions Center in Chennai and the

company has entered into a strategic tie-up with IBM Rational Software, a

division of IBM, to strengthen its software development capabilities during the

year 2004. The Company has been conferred the prestigious Excellence in

Education Award for 2004 by the Life Office Management Association (LOMA).

BPO delivery centre in Chennai gets BS7799 certification, by the British

Standards Institute (BSI) on August of the same year. The company has

29

Page 30: Completed Project Report

Introduced Cross View; a framework based Computer Systems Validation (CSV)

methodology for the development of robust software applications in the Life

Sciences arena.   

 During the year 2005 SEBI ties up with HCL Technologies for market

surveillance and the company formed joint venture with NEC, Japan. The

company amalgamated its six wholly owned subsidiaries with company itself,

such subsidiaries are DSL Software Ltd, Shipara Technologies Ltd, HCL

Technologies BPO Services Ltd, HCL Technologies (Mumbai) Ltd, Aquila

Technologies Ltd and HCL Enterprise Solutions (India) Ltd and the course of

event the company acquired an Irish Call centre during February 2005 and this

acquisition establishes HCL's position as the single largest BPO Centre operation

on the Island of Ireland. HCL's Infrastructure Services Division ranked a 'Strong

Performer' in Remote Infrastructure Management by an International Research

Firm and made a strategic partnership with EXA, Japan in same year. In the year

of 2006 the company launched RoHS Compliance Management System for

Medical Device Users and entered $70 million outsourcing deal with Teradyne of

US. HCL developed Trusted ICT Infrastructure Platforms for BPO-ITE'S Segment

and has linked pact with Canada based electronics manufacturing services

company Celestica Inc to jointly design and manufacture electronic products for

global original equipment manufacturers (OEMs). The company has forayed into

an alliance with $200 million Saudi Arabian company namely Advanced

Electronics Company (AEC) to implement IT projects in West Asia in the year

2007 and formed a strategic alliance with Eckler to strengthen Insurance Domain

expertise. The company made US $15 million contract with Aleni Aeronautica, to

provide engineering services that will support the improvement of the C-27J

Spartan production line. HCL Venture Capital Ltd., a company incorporated in

Bermuda and downstream subsidiary of the company was merged with HCL

Bermuda Ltd and HCL Technologies (Mass) Inc., a company incorporated in

United States of America and a down stream subsidiary of the company was

30

Page 31: Completed Project Report

merged with HCL America Inc in the year 2007.  

 

As on January 2008, HCL's Electro Magnetic Compatibility (EMC) and Durability

Test Lab located in Chennai, the first of its kind private Technology facility sector

to obtained the ISO/IEC 17025 Accreditation from NABL (National Board for

Accreditation of Testing and Calibration Laboratories, India) and a new

partnership with Mark Logic Corporation, provider of the industry's leading XML

content server was made on same month of the year. As on February 2008 the

acquired Capital Stream, Inc., a US based leader in providing comprehensive

end-to-end lending and straight through processing solutions to commercial

banks and finance companies in North America worth about US $ 40 Million and

in same month company expanded global services partnership with SAP AG

(NYSE: SAP). During April 2008 HCL Technologies Ltd announced to launch of

its new SaaS Service Delivery Platform (SDP) AGORA - at Software 2008 in Las

Vegas and in the same month of the same year the company launched an

innovative on-demand software testing lab at Software 2008 that allows

Independent Software Vendors (ISVs) to reduce their software testing cycle

times and lower their capital expenditure on testing hardware and software.

31

Page 32: Completed Project Report

2.3.5 WIPRO

Wipro Limited, the successful company crossed six decade of years. Wipro

though started as a edible oil producer way back in 1945 under the name

Western India Vegetable Products, a private limited company has transformed

itself into leading player in Fast Moving Consumer Goods and IT services &

Products business. It was incorporated at Karnataka by Mr. Azim H Premji who is

promoter and chairman of the company. Five of Wipro's manufacturing and

development facilities secured the Indian Standard Organization (ISO) 9001

certification during 1994-95. Company provides the integrated business,

technology and process solution on a global delivery platform to customers

across Americas, Europe, Middle East and Asia Pacific, they offer business value

to clients through process excellence and service delivery innovation such as

Information Technology services, Product Engineering services, Technology

Infrastructure services, Business Process Outsourcing services and consulting

services. 23 subsidiaries running under in Wipro. This company is listed in BSE ,

NSE and Newyork .  

In February 2001, Wipro became the first software technology and services

company in India to be certified for ISO 14001 certification for complying with the

international standards for Environmental Management System (EMS) in three

major software development and technology centers in Bangalore and also

achieved ISO 9000 certification and they are ISO 14000 certificate holder also for

good citizenship. Wipro Technologies has won the 'Banker Technology Award'

for the year 2004 Instituted by the Financial Times in the 'Risk Management

Award' category. During December 2005 the company has signed a definitive

agreement to acquire mPower Inc, a US based company with a development

center in Chennai and MPACT Technology Services which is also based in

Chennai. Wipro received the BEST award from American society for training &

development (ASTD) for three consecutive years 2004, 2005 and 2006. Wipro

Ltd is a largest 3rd party Research & Development service provider in the world,

Wipro is among the top 3rd Indian BPO service providers by revenue identified

32

Page 33: Completed Project Report

by NASSCOM, the IDC India noted among the top 2nd domestic IT services

companies in India. Wipro is the world first PCMM level 5 company and it is a

winner company of the Dale Carnegie Leadership award in 2007 for people

excellence. Wipro is a first company to be assessed at level 5 on CMMi for

process excellence as well as its a company to deploy six sigma in IT services at

first. Second time Wipro has announced that it has been recognized winner of

the 2007 global MAKE award, the 2007 Asian MAKE award fifth time in a row

and also received the 2007 Indian MAKE award third time organized by CII

(Confederation of Indian Industry).  

 

2006-07 was the year for acquisition to Wipro, during the year company acquired

six companies namely Quntech Global Services, Saraware Oy, Enabler

Informatica S A, 3D Networks Pte Ltd, Hydrauto Engineering AB and Northwest

Switchgear. Wipro partnered with Motorola to form a joint venture namely

WMNETSERV, At the same time company invested Rs.16,684 million on fixed

assets during the year. Wipro has set up an overseas design center as Odyssey

21 for undertaking projects and product developments in advanced technologies

for overseas clients.  

 

Wipro has been a pioneer in fostering a culture of Innovation. This culture

manifested in small and big acts of Innovation of wiproites everyday. In the year

2000 itself Wipro launched Innovation Initiative for business development and

right now they engaged across 55 CoE's and 30 innovation projects with over

500 peoples. Its not a edge, the companies future enhancement also to

continued focus on Innovation has caught the attention of stakeholders and

industry. Wipro wants to make a geographical footprint in Germany, Canada,

Japan and Middle East that is likely to become the next growth engines and

wants to frame a end-to-end solutions for business needs of customer. Wipro

plans to set up a Global IT Services Center in Sydney.

