ullas project report

8/13/2019 Ullas Project Report.

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AMITY GLOBAL BUSINESS SCHOOL

Page 1

TECHNICAL ANALYSIS

OF SECURITIES

SUMMER TRANING REPORT

SUBMMITED

In partial fulfillment of the requirement

For the award of the

Master of Business Administration

For theSession-2009-2010

Supervisor Submitted by:

Name: Harinder Singh Ullas Bassi

Indiainfoline ltd. MBA-2

ND

SEMFeroze Gandhi mkt.

Ludhiana.


CHANDIGARH


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Summer Training Report

On

Technical Analysis Of

Securities

Undertaking at

India Infoline limited


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Table of Contents

Page no.

Acknowledgement 4

Preface 5

About the Project 6

Introduction to the Securities market 7 to 9

Introduction to the Stock Market 10 to 15

About IIFL 16 to 24

Objective of the study 25

Scope of the study 26

Introduction to the study 27 to 41

MACD & MACD-H 42 to 58

Financial ReviewBudget 2009 59 to 78

Research design & Methodology 79 to 80

Questionnaire & Analysis 80 to 89

Limitations of the study 90

Suggestions and Findings 91 to 92

Bibliography 93


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AcknowledgementSurpassing milestones towards a mission give us degree

of jubilance that we tend to forget the precious help

extended by people to whom the success of mission is

solely dedicated.

Concentration, dedication, hard work & application are essential but

not the only factor to achieve the desired goal .It must be supplemented

by guidance, assignment & cooperation of people to make it a success.

Every complete successful assignment is the result of many hands joined

together and we must thank all of themMy summer training at India Infoline ltd. was an ardent,

unforgettable and fruitful experience. I was overwhelmed with the

friendly and cooperative attitude, the enlightened advice and

information extended to me by everyone.

To start with, I would like to thank Mr. Harinder Pal Singh

(Territory manager)for giving me an opportunity to do my summer

training in this esteemed organization. I would like to thanks Mr. SUNNY

AHUJA (Training Officer)who helped us to complete our project. Theynever hesitated to answer our never ending queries

I would like to thank Prof. MONIKA THAKUR for smooth and

unhurdled completion of my training.

At last but not the least, my warmest thanks to my parents and

all my friends as their motivation proved to be of great help in the

completion of this project

ULLAS BASSI


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PREFACE

Life is too short & art is too long the occasion fleeting

experience fallacious andjudgment difficult

As a part of degree of MBA, a student has to undergo for training in a

commercial organization with the help of this training research students come to

know that how the academic knowledge is applied in an actual business situation.

They also come to know about the working conditions under which they will have to

work in the future

In our summer training report we are studied Technical Analysis of

Securities. It is the student attempt towatch, record, analyzed and understand the

trends of the stocks and practical aspect of the stocks and applying the theoretical

knowledge and concept.

Today the corporate world is related to the stock exchange in many

ways even the political, economic, regional, and many more factors affect the stock

exchanges. Basically all these things are inter related and have effect on each other

in one or another way. So this report has been prepared keeping all these in minds

and it includes the basic of stock market and stock exchange.

Every effort has been made to satisfy the readers but in spite of this all the critical

appraisals are also welcome.


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ABOUT THE PROJECT

I have made a project during my two months summer training

undertaking at INDIAINFOLINE LIMITED FEROZE GANDHI MARKET

LUDHIANA. The project is about the implement of MACD and MAC-H as a

tool of Technical Analysis of Securities. For this purpose I have collected some

historical data just to make my stand clear on the concept of MACD and MAC-

H as a tool of Technical Analysis of Securities. To make this concept clear to

understand I have used some examples, charts with interpretation and some

historical data

TITLE OF THE PROJECT:

TECHNICAL ANALYSIS OF SECURITTIES

ULLAS BASSI


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Introduction to securities marketThe money you earn is partly spent and the rest saved for meeting future

expenses. Instead of keeping the savings idle you may like to use savings in

order to get return on it in the future .This is called investment and the

security market provide you the place for investment. Securities market is

a place where buyer and seller enter in to transactions to purchase and sell

shares, bonds, debentures etc. one can invest in various securities i.e.

shares , government securities, derivative products, unit of Funds etc.

Functions of the securities market

Securities markets provide channels for reallocation of savings to

investments and entrepreneurship.

Savings are linked to investment by a variety of intermediaries, through a

range of financial products, called securities.

To ensure that the investor reap full benefit.

To ensure recognized code of conduct.

To provide update rates for actual and potential investors.

It enables the corporate, entrepreneur to raise resources for their

companies and business ventures through public issues.

Security market helps the buyer and sellers of the securities to enter

into transaction to purchase and sell the shares, bonds, debentures etc.

The securities market is structured to provide liquidity and marketability to

the securities industry. It is a place where stock certificates can be turned

into cash at the prevailing price. This kind of liquidity makes investing in

stock attractive. It provides the market quotation of shares, bonds and

debentures, which is sort of buying and selling in the market.


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Segments of security marketIt has two interdependent segments

The primary (new issues) market and.

Secondary markets (stock exchanges).

The primary market provided the channel for sale of new securities

while the secondary market deals in securities previously issued and are listed

on the stock exchange. Majority of the trading is done on the secondary

market, which compromises of equity market and debts market. Secondary

market could either be dealer or auction market. While stock exchange is the

part of auction market, over-the-counter (OTC) is a part of the dealer market.

Introduction to stock exchange

A stock exchange is a nervous system of the capital market. The changes in

the capital market are brought about by a complex set of factors, all

operating on the market simultaneously.

A stock exchange is a key institution facilitating the issue and sale of various

types of securities. It is a pivot around which every activity of the capital

market revolves. In the absence of stock exchange, the people with savings

would hardly invest in corporate securities for which there would be no

liquidity (buying and selling). Corporate investments from the general public

would have been thus lower.

A stock exchange is a place or a market where securities, shares,

debentures, bonds, mutual funds of joint stock companies, central and state

government organizations, local bodies and foreign government are brought

and sold. A stock exchange is a platform for the trade of already issued

securities through primary market.


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It is the essential pillar of the private sector and corporate economy.

It is the open auction market where buyer sellers met and involve a

competitive price for the securities. It reflects hope aspirations and

Meaning of stock exchanges in India

The Securities Contract (Regulation) Act, 1956 *SCRA+ defines ,Stock

Exchanges as any body of individuals, whether incorporated or not,

constituted for the purpose of assisting, regulating or controlling the business

of buying, selling or dealing in securities

Point to be noted is that stock exchange could be regional stock

exchange whose area of operation/ jurisdiction is specified at the time of its

recognition or national exchanges, which are permitted to have the

nationwide trading since inception. LSE is a regional stock exchange whose

area of jurisdiction is J&K, Punjab, Himachal Pradesh and NSE was

incorporated as national stock exchange.

History of stock exchanges in India

In INDIA only registered stock exchanges can operate the stock market

activities and recognition is governed under the provision (Regulation) Act, 1956.There are 24 Regional stock exchanges in INDIA. Bombay Stock Exchanges (BSE)

and National Stock Exchange (NSE) are the two major stock exchanges of INDIA.

BSE is the oldest stock exchanges in ASIA. It was established as The

Native Share & Stock Brokers Association in 1875. It was the first stock exchange

in INDIA to obtain the permanent recognition in 1956 from the government of

INDIA under the Securities Contract Act, 1956. BSE in 1986 came out with a stock

index i.e. SENSEX that subsequently became the barometer of the Indian stock


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market. BSE played a pivotal role in the development of the Indian capital market

and its index, SENSEX, is tracked worldwide. The exchange has the nation wide

reach with a presence in 417 cities and town in India. It provides an efficient and

transparent market for trading in equity, debt instrument and derivatives.