33

Page 34: Completed Project Report

3. LITERATURE REVIEW

34

Page 35: Completed Project Report

3. Review of literature

Fundamental analysis is a sock valuation method that uses financial and

economic analysis to predict the movement of stock prices. The fundamental

information that is analyzed can include a company’s financial reports, and non-

financial information such as estimates of the growth of demand for products sold

by the company, industry comparisons, and economy-wide changes, changes in

government policies etc. Security analysis is the initial phase of the portfolio

management process. This step consists of examining the risk-return

characteristics of individual Securities.

3.1 Fundamental analysis

An investor who would like to be rational and scientific in his investment activity

has to evaluate a lot of information about the past performance and the expected

future performance of the companies, industries and the economy as a whole

taking the investment decision. Such evaluation or analysis is called fundamental

analysis.

Fundamental analysis is really a logical and systematic approach to estimating in

the future dividends by a number of fundamental factor relating to the economy,

industry and company. Hence, the economy fundamentals, industry

fundamentals and company fundamentals have to be considered while analyzing

a security for investing purpose. It is in other words, a detailed analysis of the

fundamental factors affecting the performance of companies.

Each share is assumed to have an economics worth based on its present and

future earning capacity. This is called its intrinsic value or fundamental value. The

purpose of fundamental analysis is to evaluate the present and future earning

capacity of a share based on the economy, industry and company fundamentals

and there by asses the intrinsic value of the share. The investor can then

35

Page 36: Completed Project Report

compare the intrinsic value of the share with the prevailing market price to arrive

at an investment decision. If the market price of the share is lower than its

intrinsic value, the investor would decide to buy the share as it is under priced.

The price of such a share is expected to move up in future to match with its

intrinsic value.

On the contrary, when the market price of a share is higher than its intrinsic

values, it is perceived to be over priced. The market price of such a share is

expected to come down in future and hence the investor would decide to sell

such a share. Fundamental analysis thus provides an analytical framework for

rational investment decision-making . This analytical framework known as E-I-C

framework, or economy–industry company analysis.

Fundamental analysis thus involves three steps:

1. Economy analysis

2. Industry analysis

3. Company analysis

3.1.1 Economy analysis

The performance of a company depends on the performance of the economy. If

the economy is booming, incoming rise and demand for goodwill increase, the

industries and companies in the general trend to be prosperous. On the other

and if the economy is in recession, the performance of the company will be

generally bad.

Growth rate of National Income

The rate of growth of the National Economy is an important variable to be

considered by an investor. GNP, NNP and GDP are the different measures of the

total income or total economic output of the country as a whole. The growth rate

of these measures indicate the growth rate of the economy. The estimate of

GNP, NNP, GDP and their growth rate are made available by the government

from time to time.

36

Page 37: Completed Project Report

The estimated growth of the economy would be pointed towards the prosperity of

the economy. An economy typically passes through different phases of prosperity

known as the different stager of the economic or business cycle. The four stages

of the economic cycle are depression, recovery, boom and recession. The stage

of economic cycle through which a country passes has different impact on the

performance of industries and companies.

Infrastructure

The development of an economy depends very much on the infrastructure

available. Industry needs electricity for its manufacturing activities, road and

railways to transport raw materials and finished goods, communication channels

to keep in touch with suppliers and customers. The availability of infrastructure

facilities such as power, transportation and communication systems affect the

performance of companies. Bad infrastructure leads to inefficiencies, louder

productivity, wastage and delays. An investor should assess the status of the

infrastructure facilities available in the economy before finalizing his investment

plans.

Monsoon

The Indian economy is essentially an agrarian economy and agriculture is a

important sector of the Indian Economy. Because of the strong forward and

backward linkages between agriculture and industry, performance of several

industries and companies are dependent to the performance of agriculture to a

very great extend that depends on monsoon. The adequacy of the monsoon

detains the success or failure of the agriculture activities in India. Hence the

progress and adequacy of monsoon becomes a matter of great concern for an

investor in Indian content.

37

Page 38: Completed Project Report

Economic and political stability

A stable political environment is necessary for steady and balanced growth. No

industry or company can grow and prosper in the midst of political turmoil. Stable

long term economic policies are what that is needed for industrial growth. Such

stable policies can emanate only through stable political system.

3.1.2 INDUSTRY ANALYSIS

An investor ultimately invests his money in the securities of one or more specific

companies. Each company can be characterized as belonging to an industry.

The performance of companies would therefore be influenced by the fortunes of

the industry to which it belongs. For this reason an analyst has to undergo an

industry analysis so as to study the fundamental factors affecting the

performance of different industries.

At any stage in the economy, there are some industries which are fast growing

while others are stagnating or declining. If an industry is growing, the companies

within the industry may also be prosperous. The performance of companies will

also depend on the state of the company to which it belongs. Industry analysis

refers to an evaluation of the relative strength and weakness of weakness of

particular industries.

An industry is generally described as a homogenous group of companies. We

may define an industry as a group of firms producing reasonably similar products

which serve the same needs of a common set of buyers. Industries are

traditionally classifies as cement industry, steel, cotton, textile, software industry

and so forth. However industry classification becomes difficult while dealing with

firms having a diverse product line. And such firms are now on the trend. Due to

the difficulties that they suffer, each country follows a standardized classification

to facilitate data collection. The reports can effect the growth of other industries.

38

Page 39: Completed Project Report

Industry characteristics

In an industry analysis, there are a number of key characteristics that should be

considered by the analyst, These features broadly relate to the operational and

structural aspects of the industry. They have a bearing on the prospects of the

industry. Some of there are discussed below:

Demand supply graph:

The demand for a product, usually tend to change at a steady rate. Whereas,

the capacity to produce the product tends to change at regular intervals,

depending upon the installation of additional production capacity. As a result

am industry is likely to experience undersupply and oversupply of capacity at

different times. Excess supply reduces the profitability of the industry through

a decline in the Unit prize realization.

Labour condition:

The state of labour condition in the industry under analysis is an important

consideration in an economy such as ours where the labour union are very

powerful. If the labour in a particular industry is rebellious and is inclined to

resort to strikes frequently. The prospects of that industry cannot become

bright.

Attitude of government

The attitude of the government towards an industry has a significant

impact on its prospects. The government may encourage the growth of

certain industries can assist such industries through favorable legislation.

3.1.3 Company Analysis

Company analysis is the final stage of fundamental analysis. The economy

analysis provides the investors a broad outline of the prospects of growth in the

economy. The industry analysis helps the investor to select the industry in which

the investment would be rewarding. Now he should find the company in which,

he should invest his money. Company analysis gives an answer to this question.

Company analysis deals with the estimation of returns and risk of individual

39

Page 40: Completed Project Report

shares. This calls for information. Many pieces of information influences the

investment decisions. Information regarding companies can be broadly classified

into two groups: internal and external. Internal information consist of data and

events made public by companies concerning their operations. The internal

information source includes annual reports to shareholders, public and private

statements of officers of the company, the companies financial statements, etc.

External sources of information are those generated independently outside the

company. Investment services and the financial press prepares these.

In company analysis, the analyst tries to forecast the future earnings of the

company because there is strong evidence and that earnings have a direct and

powerful effect upon share prices level, trend and stability of earnings of a

company, however depending upon a number of factors concerning the

operations of the company.