NSE on the other hand was in incorporated as a tax paying company in

1992. In 1993 NSE was recognized as a stock exchange under the Securities

Contract Regulation Act, 1956 and it commenced operations in the wholesale debt

market (WDM) segment in June1994. The capital market equities segment

commenced operations in November 1994 and operations in derivatives segment

were started in June 2000. In October 1995, NSE became the largest stock exchange

in the country.

NSE launched S&P CNX Nifty in April1996. NSE is one of the largest

interactive VSAT based exchanges in the world. Presently, it supports more than

three 3000 VSATs. The NSE network is the largest private wide area network in

India and first C- Band VSAT. History of stock exchanges of Indian capital market

can be back to the 18thcentury as follows:

History of Indian Capital market at a glance

18th

Century

1800- Trading of shares of East India Company in Kolkata and Mumbai

1850- Joint stock companies came into existence

1860- Speculation and feverish dealing in securities

1875- Formation of stock exchange of Mumbai

1894- Formation of Ahmadabad Stock Exchange

19th

Century

1908- Formation of Calcutta Stock Exchange


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1939- Formation of Lahore and Madras stock exchange

1940- Formation of U.P. and Delhi stock exchange

1956- Securities Contract Regulation Act regulated

1957- Scam of Haridas Mundhra

1988- Securities and exchange board of India set up

1991- Scam of MS Shoes

1992- SEBI given power under SEBI Act, 1992

1993- Formation of National Stock Exchange (NSE)

1995- HARSHAD MEHTA Scam

1995- SESA GOA Scam

1998- BPL and Videocon Scam

20th

Century

2000- Depositories came into existence (electronic form of shares)

2001- Ketan parikh Scam

2002- Start of rolling settlement and banning of BADLA Trading

2003- Introduction of T + 3 settlements in April

2003- Introduction of T + 2 settlements in April


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Features of Stock Exchange

It provides the training platform where buyers and sellers meet to

transact in securities.

The stock exchange in India is under the supervision of the regulatory,

the Securities and Exchange Board of India.

It is the place where sale and purchase of existing securities is done.

It enables an investor to adjust his holdings of securities in response to

changes in assessment about risk and return.

It enables to meet the liquidity needs by providing market for sale of

securities.

Stock exchange is an association of individual members called member

brokers.

Stock exchanges are formed for the purpose of regulating and facilitating

the buying and selling of securities.

Stock exchange operate with due recognition from the govt. under

securities and contract regulation act 1956.

Stock exchange facilitates trading in securities of the public sector

companies as well as govt. securities.

It acts as a host of intermediaries which assist in trading of securities and

clearing and settlement of trade.


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Trading in Stock Exchange

The trading in stock exchange is done through the authorized members who

have duly registered with concerned stock exchange through Securities and

Exchange Board of India (SEBI). They have to pay a certain some of money as

security and some margin money in advance for dealing in securities to the

stock exchange.

After depositing the money he can start trading. Nowadays as screen base

trading has started through satellite, so now a person can also deal in

securities on web from some particular sites as ICICIDIRECT.COM,

INDIABULLS.COM, and SHAEKHAN.COM etc.

Trading Mechanism

The operation of sale and purchase of scrips is as follows:

Walk to any broker /sub broker

See the prices of the shares

Scan the counter at broker place

It display the 3best bidding offer for all the scrips traded

Decide to buy or sell, asks your broker to deal on your behalf

Make the payment /margin money/share certificate

Collect confirmation slip

Visit the same counter on pay out day to collect delivery/payment


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Who is benefited from the stock market?

Investor: It provide them liquidity, marketability, safety etc. of the

investment.

Companies: It provides them the access to market funds, higher rating and

public interests.

Brokers:They receive commission in lieu of their services to investor.

Economy and country: There is a large flow of savings, better growth,

higher incomes and it helps the industries to grow.

The recognition according to a stock exchange is normally valid for

the period of five years. However the Stock Exchange of Bombay, Delhi,

Chennai, Hyderabad, and Bangalore have been granted permanent

recognition.

Importance of Stock Exchange

The stock exchange regarded as an institution of vital importance in every

country where joint stock companies are regarded in trade and industrial

activities under competitive condition. Industrial growth and development

depends to a large extent on capital formation that is saving being invested in

industrial concern thus possible on a large scale due to the existence of stock

exchange. Individuals and Institutions interested in investing their saving are

generally attracted towards securities issued by companies they are also

interested in those securities which suit their estimates of risk and return on

investment.


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STOCK EXCHANGES IN INDIA

ZONE PLACE NAME OF THE STOCK EXCHNGE

North

Zone

Kanpur Uttar Pradesh Stock Exchange Association

Ltd.

Ludhiana Ludhiana Stock Exchange Association Ltd.

Delhi Delhi Stock Exchange Association Ltd.

Jaipur Jaipur Stock Exchange Ltd.

East Zone Bhubaneswar Bhubaneswar Stock Exchange Ltd.

Calcutta Calcutta Stock Exchange Association Ltd.

Gauhati Gauhati Stock Exchange Ltd.

Patna Magadh Stock Exchange Ltd.

West Zone Ahmedabad Ahmedabad Stock Exchange Ltd.

Baroda Vadodara Stock Exchange Ltd.

Indore Madhya Pradesh Stock Exchange Ltd

Mumbai Bombay Stock Exchange Ltd.

Mumbai OTC Exchange of India

Mumbai National Stock Exchange of India Ltd.

South

Zone

Bangalore Bangalore Stock Exchange Ltd.

Chennai Madras Stock Exchange Ltd.Cochin Cochin Stock Exchange Ltd.

Coimbatore Coimbatore Stock Exchange Ltd.

Hyderabad Hyderabad Stock Exchange Ltd.

Mangalore Mangalore Stock Exchange Ltd.


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INDIAINFOLINE

LIMITEDItsall about money honey


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INDIAINFOLINE LIMITED

India Infoline is a growing organization, which is an ideal place for

individuals with high ambitions. The working atmosphere is highly

charged with a young and energetic team of qualified professionals. The

average age of the team is 28. Further it provides an environment

where conventions, protocols do not come in the way of good ideas.

Individuals who are dynamic and result oriented will find their own niche

in this environment. The strength of the organization has been to

continuously innovate and reinvent itself. The organization as a team is

continuously learning and is in sync with the rapidly charging

environment. India Infoline ltd. is a one-stop financial services shop,

most respected for quality of its advice, personalized service and

cutting-edge technology. A network of 1,361 business locations spread

over 428 cities and towns across India facilitates the smooth acquisition

and servicing of a large customer base. All IIFL offices are connected

with the corporate office in Mumbai with cutting edge networking

technology

. IIFL has overseas offices in Singapore, Dubai and New York. With a

team of 25 research analysts, IIFL provides in-depth analysis of India

with plans to extend its presence to other Asia Pacific markets.

It is listed on both the leading stock exchanges in India, viz. the Stock

Exchange, Mumbai (BSE) and the National Stock Exchange (NSE) and

is also a member of both the exchanges. It is engaged in the

businesses of Equities broking, Wealth Advisory Services and Portfolio

Management Services. It offers broking services in the Cash and

Derivatives segments of the NSE as well as the Cash segment of the

BSE. IIFL is registered with NSDL as well as CDSL as a depository

participant, providing a one-stop solution for clients trading in the

equities market. IIFL has recently launched its Investment banking and

Institutional Broking business.


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HISTORY

India Infoline limited was originally incorporated on October 18, 1995 as

Probity Research and Services Private Limited at Mumbai under the

Companies Act, 1956 with Registration No. 11 93797. It commenced

our operations as an independent provider of information, analysis and

research covering Indian businesses, financial markets and economy,

to institutional customers. It became a public limited company on April

28, 2000 and the name of the Company was changed to Probity

Research and Services Limited. The name of the Companywas changed to India Infoline.com Limited on May 23, 2000 and later to

India Infoline Limited on March 23, 2001.