40

Page 41: Completed Project Report

3.1.4 FINANCIAL TOOLS

Earnings Per Share (EPS) = Profit After Tax (PAT) No. of Equity share

Dividend Per Share (DPS) = Amount declared as Dividend

No. of Equity shares

Dividend Payout Ratio = Dividend Per Share (DPS)

Earnings Per Share (EPS)

Return on Equity = Profit After Tax (PAT) * 100

Net worth * 100

Price Earning Ratio = Market price per share

EPS

3.1.5 INTRINSIC VALUE CALCULATION

Dividend Payout Ratio = Dividend Per Share(DPS)

Earnings Per Share(EPS)

Average DPOR for 5 years = Sum of DPOR for 5 years

5

Average Return on Equity = 1- Avg DPOR

41

Page 42: Completed Project Report

Average return on Equity = Sum of ROE for years

5

Growth rate in Dividend = Avg retention ratio * Avg return on equity and equity

Normalized average = Sum of price to equity ratio for 5 years

5

Projected earning per share = EPS for current year * ( 1+ growth rate)

Intrinsic value P/E ratio = Projected EPS * normalized average

Projected Dividend per share = DPS for current year * (1+ growth rate)

3.1.6 Financial statements

The prosperity of a company would depend upon its profitability and financial

health. The financial statements published by a company periodically helps us to

assess the profitability and financial health of the company. The two basic

financial statement provided by the company are the balance sheet and profit

and loss account. The first gives us the picture of the companies asset and

liabilities while the second gives us a picture of its earnings.

The balance sheet gives the list of assets and liabilities of a company on a

specific date. The major categories of assets are fixed assets and current assets.

Fixed assets are those assets, which are intended to be used up over a period of

years. Current assets are those assets that are intended to be converted into

cash in the near future (within 1 year). The major categories of liabilities are

outside liabilities and liabilities towards shareholders. The outside liabilities are

categorized as short term liabilities and long term liabilities. The short term

liabilities which are expected to be paid off within the next 1 year are known as

42

Page 43: Completed Project Report

the current liabilities. The balance sheet indicates the financial position of a

company on a particular date namely, the last date of the accounting year.

The profit and loss account also called income statement, reveals the revenue

earned, the

Cost incurred and the resulting profit or loss of the company for one accounting

year. The profit after tax divided by the number of shares gives the Earnings per

Share, which is a figure in which most investors are interested. The profit and

loss account summarizes the activities of the company during an accounting

year.

43

Page 44: Completed Project Report

3.2 Technical Analysis

Technical analysis is an alternative approach to fundamental analysis for the

study of stock price behavior. Technical Analyst believes that the share price

movement are systematic and exhibit certain consistent patterns. He studies past

movements in the share price to identify trend and pattern, and then try to

predict the future price movements. The current market price is compared with

the future predicted price to determine the extend of miss-pricing. Technical

analysis is an approach which concentrates on the price movements and ignores

the fundamentals in the share.

Technical analysis really just studies the supply and demand in a market in an

attempt to determine what direction, or trend, will continue in the future. In other

words, technical analysis attempts to understand the emotions in the market by

studying the market itself, as opposed to its components.

Technical analysis is a method of evaluating securities by analyzing the

statistics generated by market activity. It is based on three assumptions.

1. The market discounts everything

2. Price moves in trends

3. History tends to repeat itself

Technicians believe that all the information they need about a stock can

found in its chart

Technical traders take a short-term approach to analyze the market .

Criticism of Technical analysis stems from the efficient market hypothesis,

which states that the market price is always the correct one, making any

historical analysis useless.

One of the most important concepts in technical analysis is that of a trend,

which is the general direction that a security is headed. There are three

types of trends:

1. Upward trend

2. Downward Trend

44

Page 45: Completed Project Report

3. Sideways or Horizontal trend

A trend line is a simple charting technique that adds a line to a chart to

represent the trend in the market or a stock.

Share price are determined by the demand and supply forces operating in the

market. These demand and supply factors are in turn influenced by a number of

fundamental factors as well as psychological or emotional factors. Many of these

factors cannot be quantified. The combined impact of all these factors is reflected

in the share price movement.

The technical analyst therefore concentrates on the movement of share price and

analyses the price and volume of individual securities as well as market index.

3.2.1 Steps in Technical Analysis:

1. Study the past movement in share price and identify the trends and

establish patterns.

2. Look at the current movement in the share price and identify the trends

and establish patterns. With this the future price movement is predicted.

The rationale behind the Technical Analysis is that share price moves in

trend or waves which may be upward or downward. It is believed that the

present trends are influenced by the past trends. The technical analyst,

therefore analyses the price and volume movement of individual securities

as well as the market index. Thus technical analysis is really a study of

past or historical price volume so as to predict the future stock.

45

Page 46: Completed Project Report

3.2.2 The basic principle behind technical analysis:

1. The market value of a share is related to the demand and supply factors

operating in the market.

2. There are both rational factors which surrounds the supply and demand

factors of security.

3. Security prices behaves in a manner that their movements are continuous

in particular direction for some length of time

4. Trends in stock prices have been seen to change when there is shift in

demand and supply.

5. The shift in demand and supply factors can be detected through charts

prepared specially to show market action.

3.2.3 TOOLS USED

1. Moving Average Crossover

2. MACD

3. Momentum

4. Stochastic

5. Relative Strength Index(RSI)

46

Page 47: Completed Project Report

MOMENTUM

Momentum is a simple technical analysis indicators showing the difference

between today's closing price and the close N days ago. Momentum is the

absolute difference:

Rate of change scales by the old close, so as to represent the increase as a

fraction,

"Momentum" in general refers to prices continuing to trend. The momentum and

ROC indicators show trend by remaining positive while an uptrend is sustained,

or negative while a downtrend is sustained. A crossing up through zero may be

used as a signal to buy, or a crossing down through zero as a signal to sell. How

high (or how low when negative) the indicators get shows how strong the trend

is?

STOCHASTIC

The stochastic indicator has been developed by Georges Lane. This indicator

has been build based on the following concept:

In a positive trend, if the price is close to his maximum value, the intra day

closing price will tend to be closer and closer to his intra day high.

In a negative trend, if the price is close to his minimum value, the intra day

closing price will tend to be closer and closer to his intra day low.

47

Page 48: Completed Project Report

This system uses two lines: %K and %D.

With: n the chosen lag.

Ct the stock price at the date t.

Bn the lowest price during the last n days.

Hn the highest price during the last n days.

The stochastic %K is: %K= 100 * {(C-Bn)/(Hn-Bn)}

The second step is to compute the %D. 

%D is the moving average at j days of the numerator of  %K (Nj) divided by

the moving average of the denominator of %K (Dj).

The stochastic indicator is interpreted like the RSI. The sale signal is given when

both lines are over 80% and the purchase signal when both lines are under 20%.

The lag used for n in %K is often 5 days but (9,11 and 14 days are used as well).

The lag used for j in %D is often 3

MOVING AVERAGE CROSSOVER

Moving average crossovers are a common way traders use Moving Averages. A

crossover occurs when a faster Moving Average (i.e. a shorter period Moving

Average) crosses either above a slower Moving Average (i.e. a longer period

Moving Average) which is considered a bullish crossover or below which is

considered a bearish crossover.