In 1999, they identified the potential of the Internet to cater to a mass

retail segment and transformed its business model from providing

information services to institutional customers to retail customers.

Hence it launched its Internet portal, www.indiainfoline.com in May,

1999 and started providing news and market information, independent

research, interviews with business leaders and other specialized

features.

In May 2000, the name of the Company was changed to India

Infoline.com Limited to reflect the transformation of its business. Over a

period of time, it has emerged as one of the leading business and

financial information services provider in India. In the year 2000, it

leveraged its position as a provider of financial information and analysis

by diversifying into transactional services, primarily for online trading in

shares and securities and online as well as offline distribution of

personal financial products, like mutual funds and RBI Bonds. These

activities were carried on by its wholly owned subsidiaries.


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Its broking services was launched under the brand name of 5paisa.com

through its subsidiary, India Infoline Securities Private

Limited and www.5paisa.com, the e-broking portal, was launched for

online trading in July 2000. It combined competitive brokerage rates and

research, supported by Internet technology, besides investment advice

from an experienced team of research analysts, we also offer real time

stock quotes, market news and price charts with multiple tools for

technical analysis.

India Infoline fixes a price band between Rs 70 and Rs 80 for

its forthcoming public issue. The company is coming outwith public issue of 1.18 crore shares with a face value of Rs 10 through

the book building route. The issue is slated to open on April 21 and

close on April 27. Enam Financial Consultants Private Ltd would be the

sole book running lead manager to the issue while In time Spectrum

Registry Ltd is the registrar to the issue.

India Infoline public issue gets 6.6 times oversubscription

Facilities

IIFL main offices are located in approximately 4,000 square feet of

office space located in Mumbai, India. India Infoline Branches

collectively occupy an additional 10,000 square feet of office spacelocated throughout India, as on March 31, 2005, we have 73 branches

across 36 locations in India.


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Key executive

Products & Services

India Infoline ltd. is a one-stop financial services shop, most respected

for quality of its advice, personalized service and cutting-edge

technology. Products & services offered by Indiainfoline limited are:

1. Equity

2. Portfolio Management services

3. Research

4. Commodities

5. Mortgages

6. Insurance

7. Wealth Management Services

8. Investment Online

a) Investment in MF. b) Apply in IPOs

S.No Name Designation

1 Mr. Nirmal JainChairman and Managing director

2 Mr. R VenkataramanExecutive Director

3 Mr. Nilesh VikamseyIndependent Director

4 Mr. Kranti SinhaIndependent Director

5 Mr. A K Purwar

Independent Director

6 Mr. Sat Pal Khattar Non Executive Director


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Achievements

India Infoline has recently been awarded the 'Best Broker, India' by

Finance Asia and the 'Most improved brokerage, India' in the Asia

Money polls. India Infoline has also won the 'Fastest Growing Large

Broking House' award by Dun & Bradstreet. A forerunner in the field of

equity research, India Infoline's research is acknowledged by none

other than Forbes as 'Best of the Web' and '...a must read for

investors in Asia'. India Infoline's research is available not just over the

Internet but also on international wire services like Bloomberg,

Thomson First Call and Internet Securities where it is amongst one of

the most read Indian brokers.


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COMPETITORS

1) SHARE KHAN LIMITED: Services provided by Share khan are asfollows;

Online + offlineInternet Telephonic

Also provide software namely Trade Tiger and Fast trade

internet services to the customer, who want to operate

their own account while sitting at home.

Offers- They offer two plans

Rs.250+ margin money Prepaid plan (Rs.6,000)

AMC-Rs.300 p.a. No such charges

Brokerage - .05 on Intraday .025 on Intraday

.50 on delivery .25 on delivery(Excluding taxes) (Excluding taxes)

In prepaid plan Rs.6,000 which would be given in advance, is

refundable in the form of brokerage with the one year

validity.

Transaction charges / Scrip charges would be depend on thetransaction (max.Rs.16).

Limitations-

1. They do unauthorized trading on the part of the customers.

2. They give very limited period of debit.

3. Services provided to the customer are not satisfactory.

4. No lifetime plan given by them .


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2.RELIGARE- Services provided by Religare are as follows:


Offers They have only one plan in which the customer have to pay

Rs.10,500ce in advance out of which Rs.250 will be deducted as AMC

and Rs.100 will be deducted as new account opening.

They give four times limit to trade in Intraday by default and two time

limits for delivery.

They charge .o3%/100 brokerage for Intraday and .30%/100 for

delivery (excluding other charges).

Limitations

They have only one plan and no life time plan They 18% p.a. rate of interest on the debit amount

They required higher initial investment in the form of margin money.

They charge very high scrip charges.

3.HDFC bank- Now a days Banks also provided services of trading

trough net banking or telephonic banking. But they charge very high rate of

brokerage as they avail this services from some other trading firm.

HDFC bank also provided this service, they open demat +trading account

with Rs.799. No physical place is provided by them to the investors. You can

check your account on bank website www.HDfcsee.com.


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4. INDIABULLS-Services provided by Indiabulls are as follows:


Offers- they offer one lifetime plan of Rs. 900. In which no AMC will

be charge in future

They give six times limit to trade in Intraday by default and two time

limits for delivery.

They charge .o3%/100 brokerage for Intraday and .30%/100 fordelivery (excluding other charges)

Limitations

They have only one lifetime plan, no other option for the customers.

They charge very high transaction charges

They give very limited period of debit.

DEMAT ACCOUNT - In all the companies for opening of the Demat

account we have to fulfill following formalities:-

PAN CARD

Resident proof

One cancel cheque.

One cheque of margin money.


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OBJECTIVE OF THE STUDY

Whenever a study is conducted, it is done on the basis of certain objectives

in the mind. A successful completion of the project is based on objective of

the study that could be stated as follows:

1) To determine the expectations and apprehensions of investors in the

stock market.

2) To study the awareness level of investors about Technical Analysis

3) To determine the measure which can be taken to improve the quality

of technical Research?

4) To determine the investment criteria of investors.

5) To save the existing and initial investor from high losses.

6) To increase the ROI of existing and initial investor.

7) To overcome the difficulties for decision making.

8) To study volatility in different sector of the market.


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SCOPE OF THE STUDY

The scope is related to study of TECHNICAL ANALYSIS OFSECURITIES. But this is very vast. There are many tools of Technical

Analysis of the securities. Each tool has its own importance as well as

limitations. Our scope of the project is limited to the study of MACD

and MACD-H as tools of Technical Analysis of Securities.


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INTRODUCTION TO THE STUDY

In introduction of study wee generally give the brief introduction about the topic

under study or on the research is being conducted.

The project named TECHNICAL ANALYSIS OF SECURITIES is generally

related to the investments in INDIAN economy. In this study we find out the factors

which effect the investments in INDIA and try to understand the problem in deep to

sort out the all the threats and remove all the limitation of the decisions regarding

investments.

The existing investors and initial investors face many problems while he invests in

IPOs & in Equities. Because there are many type of shares which are divided in

different categories. This makes the investments a complex decision. There are many

difficulties while they invest. In this study we elaborated the factors to be considered

before investing in any sector.

For this, the study is divided into two parts:

How we can analyze and invest in the equities.

Which current sector should be used for high return?

How can we use MACD and MACH as a tool of technical analysis

This project is mainly concerned with how we can get knowledge regarding

investment in Equities and get best returns on our investments.


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SECURITY ANALYSIS

There are two main types of analysis of predicting the performance of a

companys stock FUNDAMENTAL and TECHNICAL analysis.