48

Page 49: Completed Project Report

The chart below of the S&P Depository Receipts Exchange Traded Fund (SPY)

shows the 50-day Simple Moving Average and the 200-day Simple Moving

Average; this Moving Average pair is often looked at by big financial institutions

as a long range indicator of market direction:

Note how the long-term 200-day Simple Moving Average is in an uptrend; this is

a signal that the market is quite strong. Generally, a buy signal is established

when the shorter-term 50-day SMA crosses above the 200-day SMA and

contrasts, a sell signal is indicated when the 50-day SMA crosses below the 200-

day SMA.

In the chart above of the S&P 500, both buy signals would have been extremely

profitable, but the one sell signal would have caused a small loss. Keep in mind,

that the 50-day, 200-day Simple Moving Average crossover is a very long-term

strategy.

49

Page 50: Completed Project Report

Moving Average crossovers are important tools in a traders toolbox. In fact

crossovers are included in the most popular technical indicators including the

Moving Average Convergence Divergence (MACD) indicator

RELATIVE STRENGTH INDEX(RSI)

The relative Strength Index is a financial technical analysis momentum oscillator

measuring the velocity and magnitude of directional price movement by

comparing upward and downward close to close movement. It was first

introduced by Wells Wilder. It is a powerful indicator used to identify the inherent

strength and weakness of a particular scrip or market. This is a powerful indicator

that signals buying and selling opportunities ahead of the market. The name

“relative strength Index” is slightly misleading, as the RSI does not compare the

relative strength of two securities, but rather the internal strength of a single

security.

RSI for security is calculated by the following formulae:

RSI = 100 – [100/(1+RS)]

Where RS = Avg gain per day / Avg loss per day

The most commonly used time period for calculation of RS is 14 days. For the

calculation a 14 day RSI, the gain per day or loss per day is arrived at by

comparing the closing price of a day with that of the previous day for a period of

14 days. The gains are added up and divided by 14 to get the average gain per

day. The average gain per day and average loss per day are used in the above

formula for calculating the RSI for a day. In this way RSI values can be

calculated for a number of days. After calculating such data for a number of days,

graph can be plotted.

MOVING AVERAGE CONVERGENCE DIVERGENCE(MACD)

50

Page 51: Completed Project Report

Developed by Gerald Appel, Moving Average Convergence / Divergence

(MACD) is one of the simplest and most reliable indicators available. MACD uses

moving averages, which are lagging indicators, to include some trend-following

characteristics. These lagging indicators are turned into a momentum oscillator

by subtracting the longer moving average from the shorter moving average. The

resulting plot forms a line that oscillates above and below zero, without any upper

or lower limits. MACD is a centered oscillator and the guidelines for using

centered oscillators apply.

The most popular formula for the "standard" MACD is the difference between a

security's 26-day and 12-day Exponential Moving Averages (EMAs). This is the

formula that is used in many popular technical analysis programs, including

SharpCharts, and quoted in most technical analysis books on the subject. Appel

and others have since tinkered with these original settings to come up with a

MACD that is better suited for faster or slower securities. Using shorter moving

averages will produce a quicker, more responsive indicator, while using longer

moving averages will produce a slower indicator, less prone to whipsaws. For our

purposes in this article, the traditional 12/26 MACD will be used for explanations.

Later in the indicator series, we will address the use of different moving averages

in calculating MACD.

Of the two moving averages that make up MACD, the 12-day EMA is the faster

and the 26-day EMA is the slower. Closing prices are used to form the moving

averages. Usually, a 9-day EMA of MACD is plotted along side to act as a trigger

line. A bullish crossover occurs when MACD moves above its 9-day EMA, and a

bearish crossover occurs when MACD moves below its 9-day EMA. The Merrill

Lynch (MER) chart below shows the 12-day EMA (thin blue line) with the 26-

day EMA (thin red line) overlaid the price plot. MACD appears in the box below

as the thick black line and its 9-day EMA is the thin blue line. The histogram

represents the difference between MACD and its 9-day EMA. The histogram is

51

Page 52: Completed Project Report

positive when MACD is above its 9-day EMA and negative when MACD is below

its 9-day EMA

52

Page 53: Completed Project Report

MACD measures the difference between two Exponential Moving Averages

(EMAs). A positive MACD indicates that the 12-day EMA is trading above the 26-

day EMA. A negative MACD indicates that the 12-day EMA is trading below the

26-day EMA. If MACD is positive and rising, then the gap between the 12-day

EMA and the 26-day EMA is widening. This indicates that the rate-of-change of

the faster moving average is higher than the rate-of-change for the slower

moving average. Positive momentum is increasing, indicating a bullish period for

the price plot. If MACD is negative and declining further, then the negative gap

between the faster moving average (blue) and the slower moving average (red)

is expanding. Downward momentum is accelerating, indicating a bearish period

of trading. MACD centerline crossovers occur when the faster moving average

crosses the slower moving average.

53

Page 54: Completed Project Report

4. RESEARCH METHODOLOGY

54

Page 55: Completed Project Report

4.1 RESEARCH METHODOLOGY

Research is a scientific and systematic search for pertinent information on a

specific topic. Research is an art of scientific investigation. Research considered

as an effort to gain new knowledge. Research finds out the solution for the

problem. Research is essentially an investigation, a recording and analysis of

evidence for purpose of gaining knowledge. It demands accurate observation

and experimental evidences. The collected data is used for the new purpose. A

good research should be systematic, logical, empirical and replicable.

Research methodology is a scientific and systematic way to solve research

problems. Researcher has to design his methodology. Research methodology

deals with and takes into consideration the logic behind the method. An

extensive literature survey is undertaken to understand the concept of financial

performance. It also deals with objective of research study, the method of

defining the problem, type of data collected, method used for collecting and

analyzing data.

4.2 TYPES OF RESEARCH

The purpose of research is to discover answer to question through the

application of scientific procedures. The main aim of it is to find out the truth

which is hidden and which is to be discovered. There are various types of

researches. The type of research used in the study is Historical research.

HISTORICAL RESEARCH: - Historical research is based on historical data. It

attempt to find out what happened in the past and to reveal reasons for why and

how things happened.

55

Page 56: Completed Project Report

4.3 METHODS OF DATA COLLECTION

SECONDARY DATA:

The nature of data collected for the data is secondary. Secondary data are

those, which have already collected tabulated and presented in some forms by

some one else for some other purpose. Secondary data are already available

data. Researchers have to modify such data for their individual requirement. In

this case researcher is certainly not confronted with the problem that usually

associated with the collection of original data. The researchers have to scrutinize

the secondary data. The sources of secondary data in this project are:

Books

Websites

Magazines

SAMPLING:

The sample stocks were selected by considering various stocks having high

market capitalization in the IT sector. The five Banks selected for the study are:

1 Infosys Technologies

2 Tata Consultancy Services

3 Oracle

4 Wipro

5 HCL Technologies

SOURCES:

Market capitalization given in the official site of Bombay Stock Exchange as on

10thJan, 2009.

56

Page 57: Completed Project Report

5. DATA ANALYSIS AND INTERPRETATION

57

Page 58: Completed Project Report

5.1 INFOSYS TECHNOLOGIES

Fundamental analysis

Table 1. BOOK VALUE

ITEMS 2009 2008 2007 2006 2005

Book

Value(Rs) 311.35 235.84 195.14 249.89 194.15

Market : High

Low

2614.90

1101.00

2017.00

1040.00

2439.00

1511.15

3400.00

1572.10

3039.70

1850.00

EPS 97.74 72.5 64.35 81.41 68.96

DPS 23.50 13.25 11.50 7.50 5.75

Table 2. PAY OUT RATIO

ITEMS 2009 2008 2007 2006 2005

EPS 97.74 72.5 64.35 81.41 68.96

DPS 23.50 13.25 11.50 7.50 5.75

Pay-out ratio .24 .18 .18 .09 .08

Table 3. RETURN ON EQUITY

ITEMS 2009 2008 2007 2006 2005

Share Capital 286 286 286 138 135

Reserve and

Surplus 17523.00 13204.00 10876.00 6759.00 5107.00

Net worth 17809.00 13490.00 11162.00 6897.00 5242.00

PAT 5819 4470 3783 2421 1904

ROE .33 .33 .34 .35 .21

58

Page 59: Completed Project Report

Table 4. RATE OF GROWTH

ITEMS 2009 2008 2007 2006 2005

Sales 20264 15648 13149 9028 6860

PAT 5819 4470 3783 2421 1904

EPS 97.74 72.5 64.35 81.41 68.96

DPS 23.50 13.25 11.50 7.50 5.75

Table 5. RATIOS

ITEMS 2009 2008 2007 2006 2005

Current Ratio 3.97 3.85 3.75 2.77 2.19

Interest

Coverage

Ratio 3370.5 5118 4153 2737 2230

Debit Equity

Ratio

0 0 0 0 0

Table 6. RETURN ON ASSET

YEAR PAT TOTTAL ASSET ROA

2009 5819 17809.00 .3267

2008 4470 13490.00 .3313

2007 3783 11162.00 .3389

2006 2421 6897.00 .3510

2005 1904 5242.00 .3632

59

Page 60: Completed Project Report

Table 7. RETURN ON CAPITAL EMPLOYED

YEAR EBIT TOTAL CAPITAL

EMPLOYED

ROCE

2009 7435 17262.60 .4307

2008 5664 13641.62 .4152

2007 4622 10050.01 .4599

2006 3146 6977.16 .4509

2005 2498 4758.10 .525

Table 8. PRICE EARNNG RATIO

YEAR EPS MARKET PRICE

PER SHARE

PRICE EARNING

RATIO

2009 97.74 1857.95 19.01

2008 72.5 1528.50 21.08

2007 64.35 1975.08 30.69

2006 81.41 2486.05 30.54

2005 68.96 2444.85 35.45

Fig 1. The market price of shares in 5 years

60

Page 61: Completed Project Report

CALCULATION OF INTRINSIC VALUE

1) Average dividend pay out ratio = .24 + .18 + .18 + .09 + .08 / 5

= 0.154

2) Average retention ratio = 1- 0.154

= 0.846

3) Average return on equity = .33+.33+.34+.35+.21/5

= 0.312

4) Growth in equity = 0.312*.846

= 0.263952

5) Normalized avg PE ratio =19.01+21.08+30.69+30.54+35.45/5

= 27.354

6) Long term growth in dividend & equity= 27.354* .846

= 23.141484

7) Projected EPS = 97.74 * (1+0.263952)

= 123.53866848

8) Intrinsic value = 123.53866848* 27.354

= 3379.27673760192

9) Projected DPS = 23.5 * (1+0.263952)

= 29.702872

61

Page 62: Completed Project Report

Technical analysis

Fig 2. PRICE CHART

INTERPRETATION:

The trend line is connecting November 09 low and January 10 low. This forms

the support line for the shares.

62

Page 63: Completed Project Report

Fig 3. MACD

INTERPRETATION:

MACD signals a long term bullishness for Infosys. It is in the high value and will

tend to be in it for some time.

63

Page 64: Completed Project Report

Fig 4. MOMENTUM

INTERPRETATION:

Momentum was coming down but now is in the verge of climbing up. This signals

the buy signal.

64

Page 65: Completed Project Report

Fig 5. MOVING AVERAGE CROSSOVER

INTERPRETATION:

The two line, red representing 20 days and black representing 50 days and blue

is the share price. Here the red line is now over the blue line indicating price

going up.

65

Page 66: Completed Project Report

Fig 6. RELATIVE STRENGTH INDEX

INTERPRETATION:

The RSI line is coming down from over bought to neutral. Now the line is going to

reverse signaling a buy signal.

66

Page 67: Completed Project Report

Fig 7. STOCHASTICS

INTERPRETATION:

The graph is coming down from over bought. In a few days the price is going to

go up signaling a buy signal after waiting for 2 to 3 days.