Fundamentalists forecast stock prices on the basis of Economic-Industry-

Company statistics. The principal decision variables ultimately take the

form of earning and dividend. The latter looks for peaks, bottoms, trends,

patterns, and other factors affecting a stocks price movement and then

making a buy/sell decision based on those factors. It is a technique many

people attempt though very few are truly successful.

FUNDAMENTAL ANALYSIS

Fundamental Analysis is an approach to determine the expected value

of a security. Its objective is to identify the under- priced and over-

priced and over-priced securities in the market place so that

investment decision (buying &selling ) can be made.

The fundamental analysis includes the three components:

Economy Analysis

Industry Analysis

Company Analysis


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ECONOMY ANALYSIS

The economic activity affects corporate profits, investors attitude andexpectations and ultimately security prices/ return. Thus the performance of

the company depends on the performance of the economy. If the economy is

in the recession or stagnation, the performance of the company will be bad

in general. If the economy is booming, incomes are rising and the demand is

good, the industries in general may be prosperous.

Industry Analysis

The industry analysis can be viewed as one security analysis. Industry

analysis involves several steps. As a first step, industries are analyzed in

terms of their stage in life-cycle. The analysis indicates the value to

investors of selecting certain industries while avoiding others.

Company Analysis

In the company analysis, all the factors affecting the earnings of a particular

company are considered. Both internal and external information is

considered in the company analysis.

Thus the fundamental analysis involves making careful estimates of theexpected stream of benefits and the required rate of returns for a common

stock.


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Limitations of fundamental analysis

The following are the main obstacles in the way of successful fundamental

analysis:

Incorrectness of data

An analyst has to often analysis the incorrect data. An experienced

and skilled analyst may be able to defect Miss-representation and

concealment but sometimes he is mislead by them into wrong

conclusion.

Future uncertainties

Future changes are largely unpredictable, more so when the economic and

business environment has frequent winds of change.

Irrational market behavior

The slow correction of under or over-valuation poses a threat to the

analyst. Before the market reflects the value established by the analyst,

new forces may emerge.

Fallibility of experts

The investment decision requires interactive reasoning and not linear

reasoning. When multiple factors interact in complicated way and point in

different directions, human judgments, however well-informed and well-

reasoned, tend to be fallible.


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TECHNICAL ANALYSIS

Meaning and Concept of TechnicalAnalysis

We can define technical analysis as a study of stock market

considering factors related to the supply and demand of the stocks.

Technical analysis doesnt look at underlying earnings potential of a

company while evaluating stocks. It uses charts and computer programs tostudy the stocks trading volume and price movement of the stock on the

basis of the trend. Technical analyst assumes that the market is efficient and

the price has already taken into consideration the other factors related to the

company and industry.

The technical analysts believe that the past patterns of the

market will recur in future and can, therefore, be used for predictivepurposes. Technical analysis records historical data on charts, study these

charts in an effort to find meaningful patterns, and use these patterns to

predictive future prices. Some techniques are used to predict the single

security, some are used to predict movement of market index, and some are

used to predict both the action of individual securities and the market action.

Technical analysis is frequently used as a supplement to

fundamental analysis rather than as a substitute for it.


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History of Technical Analysis

Technical Analysis as a tool of investment for the average investor thrived in

the late nineteenth century when Charles Dow, the editor of the Wall Street

Journal, proposed the DOW THEORY. He recognized that the movement is

caused by the action/reaction of the people dealing in stocks rather than the

news in itself.

ASSUMPTIONS of the Technical

Analysis

The techniques of Technical Analysis are based on the following main

assumptions:

1. Market prices are determined by the interaction of demand and

supply forces.

2. Supply and demand are influenced by a variety of factors, both

rational and irrational. These include fundamental as well as

psychological factors.

3. The stock prices tend to move in fairly persistent trends, expect minor

deviations.

4. Shifts in demand and supply bring about changes in trends.

5. Shifts in demand and supply can be detected with the help of charts

of market action.

6. Because of the persistence trends and patterns, analysis of past

market data can be used to predict future price behaviors.

7.


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Purpose of Technical Analysis

The Technical Analysis is done from four important points of view,

discussed as follows:

1.Price

The changes in price reflect change in investor attitude and demand

for and supply of securities.

2.Time

The degree of movement in price is the function of time. The longer

it takes for reversal in trends, the greater the price change that would

follow.

3.Volume

The intensity of price changes is reflected in the volume of the

transactions that accompany the change. An increase in price

accompanied by a low volume implies that the change is not strong

enough.

4.Breadth

The quality of price change is measured by studying whether a change in

trend spreads across most sector and industries or is concentrated in few

type of scrip. Study of the breadth of the market indicates the extent to

which the price changes have taken place in the market in accordancewith a certain overall trend.


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Difference between F.A. & T.A.

Both fundamental and technical analyses are used to measure the

price/return of securities but T.A.is frequently used as supplement rather

than substitute for it. However the following difference may be noted

between the two.

Fundamentalists forecast stock on the basis of Economy

Industry Company statistics considering the future growth of

EPS, DPS, Price of security. On the other hands, the technical

analysis believe that past patterns of the market action will recur

in future and, therefore, stock prices depend upon historical

trends.

T.A. mainly seeks to predict short term price movements,

whereas, fundamental analysis tries to establish long term values.

The focus of technical analysis is mainly on internet market data,

particularly price and volume data. The force on fundamental

analysis is on fundamental factors relating to the economy, the

industry, and the firm.

T.A. appeals mostly to the short term traders, whereas,

fundamental analysis appeals to the long term investors.

Fundamentalists believe that stock price behavior is 90% logical

and 10% psychological, while technical analysts believe that stock

price behavior is 90% psychological and 10% logical.

Thus we can conclude that speculators, who want to make quick money

mostly, use results of technical analysis whereas investors, who invest onlong- term basis, use the results of fundamental analysis.


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Tools of Technical Analysis

Technical analysis believes that price of stock depends on supply anddemand in the market place. It has little co-relation with its intrinsic

value. All financial data and market information of a given stock is

already reflected in its market price. As such, charts are drawn to

identify price movement pattern to predict future movement of the

stock.

Technical tools may be used to assess the overall market as well as

individual stocks. The following are different tools of Technical

Analysis.

TOOLS OF Technical Analysis

Tools of overall Tools ofindividual

Market Analysis StockAnalysis

Dow Theory Bar and linecharts

Breadth of Market Point andFigureAnalysis Charts

Moving Average

Analysis


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How is Technical Analysis done?

Technical Analysis is done by identifying the trend from past movements

and then using it as a tool to predict future price movement of the stock.

It can be done by using any of the above methods.

Types of Trends

Trends can be classified in to following types. They are

Uptrend

Generally a stock moves in any direction with the phases of

consolidation or moving against the trend for short period. But

still it creates a higher HIGH and LOWS in case of an uptrend. In

short each short rally will create new high for the stock. In an

uptrend each, each rally reaches a higher high than the preceding

rally and each decline stops at a higher level than the preceding

decline.

An uptrend emerges when bulls are

stronger than bears and their buying forces prices up.

DowntrendsIn this case as against Uptrend the stock creates lower Highs and

Lows. Furthermore in case of downtrend the fall is much steeper

than the rise in case of Uptrend. In a downtrend each decline falls

to a lower low than the preceding declined and each rally stops at

a lower level than the preceding rally.

Downtrend occurs when the Bears are stronger than the

Bulls and their selling pushes market down.


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Range bound

In case of such a trend the price moves in a small range for

the long period. There is no apparent direction as far as trend is

concerned in this case.

Primary, Medium-term and Short-termtrends

The main or primary trend often referred to as bull or bear market. Bulls

go up and bears go down. They typically last about nine months to two

years with bear market troughs separated by just under four years. These

trends revolve around the business cycle and tend to repeat whether the

weak phase of the cycle is an actual recession, or if there is no recession

and just slow growth.