67

Page 68: Completed Project Report

5.2 TCS

Fundamental analysis

Table 9. BOOK VALUE

ITEMS 2009 2008 2007 2006 2005

Book

Value(Rs) 136.38 111.43 82.35 114.64 69.17

Market : High

Low

805.00

355.25

1078.00

418.00

1399.00

935.00

2099.00

900.00

1750.85

1091.00

EPS 45.53 43.69 36.66 53.63 36.6

DPS 14.00 14.00 11.50 13.50 11.50

Table 10. PAY OUT RATIO

ITEMS 2009 2008 2007 2006 2005

EPS 45.53 43.69 36.66 53.63 36.6

DPS 14.00 14.00 11.50 13.50 11.50

Pay-out ratio .31 .32 .31 .25 .31

Table 11. RETURN ON EQUITY

ITEMS 2009 2008 2007 2006 2005

Share Capital 197.86 197.86 97.86 48.93 48.01

Reserve and

Surplus 13,248.39 10,806.95 7,961.13 5,560.40 3,273.04

Net worth 13446.30 11004.86 8058.99 5609.33 3321.05

PAT 4696.21 4508.76 3757.29 2716.87 1831.42

ROE .35 .41 .47 .48 .55

68

Page 69: Completed Project Report

Table 12. RATE OF GROWTH

ITEMS 2009 2008 2007 2006 2005

Sales 22406.08 18292.68 14942.09 11236.01 8051.11

PAT 4696.21 4508.76 3757.29 2716.87 1831.42

EPS 45.53 43.69 36.66 53.63 36.6

DPS 14.00 14.00 11.50 13.50 11.50

Table 13. RATIOS

ITEMS 2009 2008 2007 2006 2005

Current Ratio 1.89 1.99 2.08 1.96 1.15

Interest

Coverage

Ratio 691.82 1464.12 1216.94 685.71 204.09

Debit Equity

Ratio 0 0 0.01 0.02 0.15

Table 14. RETURN ON ASSET

YEAR PAT TOTTAL ASSET ROA

2009 4696.21 13486.67 .3482

2008 4508.76 11023.11 .4090

2007 3757.29 8109.73 .4633

2006 2716.87 5644.83 .4813

2005 1831.42 3441.79 .5321

69

Page 70: Completed Project Report

Table 15. RETURN ON CAPITAL EMPLOYED

YEAR EBIT TOTAL CAPITAL

EMPLOYED

ROCE

2009 5564.59 13249.02 .42

2008 5466.06 10443.37 .5234

2007 4517.52 7443.60 .6069

2006 3336.22 4922.86 .6777

2005 2255.8 2053.15 1.0987

Table 16. PRICE EARNNG RATIO

YEAR EPS MARKET PRICE

PER SHARE

PRICE EARNING

RATIO

2009 45.53 580.13 12.74

2008 43.69 748.00 17.12

2007 36.66 1167.00 31.83

2006 53.63 1499.00 27.95

2005 36.6 1420.93 38.82

Fig 8. The market price of shares in 5 years for TCS

70

Page 71: Completed Project Report

CALCULATION OF INTRINSIC VALUE

1) Average dividend pay out ratio = .31+.32+.31+.25+.31 /5

= 0.3

2) Average retention ratio = 1-.3

= 0.7

3) Average return on equity =.35+.41+.47+.48+.55/5

= 0.452

4) Growth in equity = 0.452 * .7

= 0.3164

5) Normalized avg PE ratio = 12.74+17.12+31.83+27.95+38.82/5

= 25.692

6) Long term growth in dividend & equity= 25.692 * 0.7

= 17.9844

7) Projected EPS = 45.53 * (1+.3164)

= 59.935692

8) Intrinsic value = 59.935692*25.692

= 1539.87

9) Projected DPS = 14 * (1+.3164)

= 18.4296

71

Page 72: Completed Project Report

Technical analysis

Fig 9. PRICE CHART

INTERPRETATION:

Trend line is drawn connecting Oct 09 and Jan10. This forms the support line for

the price chart of TCS. If it comes down the support line then it would be a sell

signal.

72

Page 73: Completed Project Report

Fig 10. MACD

INTERPRETATION:

MACD signals a long term bullishness for TCS. It is in the high value and will

tend to be in the same trend for a few days.

73

Page 74: Completed Project Report

Fig 11. MOMENTUM

INTERPRETATION:

Momentum is now climbing so it is a buy signal for TCS.

74

Page 75: Completed Project Report

Fig 12. MOVING AVERAGE CROSSOVER

INTERPRETATION:

Here the red line is now over the black line for a long time, indicating share price

going up.

75

Page 76: Completed Project Report

Fig 13. RELATIVE STRENGH INDEX

INTERPRETATION:

The RSI line is coming down from over bought to neutral. Now the line is going to

reverse signaling a buy signal.

76

Page 77: Completed Project Report

Fig 14. STOCHASTICS

INTERPRETATION:

The graph is coming down from over bought. In a few days the price is going to

go up signaling a buy signal after waiting for 2 to 3 days.

77

Page 78: Completed Project Report

5.3 ORACLE

Fundamental analysis

Table 17. BOOK VALUE

ITEMS 2009 2008 2007 2006 2005

Book

Value(Rs) 418.98 335.88 283.18 178.65 150.27

Market : High

Low

2364.70

428.00

1664.00

405.00

2630.00

1225.00

2068.90

840.00

1088.00

541.10

EPS 83.06 49.06 42.59 30.86 25.69

DPS 0 0 0 5.00 5.00

Table 18. PAY OUT RATIO

ITEMS 2009 2008 2007 2006 2005

EPS 83.06 49.06 42.59 30.86 25.69

DPS 0 0 0 5.00 5.00

Pay-out ratio 0 0 0 .16 .29

Table 19. RETURN ON EQUITY

ITEMS 2009 2008 2007 2006 2005

Share Capital 41.88 41.87 41.64 38.14 37.44

Reserve and

Surplus 3,467.53 2,770.75 2,316.67 1,324.59 1,087.75

Net worth 3509.42 2812.65 2398.48 1362.73 1125.19

PAT 695.71 410.87 354.67 240.8 197.64

ROE .20 .15 .15 .18 .18

78

Page 79: Completed Project Report

Table 20. RATE OF GROWTH

ITEMS 2009 2008 2007 2006 2005

Sales 2212.62 1792.97 1552.34 1153.82 902.86

PAT 695.71 410.87 354.67 240.8 197.64

EPS 83.06 49.06 42.59 30.86 25.69

DPS 0 0 0 5.00 5.00

Table 21. RATIOS

ITEMS 2009 2008 2007 2006 2005

Current Ratio 4.58 3.99 3.34 3.29 3.69

Interest

Coverage

Ratio 0 0 0 0 0

Debit Equity

Ratio 0 0 0 0 0

Table 22. RETURN ON ASSET

YEAR PAT TOTTAL ASSET ROA

2009 695.71 3509.42 0.1982

2008 410.87 2812.65 0.1461

2007 354.67 2398.48 0.1479

2006 240.8 1362.73 0.1767

2005 197.64 1125.19 0.1757

79

Page 80: Completed Project Report

Table 23. RETURN ON CAPITAL EMPLOYED

YEAR EBIT TOTAL CAPITAL

EMPLOYED

ROCE

2009 732.3 3160.55 .2317

2008 431.53 2605.86 .1656

2007 381.04 1880.75 .2026

2006 285.55 1244.23 .2295

2005 247.11 1045.75 .2363

Table 24. PRICE EARNNG RATIO

YEAR EPS MARKET PRICE

PER SHARE

PRICE EARNING

RATIO

2009 83.06 1396.35 16.81

2008 49.06 1034 21.08

2007 42.59 1927.5 45.26

2006 30.86 1454.95 47.15

2005 25.69 814.55 31.71

Fig. 15 The market price of shares in 5 years for Oracle

80

Page 81: Completed Project Report

CALCULATION OF INTRINSIC VALUE

1) Average dividend pay out ratio = 0+0+0+.16+.29/5

= 0.09

2) Average retention ratio = 1- 0.09

= 0.91

3) Average return on equity = .20+.15+.15+.18+.18/5

= 0.172

4) Growth in equity = .91 * .172

= 0.15652

5) Normalized avg PE ratio = 16.81+21.08+45.26+47.15+31.71/5

= 32.402

6) Long term growth in dividend & equity= 32.402 * .91

= 29.48582

7) Projected EPS = 83.06*(1+0.15652)

= 96.0605512

8) Intrinsic value = 96.0605512 * 32.402

= 3112.5539799824

9) Projected DPS = 0 *(1+0.15652)

= 0

81

Page 82: Completed Project Report

Technical analysis

Fig 16. PRICE CHART

INTERPRETATION:

The trend line is connecting Feb 09 low and July09. This forms the support line

for the shares.

82

Page 83: Completed Project Report

Fig 17. MACD

INTERPRETATION:

MACD signals a long term bullishness for Oracles.It is at the highest values and

will tend to be in it for some time.

83

Page 84: Completed Project Report

Fig 18. MOMENTUM

INTERPRETATION:

Momentum was coming down but now is in the verge of climbing up. This signals

the buy signal.