Primary trends

bull market Bear market

Secondary reactions


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Primary trends are not straight-line affairs, but series of rallies

and reactions. These series of rallies and reaction are intermediate or

medium-term trends. This trend can vary in length from as little as six

week to as nine months, or a length of a very short primary trend.

Intermediate trends typically develop as a result of changing perceptions

concerning economic, financial or political events. It is important to have

some understanding of the direction of the main or primary trend because

rallies in bull markets strong and reaction are weak. On the other hand,

reactions in bear markets are strong and rallies are short, sharp and

generally are unpredictable.

Bull and Bear trend

Bull and Bear trend are always referred by primary trends as a

already told. Bulls go up and bears go down.

BULL TREND

Bull trend: Start and End LH

Start of bull trend

End of bear trend

HL


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BEAR TREND

LH End of bear trend

Start of bear trend LL HL

LH = Lower High

LL= Lower LowHL= Higher Low

Bull Market Runs Bear Market Runs9 months to 2 years 9 months to 2 years

Approximately 4 years

Bulls and Bears typically last about nine months to two years.

Bull trend shows the bullish market and bear trend shows the bearish

market. For practical purposes: Only accept the large corrections as trend

changes in the primary trend:


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A bull trend start when price rallies above the previous high,

A bull trend ends when price declines below the previous lows

A bear trend starts at the end of bull trend and vice versa.

Role of Volume

Volume plays a key role in deciding about the kind of future movement

in stocks. Whenever there is a sudden rise in the volume of the stock and if it

is not followed by a price fall, it is a sign of consolidation and that the price

may rise in near future. Generally if any stock break any trend it is

accompanied by huge rise in volume. In case of range bound trend the

volume trend to die down to a great extent. Smart investor uses technical

analysis to judge the rise in volume and take early positions in the stock

during breakthroughs.

APPLICATION

Investors for their short term trading decisions use technical

analysis. This short term may be further divided in day trading, short

term investment and for hedging purposes. The role played by

Technical Analysis in each case is as follows:

Day traders

A day trader is one who takes and square off his position both on

the same day. Mostly a day traders count on turnover rather than

margin.


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Short-term investors

These people from the biggest clientele base of both the brokersand Technical Analyst.

Hedgers

These are generally big investors, who have lot of money at stake

and hence they took to have some hedging of their risk. The

strategy followed by this section of investors is that they comparethe stock in consideration with the index on the basis of the result

of this comparison: they take their position in the stock.

Is Technical Analysis Helpful?

If we use only technical Analysis in itself and do not consider other

aspects, it is very unlikely we will have much success the long run,

particularly in the short term investment. But if we use Technical

Analysis along with Fundamental Analysis or discount the industry and

company related news while considering the valuation, our chances

minimizing the risk brightness.

One thing we must realize is that technical analysis provide us

only with the trend and judge future on that basis, it can be far form

actual in few cases. The best use of technical analysis is to realize the

trend and levels at which it will break the trend so that one is prepared

to task positions when such trends breaks. It is because of this

disadvantage that technical analysis more useful only for short term

investing.


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MACD

MACD stands for Moving Average Convergence/Divergence. The MACDmethod, developed by GERALD AAPLE is a trending indicator, telling us

whether the stock is in an uptrend or a downtrend. The direction of the long

term trend is the first assessment which one should make out of the market.

If it is trending up, one want to be long (buying). If it is trending down, one

want to be short (selling). This technique is one of the most often used by

the different simulator software as performing the technical analysis of the

stock trend using this method is easy and very straightforward. The MACD

works well both for a long term, middle term and intraday systems.

The MACD is a trend following indicator momentum indicator that shows

the relationship between two moving averages of the prices.

It is used to signal trend changes and to indicate trend direction. To calculate

the MACD subtract the 26-days EMA. A9day dotted of the MACD called

the SignalLine is then plotted on the top of the MACD.


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TERMS USED:-

MA

The term MA stands for Moving Averages. The moving average is

one of the most useful, objective and oldest analytical tools around. Some

patterns and indicators can be somewhat subjective, where analysts may

disagree on if the pattern is truly forming or if there is a deviation that is

might be an illusion. The moving average is more of a cut-and-dry approach

to analyzing stock charts and predicting performance, and it is one of the

few that doesnt require a genius intelligence to interpret. There are few

types of moving averages, the most important (for the technical analysis )

are simple MA (SMA), where all points have equal weight and

exponential MA (EMA), that all are assigning higher weight to the latest

points, therefore making the method more sensitive to the resent changes in

a stock price.

EMA

Exponential MA (EMA), are those averages which assign higher

weight to the latest points, therefore making the method more sensitive to

the resent changes in the stock price.

This approach is better for most applications, however being

more sensitive it can produce more false signals. Some traders would

suggest using the traditional MA instead (all points have equal weight) for

the situations when signals should be more reliable.

To calculate the EMA, use the following approach:

Current EMA= {2/ (1+Number_of_period_for_EMA)*(Current Price-

Previous EMA)} +Previous _EMA.

The MACD calculation is usually based on exponential moving averages,

meaning that earlier points have less weight than latest ones.


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PRICE LINE

Price line is the line which shows the movement of the stock prices based onits frequency. The frequency may be hourly, daily, weekly, or yearly. It

shows ups and downs in the market. The price line is the actual value of the

stock price of a particular company in the current market.

SIGNAL LINE

The basic MACD trading rule is to buy when the MACD rises

above its signal line; similarly a sell signal occurs when the MACD crosses

below its signal line. The crossing of the MACD line above the signal can

denote the beginning of a trend. An uptrend typically pauses or stops when

the MACD line crosses and falls below the signal line.

When the bullish crossover occurs above the zero line, the uptrend

gains more momentum and the price raises with more intensity.

Bullish MACD crossovers are probably the most common signals and as

such can be less reliable. If not used in conjunction with other technical

analysis tools, these crossovers can leads to whipsaws and many false

signals.


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INTERPRETATION

The MACD proves most effective in trending markets rather than choppy,sideways markets. There are two main sets of signals generated by the

MACD: Crossovers and Divergence.

Crossovers

There are two main MACD crossover signals:

1. Signal Line Crossovers: MACD crosses above or below the

Signal Line

2. Zero Line Crossovers: MACD crosses above or below the

zero line

Signal Line CrossoversThe basic MACD trading rule is to BUY when the MACD rises above its

Signal Line. Similarly, a SELL signal occurs when the MACD crosses

below its Signal Line. The crossing of the MACD line above the signal line

can denote the beginning of a trend. An uptrend typically pauses or stops

when the MACD line crosses and falls below the signal line.

The location relative to the signal line is also important in Indicating

how strong a trend might be. A crossover above the signal line is

considered more bullish than one below the signal line.


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Zero line Crossovers

The zero line can also be use to produce a signal.

It is popular to buy/sell when the MACD crosses above/below the zero

line.

A bullish zero line crossovers occur when MACD moves above the zero

line and into positive territory. This is a clear indication that momentum

has changed from negative to positive or from bullish to bearish. After a

positive divergence and bullish MACD crossover, the zero line crossovers

can act as a confirmation signal.

DIVERGENCE

MACD can provide forewarning of important market turns through

divergence. When the MACD trend diverges from the price trend, it can

provide a signal that a trending market may slow or reverse. A negative or

bearish divergence occurs when the MACD is making new lows while price

fails to reach new lows. A positive or bullish diverges occurs when the

MACD is making new highs while price trend fail to reach new highs. Both

of these diverges are most significant when they are occur at relatively high

/low levels. A positive divergence is shown when MACD begins to advance

and the market is still in a downtrend and makes a new low. MACD can

either form a series of higher lows or a second low that is higher than the

previous low. Positive divergence is not very common, but is usually

reliable and can lead to good moves.

.


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MACD CHART WITH SIGNAL LINE

Microsoft Corporation chart with: MACD, and MACD signal line.

1. Go short [S] MACD crosses to below the signal line after a large

swing.

2. Go long [L]when MACD crosses to above signal line.3. Strong short signal [S] the MACD crosses after a large swing and

bearish divergence (shown by the trend line).

4. Go long [L] Flat MACD signals that the market is ranging we are

more likely to be whipsawed in /out of our position.

5. Exit long trade [X] but do not go short MACD is significantly

below the zero line.

6. Re-enter your long trade [L].


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Combination

The best way is to use the basic MACDis to use a combination of signal to

confirm one another. In addition, a fast MACD line can be added to enhancethe signals generated and to often provide early warning of changes in

trends. Combination with the signal line, the fast MACD line and the slow

MACD line. The MACD Histogram is also commonly used to clarify the

relationship between the two MACD lines.

When to apply

In order to use buy and sell signals successfully, we need to apply them

when the trend is changing. To do it, we need to have a trend to reverse. The

MA- sideways, or for trend that are not yet established.

Indicators should be used together, and it is particularly useful to avoid

using similar indicator (MA and MACD). MAs can be used not only with

the prices of stocks, but also with other indicators.

MA & MACD

MOVING AVERAGES

The moving average is one of the most useful, objective and oldest

analytical tools around. Some patterns and indicator can be somewhat

subjective, where analysts may disagree on if the pattern is truly forming

or if there is a deviation that is might be an illusion. The moving average

is more of a cut and dry approach to analyzing stock charts and

predicting performance.


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Types of Moving Average

There are three type of moving average:

2. Simple Moving Average

3. Exponential Moving Average

4. Weighted Moving Average

Simple Moving Average

The simple moving average (or SMA) is the easiest to construct. A 5day SMAtakes the sum of the last 5 prices and divides by 5. Easy but not always

accurate: the indicator has a tendency to bark twice consider this example;

Day 1 2 3 4 5 6 7 8 9

Price(

$)

1

6

1

7

1

7

1

0

17 18 17 17 17

5 Day

SMA

15.

4

15.

8

15.

8

15.

8

17.

2

You can see that on day 9 there is a big step in the simple moving

average, but price has been constant at $17. This distortion is caused

by the low price on day 4dropped from the SMA on day 9.

Exponential Moving Average

To calculate an exponential moving average (EMA):

Take todays price multiplied by an EMA%

Add this to yesterdays EMA multiplied by (1 EMA%).


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If we recalculate the earlier table we see that the exponential moving

average presents a far smoother trend:

Day 1 2 3 4 5 6 7 8 9

Price 16 17 17 10 17 18 17 17 17

33.3% (or 1/3)EMA

16.3 16.5 14.4 15.2 16.2 16.4 16.6 16.8

Weighted Moving Average

A Weighted Moving Average (WMA) attaches greater weight to the most

recent data. The weighting is calculated from the sum of days.

Example: For a 5-day weighted moving average the sum of days

1+2+3+4+5 = 15

The weighting is shown below:

Weighed values are calculated by multiplying todays price by 5/15,

yesterday by 4/15, and so on. The weighted moving average is the

sum of the 5 weighted values

Day 1 2 3 4 5

Price ($) 16 17 17 10 17

Weighting 1/15 2/15 3/15 4/15 5/15

Weighted value 1.07 2.27 3.40 2.67 5.67

5 Day WMA 15.07


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MOVING AVERAGE CHART

Intel Corporation is plotted with a 63 dayexponentialmoving average.

The single moving average is used with two filters:

Moving average direction, and

The moving average must be crossed by closing priceon two

consecutive days.

1. Go shorttwo closes below a falling moving average.

2. Go long moving average is now rising and price has closed

above the moving average for 2 days. The following dip below the

moving average (in early January) is filtered out.

3. The long trade is exited as there are two closes below the moving

average. No short trade is entered as the moving average is

sloping upwards.


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4. Go longtwo closes above a rising moving average.

5. Go short as there are two closes below a falling moving

average.

6. Go long - two closes above a rising moving average.

7. Go shorttwo closes below a falling moving average.

8. Go long moving average is rising again and there are 2 closes

above it.

Note how profitable the long trade [2] is during the strong

upward trend, compared to when price whipsaws around the relatively

flat moving average, frequently switching you in and out of trades.

Trend indicators are normally unprofitable, and should be avoided,

during ranging markets.

What do the different days mean?

The general assumption behind all moving averages is that once

the stock price moves above the average that it may substantial

momentum behind it and is worth buying. The opposite is true is if price

if a security moves below the moving average.

20 dayprovides a very volatile, choppy line. It isnt the most accurate,

but is probably the most useful for short term traders.

30 daysimilar to 20 daybut more certainty for the trend.

50 daymoving average a much less volatile, smooth line. This can

be used to detect somewhat longer trends.

100 daysimilar to the 5o day, it is less volatile, and one of the most

widely used for long trends.

200 dayeven less volatile, it is rarely used.


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MA Trading Signals

Single Moving Average

Compares price to a single moving average. The system is often used

with filters.

Filters

when price has crossed the moving average.

MOVING AVERAGE DIRECTIONAL FILTER

Uses the slope of the moving average as a filter

Two Moving Averages

Use a fast moving average instead of a filter.

Three Moving Averages

The third moving average indentifies when price is ranging.

Multiple Moving Averages

A series of five fast moving averages and five slow moving averages


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Combination

The best way to use the MA is to use a combination of signals to

confirm one another say: fast, middle and slow.

For example of such is given as:

Intel Corporation chart with 5 day (fast), 21 day (middle), and 63

day (slow).

1. Close previous long trade as the fastmoving average has fallen

below the middlemoving average.

2. Go long as the middlemoving average has risen above the slow

moving average (and the fastmoving average above the middle

moving average).
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3. Close long trade - fastmoving average has fallen below middle

moving average.

4. We are whipsawed in and out of a long position as the fast

moving average crosses to above then back under the middle

moving average.

5. Another whipsaw.

6. Go long as the fastmoving average crosses to above the middle

moving average (and the middlemoving average is above the

slowmoving average).

ASSUMPTION

Technical Analysis is a method of evaluating securities by analyzing

generated by market activity, past performance, and volume. The

method assumes that the historical performances of stocks are

indications of future performance this method is based upon following

assumption:

Securities move with very predictable trends and patterns.

These trends remain intact until something happens to change

the trend.

Until this change occurs, price levels are predictable.
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Weakness of MACD

MACD is a trend following indicator, and as such, sacrifices early

signals in exchange for keeping you in line with the trend. When a

significant trend develops, MACD is often able to capture the majority of

the move.

When the trend is short lived, however, MACD often provide unreliable.

This is because moving averages themselves are lagging indicators.

Even though the MACD represents the difference between two moving

averages, there is still some lag in the indicator itself. This is more likely

to be the case with weekly charts more than daily charts.

One solution of this problem is the use of the MACDHistogram.


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MACD-Histogram

Intel Corporation is shown with MACD histogram and 21-day

Exponential moving average. Trend lines show divergences.

1. Price is ranging - indicated by the flatMA.Go long [L] when the

histogram turns up (far from the zero line). Place a stop below the

recent Low.

2. Go short [S] as the histogram turns down (far from the zero line).

Place a stop above the recent High.

3. Go long [L] - the histogram turns up and is reinforced by a bullish

divergence. Place a stop below the recent Low.

4. Go short [S] as the histogram turns down - reinforced by a

bearish divergence. Place a stop above the recent High.
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5. Ignore the signal as it is too close to the zero line.

6. Go long [L] as the histogram turns up when well below zero.

Place a stop below the recent Low.