84

Page 85: Completed Project Report

Fig 19. MOVING AVERAGE CROSSOVER

INTERPRETATION:

The red line has crossed over the blue line in December showing a price rise in

the share.

85

Page 86: Completed Project Report

Fig 20. RELATIVE STRENGTH INDEX

INTERPRETATION:

The RSI shows a bent and will rise in two to three days indicating a buy signal for

Oracle.

86

Page 87: Completed Project Report

Fig 21. STOCHASTIC

INTERPRETATION:

The graph is coming down from over bought. In a few days the price is going to

go up signaling a buy signal after waiting for 2 to 3 days.

87

Page 88: Completed Project Report

5.4 HCL

Fundamental analysis

Table 25. BOOK VALUE

ITEMS 2009 2008 2007 2006 2005

Book

Value(Rs) 52.04 48.22 51.6 79.64 89.6

Market : High

Low

377.45

89.10

333.80

102.50

715.00

260.25

706.65

362.00

555.00

295.00

EPS 13.69 10.19 15.37 17.5 8.18

DPS 7.00 9.00 8.00 16.00 16.00

Table 26. PAY OUT RATIO

ITEMS 2009 2008 2007 2006 2005

EPS 13.69 10.19 15.37 17.5 8.18

DPS 7.00 9.00 8.00 16.00 16.00

Pay-out ratio .51 .88 .52 .91 1.96

Table 27. RETURN ON EQUITY

ITEMS 2009 2008 2007 2006 2005

Share Capital 134.05 133.27 132.74 64.69 63.84

Reserve and

Surplus 3,353.72 3,079.85 3,292.28 2,511.18 2,796.14

Net worth 3488.24 3214.83 3425.02 2575.87 2859.98

PAT 997.31 780.65 1101.82 638.38 329.27

ROE .29 .24 .32 .25 .12

88

Page 89: Completed Project Report

Table 28. RATE OF GROWTH

ITEMS 2009 2008 2007 2006 2005

Sales 4675.09 4615.39 3768.62 3032.92 1447.01

PAT 997.31 780.65 1101.82 638.38 329.27

EPS 13.69 10.19 15.37 17.5 8.18

DPS 7.00 9.00 8.00 16.00 16.00

Table 29. RATIOS

ITEMS 2009 2008 2007 2006 2005

Current Ratio 1.37 1.24 1.22 0.93 0.77

Interest

Coverage

Ratio 43.42 41.35 91.8 46.33 61.3

Debit Equity

Ratio 0.08 0.01 0.01 0.02 0.04

Table 30. RETURN ON ASSET

YEAR PAT TOTTAL ASSET ROA

2009 997.31 4001.97 0.2492

2008 780.65 3240.16 0.2409

2007 1101.82 3465.91 0.3179

2006 638.38 2589.25 0.2466

2005 329.27 2956.67 0.1114

89

Page 90: Completed Project Report

Table 31. RETURN ON CAPITAL EMPLOYED

YEAR EBIT TOTAL CAPITAL

EMPLOYED

ROCE

2009 1219.79 3620.63 .3369

2008 894.32 3802.38 .2352

2007 1190.66 3027.36 .3933

2006 666.57 3132.38 .2128

2005 344.53 2672.85 .1289

Table 32. PRICE EARNNG RATIO

YEAR EPS MARKET PRICE

PER SHARE

PRICE EARNING

RATIO

2009 13.69 233.28 17.04

2008 10.19 218.15 21.41

2007 15.37 487.63 31.73

2006 17.5 534.33 30.53

2005 8.18 425 51.96

Fig 22. The market price of shares in 5 years

90

Page 91: Completed Project Report

CALCULATION OF INTRINSIC VALUE

1) Average dividend pay out ratio = .51+.88+.52+.91+1.96/5

= 0.956

2) Average retention ratio = 1-0.956

= 0.044

3) Average return on equity = .29+.24+.32+.25+.12/5

= 0.244

4) Growth in equity = 0.244 * .0044

= 0.0010736

5) Normalized avg PE ratio = 17.04+21.41+31.73+30.53+51.96/5

= 30.534

6) Long term growth in dividend & equity= 30.534* .044

= 1.343496

7) Projected EPS = 13.69* (1+0.0010736)

= 13.704697584

8) Intrinsic value = 13.704697584*30.534

= 418.459236029856

9) Projected DPS = 7 * (1+0.0010736)

= 7.0075152

91

Page 92: Completed Project Report

Technical analysis

Fig 23. PRICE CHART

INTERPRETATION:

The support line is drawn connecting Oct 09 low and Dec 09 low.

92

Page 93: Completed Project Report

Fig 24. MACD

INTERPRETATION:

The MACD line is coming down from the high values but is still in the safe region

of buying the share.

93

Page 94: Completed Project Report

Fig 25. MOMENTUM

INTERPRETATION:

Momentum was coming down but now is now climbing up. This signals the

bullishness of the shares.

94

Page 95: Completed Project Report

Fig 26. MOVING AVERAGE CROSSOVER

INTERPRETATION:

Here the red line is now over the blue line which has cut over in the month of

December indicating price going up. This should sustain for some time.

95

Page 96: Completed Project Report

Fig 27. RELATIVE STRENGTH INDEX

INTERPRETATION:

The RSI line is coming down from over bought to neutral. Now the line is going to

reverse signaling a buy signal in two to three days.

96

Page 97: Completed Project Report

Fig 28. STOCHASTIC

INTERPRETATION:

The graph is coming down from over bought. In a few days the price is going to

go up signaling a buy signal after waiting for 2 to 3 days.