7. A further signal to go short [S]. Place a stop above the recent

High.

8. Go long [L] - the histogram has turned up and is reinforced by a

bullish divergence. Price has broken clear of the trading range

and the MA is rising - exit [X] when price closes below the MA.

Setup

The default settings are:

Slowmoving average - 26 days

Fast moving average - 12 days

Signal line - 9 day moving average of the difference between fastand slow.

All moving averages areexponential.
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Financial Review

BUDGET 2009

The Union budget presented on 9thJuly, 2009 was overall touted as

being a long-term growth budget. However, many felt that there was

definitely lot more that the Finance Minister could have achieved.

Broadly, there are three areas which have been given a

thrustagriculture and related infrastructure development, initiatives on

improving overall health standards, development of rural sector and

increasing the literacy rate, not only at primarily level but also higher

education. None of these initiatives will result in significant short-term

benefits. The benefits will trickle in to begin with impact only if these

plans are executed well, will gain momentum and ultimately havesignificant impact on long-term economic growth.

If India has to move to a higher growth plane, it will definitely

need to improve the state of the primary sector, on which over 60% of

the population is dependent. Conversely, any significant improvement in

the primary sector will have a huge impact on national income as there

will not only be a growth in production, but consumption too will get a

boost as the not-so-well-off people living in rural India will also have

more money to spend.

An improvement in the health standards and the literacy rate will

increase the overall productive capacity of the economy. There will also

be productivity related benefits that are linked to a healthy and better

educated work force. So, from a long-term perspective, it is a thumbs-

up. We can only hope that the execution of these plans will be a lot

better as compared to the past.


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BudgetNot As Bad As It Looks

Why the Disappointment?

It will be an understatement to say that people were disappointed by the

Budget presented by the Finance Minister on Monday. Expectations were

quite high for two reasons. Firstly, the UPA Government had said in its earlier

tenure in office

said that it could not push through many reforms because the Communists

who were lending support for five years would not allow them to. So it wasnatural to expect that when the Communists were out of it, this Government

would bring in new reforms. Secondly, the Economic Survey presented by the

Finance Ministry had talked about many reform measures though admittedly

it had not given any time frame for it. This being so, when the Finance

Minister presented a rather routine Budget the markets reacted very

negatively sensing a lost opportunity.

The Gold Nuggets

Having had this, let me say that the Budget is not bad as it looks and surely did

not deserve the 870 pounding it got on Monday. There is a lot that the one

should be happy about. The Government investment in infrastructure is being

stepped up very sharply; so is the investment in Agriculture, Rural

Development, Healthcare and Education. All this should translate into large

contracts for private sector companies and more money among the masses.

The plan to move from a Company based subsidy to Nutrient based subsidy in

Fertilizer and commitment to do away with controlled pricing of petrol and

diesel big steps forward.


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There is something for individual wage earners to take home. Apart from

increasing the exemption limit in a modest way, the Budget has removed

surcharge on income tax for those whose income exceeds 10 lakhs. This

should put lot more disposable money into the hands of the high spending

upper middle class.

Industry and Market Dont Get Much

For industry, itsbeen a mixed package. It did get FBT abolished but MAT has

been increased. Taxes have been kept broadly unchanged except that huge

concessions given in the Interim Budget have not been removed.

Markets wanted STT to be removed and that did not happen

Let a Thousand Flowers Bloom

UPA is following the above line of the Chinese Dictator. To my mind the

biggest positive from this Budget is that the Government has not succumbedto the temptation of tightening the belt. It has voted for growth rather than

taking refuge under financial prudence. It has let the fiscal deficit unchanged,

at a fairly high level. I am sure RBI does not like this much. A borrowing

program of Rs 4.5 lack crores and an uncovered deficit of 6.6%- highest since

1991- should give Governor Rao sleepless nights.

Best Is To Move On

In India we have learnt to live on hope. So one will hope that all the big

things that one lead in the economic survey would get implemented at some

point in time. Meanwhile, investors would do well to put this Budget behind

as one more event and get back to normal investing..


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Highlights of Budget 2009/10

Poll result is mandate for inclu sive grow th.

A single Budget Speech cannot solve all our problems.

Budget an important mean to present the view of the government

Aim: To reduce number of people living below poverty line to less than halfof

current level by 2014

Aim to susta in a growth ra te of 9% over a per iod of t ime

Aims at farm growth of over 4%

Ensure 4% agriculture growth

Highlights of 2008-09:

Sharp risein inflation to nearly 13% and a equally sharp fall to 0%

GDP dips from over 9% average in past three years to 6.7% in 2008-09

Gross capital flow rose to over 9% over GDP

Infra investm ent to be o ver 9% of GDP by 2014

Foreign investors are returning to Indian markets

FIIs are back in the market, the worst two quarters are behind us

Govt has some success in attracting investments in certain sectors through

PPP

Govt needs to provide further stimulus for the economy

There are signs of revival in domestic industry

Stepp ed up al locat ion of fu nds from Rs 10,800 cr. to Rs 15,800 cr. for

Rai lways

Highw ay and rai lways - al locat ion h iked by 23%

IIFCL and bank s in po sit ion to s upp ort Rs 1,00,000 cr. in Infrastructu re


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JNNURM support raised by 87%

The Assam gas cracker project estimated at Rs 5,160 cr.

Loan for farmers Rs 300,000 at 7% per annum

Govt anno unc es rebate for farmers paying loan o n t ime, and lower

Rate of 6% prop osed

Proposes to extend deadline to farmers to pay off 75%of loans by sixmonths

To December 31, 2009

Exporters borne the brunt of eco crisis, will provide adj assistance till March

2010

The market development assistance scheme allocation hiked by 148% to Rs

124 cr.

Budget makes subvention of 1% tobenefit farmers

30% rise in Rashtriya Krishi Vikash Yojana allocation over 2008-09

Micro and SMEs affected by global crisis;credit flow at reasonable rate out of

Rural infra dev fund

Specia l fund of Rs 4,000 cr from Rural Infrastructu re Dev fund to help

MSME sector

Return to FRBM target as soon as possible

To increase fertiliser usage - govt proposes to move from product pricing

Basis

Institutional reforms to cover subsidies, expenditure

Fiscaldeficit up to 6.2% from 2.7% of GDP

IT Saral 2 form to be introduced

Proposes people's participation in disinvestment programme

Turbulence in world markets left Indian financial sector unaffected


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PSU Banks , insur ance f irm s outsid e disinvestment plan

Only for Internal Circulation 2

Govt to set-up expert committee to advise on petro pricing products

Rs 1 lakh crore pro jects for Infrastructure revival

PSUs to remain under govt control

Govt wants public shareholding in PSUs to go up

8.5% growth in recent past fuelled by private sector investment

Income-tax return form s to be made mo re user-f r iendly

NREGA min wages set at Rs 100/day

NREGA outlay increased by 144%

Govt to move food security bill very soon

59% increase in allocation for Pradhanmantri Gram Sadak Yojna

Allocation for Indira Awaas Yojana to be increased by 63%

Food security to provide rice, wheat at Rs 3 a kg to poor

Bharat Nirman outlay raised by 59%

Indira Awaas Yojana outlay increased by 63%

NHB refinance to rural housing sector to be raised

PM's Adarsh Gram Yojana starts with Rs 100 cr funding

To launch n at ional mission o n female l i teracy

Unorganised Social Security Bill passed by both houses of the Parliament

Plan to cut female illiteracy by half in three yrs

Govt aims to have socialsecurity for informal sector

National Web Portal for employer and employee to be launched

More than 46 lakh people received biometrics card


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To add handloom clusters in West Bengal and Tamil Nadu

Right to Information Act been successful

NREGA hasbeen and outstanding success

46 lakh BPL families to come under new health insurance plan

Unique ID cards in 12-18 mon ths

Govt proposes to launch housing for 1 lakh para military forces

Paramilitary housing cost estimated at Rs 1,000 cr

Certain Pension related benefits extended to war hounded

Paramilitary housing project to cost Rs 1,000 cr

Allocation for flagship Bharat Nirman progamme raised by 45%

Rashtriya Mahila Kosh corpus to be raised to Rs 500 crore

Govt to s pend Rs 120 cr in FY10 in uniqu e ID

Allocation of Rs 2,113 cr for IIT

National Mission for Female Literacy to be launched

Govt to build 100,000 homes for paramilitary forces

50% of all rural women to be brought into self-help group programmes

Allocation Commonwealth Games raised by more than 50% to Rs 3,472crore

Plan outlay increased by 74%

Allocation for new Aligarh Muslim Univ. campuses in Bengal, Kerala at Rs

25 cr each

Proposes Rs 500 cr for rehabilitation of displaced persons of northern and

eastern areas of Sri Lanka

Bu dg et estimates: Rs 10,20,830 cr, Rs 6,95,600 cr n on -plann ed and

plan ned Rs 3,29,100 cr

Aila hurricane relief at Rs 1,000 cr


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Plan expenditure up 34% to Rs 3.75 lakh cr

Interest payment seen exceeding Rs 2 lakh cr

To spend Rs 1.42 lakh o n d efence

Interest payment is a third of expenditure plan

Budget estimates: Interest payment expected at Rs 2,25,511 cr

Enhance bu dgetary sup por t by Rs 40,000 cr

Only for Internal Circulation 3

Non tax revenue receipts are likely to be better

Total estimated expenditure for 2009-10 is Rs 10 lakh crore

Fiscal d eficit seen at 6.8% in FY10

To eliminate tax distortion

Increasing automation in direct tax collection

Federal Tax/ GDP ratio is 11.5%

TO INTRODUCE GST BY APRIL 1, 2010

To release new direct tax code in 45 days

FBT to be abolished

To pursue structural changes in Direct Tax

New direct tax code to be released in 45 days

To finalise New Direct Tax Code in House winter session

State finance ministers agreed on GST basic structure

Tax rates can be lower if tax base is higher.

No ch ange in c orpo rate tax FR10.

FY10 non-plan expenditure 6.97 trln rupees

Senior ci t izen incom e tax l imit h iked by 15,000 rupee/yr.

Women inc ome tax l imit u p 10,000 rupee to 190,000 rupee.


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Senior ci t izens IT exempt ion hiked to 240,000 rupees.

IT exemption limit raised to 190,000 rupees for women.

IT exemption hiked to 160,000 rupees for others.

MAT rate to be increased to 15% vs 10% of book profit

To remove surcharge of 10% on persona l income tax

Commodi ty t ransaction tax abo l ished

Tax holiday extended for commercial production of natural gas

Political funding will get 100% tax deduction

National Pension Scheme exempted from STT

MAT reduced to 15% of boo k pro f i ts, MAT tax credit increased from 7

years to 10 years

Dividend un der New Pension Scheme to get tax exempt ion

New Pension Scheme inv estment no t to att ract STT

Alternate dispute redressal mechanism for Tax disputes.

Investment boost needs timely Tax disputes resolution.

Donation to electoral trust to be 100% exempt for donor.

100% exemption for donations to electoral trust

Anonymous donations - grant relief 5% of total income or Rs 1,00,000

whichever is higher

Tax holiday on commercial production of mineral oil and natural gas onNELP VII

5% Custom duty on STBs

Custom duty reduced on LCD panels from 10% to 5%

Li fe sav ing d rugs, inc lud ing breast cancer, custom du ty reduced to

5% from 10%

Life saving devices on heart condition exempted from custom duty


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Custom duty on silver, excluding jewellery, hiked by Rs 500/ kh to Rs1,000/kg

Li fe sav ing devices on heart cond i t ion exempted f rom custom duty

To extend Customs exemption to some more EoUs

Cuts customs duty on wind power equipment by 2.5%

To reintroduce CVD exemption on parts of mobile phones.

Rough corals exempted from Customs duty.

Customs duty on windmill inputs cut to 5% vs 7.5%.

Customs duty on life saving drugs cut to 5% from 10%.Only for Internal

Circulation 4

Basic customs duty on life-saving drugs down to 5% from 10%.

Full Customs duty exemption on rough corals.

Customs duty on gold bars up at 200 rupees/10 gms.

Customs duty on life-saving equipment down to 5% from 7.5%.

Customs duty for permanent magnets down to 5% from 7.5%.

8% excise duty on man made fibre.

Excise on pure cotton textiles restored to 4%.

Customs duty on silver hiked to 1,000 rupee/kg.

Hike on customs duty on silver excludes jewellery.

Wool waste, cotton waste customsduty down to 10% vs 15%.

4% excise on paper, paper goods, kitchen appliances.

Excise on paper, paperboard articles retained at 4%.

Blended petrol To be exempt from excise duties.

To scrap excise o n petro l , diesel blended with b io-diesel.

4% excise to stay on items of mass consumption.

Custom duty on bio-fuel diesel cut to 2.5% from 7.5%.


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Bio-diesel exempt from excise duty FY10.

Construction sector gets some excise sops.

No excise duty on branded jewel le ry

Excise duty on petrol diven trucks cut

No new tax on edible oil imports

Some law services brought under service tax

Service tax on advise, technical assistance in the field of law on applicablefor individuals

Over 2000cc vehicle engine surcharge flat at 15,000 rupee.

Exporters exempt from paying svc tax to transporters.

Service tax levy on goods transported via rail, waterway.

Svc tax extended to legal consultancy, not individuals.

Direct tax proposals are revenue neutral.

20 bln rupee gain via indirect tax proposals FY10.


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INDIAN TAXATION SYSTEMA REVIEW FOR THE INVESTMENT

TAXATION in INDIA

India has a well developed tax structure with a three tier federal structure

composing the Union government, the State governments, and the

Urban/Rural Local Bodies. The power to levy taxes and duties is distributed

among the three tiers of governments, in accordance with the provisions of

the Indian Constitution. The main taxes/duties that the Union Government is

empowered to levy are Income Tax except tax on agricultural income, which

the State Government can levy), Custom Duties, Central Excise and Sale Tax

and Service Tax. The principal taxes levied by the State Governments are

Sales Tax (tax on intra-state sales of goods), Stamp Duty (duty on transfer of

property), State Excise (duty on manufacture of alcohol ), Land Revenue (levy

on land used for agricultural/non agricultural purpose), Duty on Entertainment

and tax on Professions & Callings. The Local Bodies are empowered to levy

tax on properties (buildings etc). Octroi (tax on entry of goods for

use/consumption within areas of the Local Bodies), tax on Markets and

Tax/User charges for utilities like water supply, drainage etc.

Since 1991 tax system of India has under gone a radical change, in line with

liberal economic policy and WTO commitments of the country. Some of the

changes are:

Reduction in custom and excise duties

Lowering corporate tax

Widening of the tax base and toning up the tax administration.


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Direct Taxes

Personal Income Tax

Exemption limit in Personal income tax raised by Rs. 15,000 from

2.25lac to 2.24lac for Senior citizen, by Rs. 10,000 from 1.8lac to 1.9lac

for Women tax payers and by Rs. 10.000 from 1.5lac to 1.6lac for all

other categories of Individual tax payers.

Deduction u/s 80-DD in respect of maintenance, including medical

treatment of a dependent who is a person with severe disability being

raised from the present limit of Rs. 75,000 to Rs. 1lac.

Surcharge on various Direct Taxes to be phased out; in the first

instance, by eliminating the surcharge of 10% on Personal Incom

ullas project report

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