97

Page 98: Completed Project Report

5.5 WIPRO

Fundamental analysis

Table 33. BOOK VALUE

ITEMS 2009 2008 2007 2006 2005

Book

Value(Rs) 85.42 79.05 63.86 45.03 69.54

Market : High

Low

699.00

195.00

537.90

181.70

690.00

425.00

614.00

383.00

776.00

350.05

EPS 19.62 19.94 18.61 13.47 20.55

DPS 4.00 6.00 6.00 5.00 5.00

Table 34. PAY OUT RATIO

ITEMS 2009 2008 2007 2006 2005

EPS 19.62 19.94 18.61 13.47 20.55

DPS 4.00 6.00 6.00 5.00 5.00

Pay-out ratio .2038 .3009 .3224 .3712 .2433

Table 35. RETURN ON EQUITY

ITEMS 2009 2008 2007 2006 2005

Share Capital 293 346.3 291.8 285.15 140.71

Reserve and

Surplus 12,220.40 11,260.40 9,025.10 6,135.30 4,751.73

Net worth 12,514.90 11,610.70 9,320.40 6,420.45 4,892.44

PAT 2973.8 3063.3 2842.1 2020.48 1494.82

ROE .24 .26 .30 .31 .31

98

Page 99: Completed Project Report

Table 36. RATE OF GROWTH

ITEMS 2009 2008 2007 2006 2005

Sales 21612.8 17658.1 13758.5 10264.09 7276.18

PAT 2973.8 3063.3 2842.1 2020.48 1494.82

EPS 19.62 19.94 18.61 13.47 20.55

DPS 4.00 6.00 6.00 5.00 5.00

Table 37. RATIOS

ITEMS 2009 2008 2007 2006 2005

Current Ratio 2.11 2.15 1.57 1.46 1.32

Interest

Coverage

Ratio 19.03 30.71 442.14 748.5 316.29

Debit Equity

Ratio 0.37 0.19 0.02 0.01 0.02

Table 38. RETURN ON ASSET

YEAR PAT TOTTAL ASSET ROA

2009 2973.8 17528.80 0.1697

2008 3063.3 15433.10 0.1985

2007 2842.1 9558.40 0.2973

2006 2020.48 6470.61 0.3123

2005 1494.82 4954.53 0.3017

99

Page 100: Completed Project Report

Table 39. RETURN ON CAPITAL EMPLOYED

YEAR EBIT TOTAL CAPITAL

EMPLOYED

ROCE

2009 3744.7 16481.95 .2272

2008 3586.5 12496.52 .287

2007 3183.4 8014.60 .3972

2006 2342.81 5712.78 .4101

2005 1761.75 4281.29 .4115

Table 40. PRICE EARNNG RATIO

YEAR EPS MARKET PRICE

PER SHARE

PRICE EARNING

RATIO

2009 19.62 447 22.78

2008 19.94 359.8 18.04

2007 18.61 557.5 29.96

2006 13.47 498.5 37.01

2005 20.55 563.03 27.40

Fig 29 The market price of shares in 5 years for Wipro

100

Page 101: Completed Project Report

CALCULATION OF INTRINSIC VALUE

1) Average dividend pay out ratio = 2038+.3009+.3224+.3712+.2433/5

= 0.28832

2) Average retention ratio = 1- 0.28832

= 0.71168

3) Average return on equity = .24+.26+.30+.31+.31/5

= 0.284

4) Growth in equity = 0.284* .71168

= 0.20211712

5) Normalized avg PE ratio = 22.78+18.04+29.96+37.01+27.40/5

= 27.038

6) Long term growth in dividend & equity= 27.038 * 0.71168

= 19.24240384

7) Projected EPS = 19.62*(1+.71168)

= 33.5831616

8) Intrinsic value = 33.5831616 * 27.038

= 908.0215233408

9) Projected DPS = 4*(1+.71168)

= 6.84672

101

Page 102: Completed Project Report

Technical Analysis

Fig 30. PRICE CHART

INTERPRETATION:

The trend line is connecting Octobe 09 low and January 10 low. This forms the

support line for the shares.

102

Page 103: Completed Project Report

Fig 31. MACD

INTERPRETATION:

MACD signals a long term bullishness for Wipro. It is in the high value and thus

signals a bullishness of the share of Wipro.

103

Page 104: Completed Project Report

Fig 32. MOMENTUM

INTERPRETATION:

Momentum was coming down but now is in the verge of climbing up. This signals

the buy signal.

104

Page 105: Completed Project Report

Fig 33. MOVING AVERAGE CROSS OVER

INTERPRETATION:

Here the red line is over the black line indicating price going up. This indicates a

buy signals foe share of Wipro.

105

Page 106: Completed Project Report

Fig 34. RELATIVE STRENGTH INDEX

INTERPRETATION:

The RSI line is coming down from over bought to neutral. Now the line is going to

reverse signaling a buy signal after 1 or 2 days.

106

Page 107: Completed Project Report

Fig 35. STOCHASTICS

INTERPRETATION:

The graph is coming down from over bought. In a few days the price is going to

go up signaling a buy signal after waiting for 2 to 3 days.

107

Page 108: Completed Project Report

6. SUMMARY FINDINGS AND CONCLUSION

108

Page 109: Completed Project Report

6.1 SUMMARY

India has emerged as a leading offshore software development centre in little

more than a decade. This achievement has been made possible by domestic

regulation, entrepreneurial flair, and the soaring global demand for high quality,

low cost software and services. For India, the software industry has become a

beacon of success. It has [proved that, given the right framework, India can

compete globally.

The success of India's software development industry reflects a number of

factors. I particular, faced with a growing shortage of software engineers in the

west, hundreds o companies have turned to India's computer software and

services companies for the IT skills they need to maintain and enhance their

competitiveness. Because of high level growth potential in the IT and ITE sector,

investor attention has been gaining towards such companies This study is a

humble attempt to identify the investment potential of five major IT sector

companies from Indian capital market.

6.2 FINDINGS

Company Name Intrinsic value Market value as

on 29th Jan 2010

Interpretation

Infosys 3379.28 2476.70 Buy

TCS 1539.87 735.45 Buy

Oracle 3112.55 2,165.20 Buy

Wipro 908.02 647.40 Buy

HCL 418.46 346.45 Buy

109

Page 110: Completed Project Report

• For all the companies like Infosys, TCS, Oracle, HCL and Wipro the intrinsic

value is higher than the market value, which gives a buy signal. These

securities are under priced. The share price of these companies may rise in

the future as these securities have high intrinsic value.

• The Return on Equity of Infosys, TCS, HCL and Wipro is decreasing,

whereas for Oracle it is a decreasing trend in the past and now is in the state

of increasing indicating an increase in profitability. EPS of Infosys, TCS, and

Oracle is increasing whereas for HCL, EPS is decreasing. For Wipro it is a

stable EPS.

• Current ratio of Infosys, TCS, Wipro Oracle and HCL is 2.77, 1.96, 1.46, 6.5,

and 3.24 respectively. The current ratio of all companies is above the bench

mark of 2:1.This indicates that liquidity and short term solvency of all

companies are satisfactory.

6.3 Conclusion

The IT industry plays a vital role in the growth of Indian industries. The Indian IT

companies not only contributes to export but also attracts new forign investments

in the country. It was expected that the IT industry would grow to take a major

percent of export. The IT sector is a wonderful area for investors.

For this study 5 major IT companies with the largest market capitalization was

selected and their data was analysed. It was seen that for all the major

companies selected that is Infosys, TCS, Oracle, HCL and Wipro, the calculated

intrinsic value was higher than the current market value. This shows that the

buying of such shares will be profitable for the investors. Also the tools used in

technical analysis shows that all the companies under study is in a state of

growth.

110

Page 111: Completed Project Report

BIBLIGRAPHY

REFERENCE BOOKS

1. Prassana chandran, Investment analysis and Portfolio

management, New Delhi: Tata Mc Graw- Hill Publishing Company Limited

2002.

2. Avadhani V A, Investment management, Mumbai : Himalaya

Publishing House, 1998

3. Donald E. Fischer and Ronald. J. Jordan, Security Analysis and

Portfolio Management New Delhi: Prentice-Hall of India Private

Limited.1998.

4. S. Kevinn, Portfolio Management, New Delhi: Prentice Hall of India

Private Ltd.1998.

NEWS PAPERS AND JOURNALS

5 Chartered Financial Analysis. Vol.10, December 2005.

6 The Hindu Business Line.

7 Economic Time.

8 Dalal Street

WEB SITES

www.capitaline.com

www.nseindia.com

www.bseindia.com

www.indiabulls.com

www.cochinstockexchange.com

www.rediffmoney.com

www.moneycontrol.com

www.wikepedia.com

111

Page 112: Completed Project Report

112