TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

END TERM PROJECT

“FUNDAMENTAL ANALYSIS OF SELECTED

SECURITIES OF INDIAN STOCK MARKET”

In partial fulfillment for the requirement of the pgp

SUBMITTED BY
VARSHA D. BIJEGAONKAR

Under the guidance of :

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 TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

S.No. TITLE Pg.No.

Executive summery 3

1. CH 1 Introduction 5

1.1 Rationale 7

1.2 Objectives 8

1.3 Research Methodology

2. CH 2. FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW 10

2.1 Economic Analysis

2.2 Industry Analysis

2.3 Company Analysis

3. 3.3.1 The Management

3.3.2 The Company

3.3.3 The Annual Report

3.3.4 Ratios

3.3.5 Cash Flow

4 CH 4 Analysis 21

5 CH 5 Limitations 58

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 TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

6 CH 6 Conclusion 60

Glossary

7 References and Bibliography 63

EXECUTIVE SUMMARY
The project titled “fundamental analysis of selected securities”

MOSL(ANP) operates in various financial products and services like,

Consultancy, Stock Broking, Mutual Fund, Insurance, Registrar and Transfer
Agent, Research, etc.

The evaluation of financial planning has been increased through decades,

which is best seen in customer rise. Now a day’s investment of saving has assumed
great importance.

According to the study of the markets, it is being observed that markets are
doing well in equity stocks. In near future a proper financial planning is required to
invest money in all type of financial product because there is good potential in
market to invest.

In this project the great emphasis is given to the fundamental analysis of stocks .
while doing investment both fundamental and technical analysis are useful.

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TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

CHAPTER- 1

INTRODUCTION

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1.1 INTRODUCTION

Investing, like marriage, isn't something that should be entered into lightly. You wouldn't
get married on a first date, would you? Ok, maybe some of us would, but that's not really
very Foolish. Before we marry... er, I mean invest in a company, there are more than a
few things we need to know about it.

Securities Analysis
An analysis of securities and the organization and operation of their markets. The
determination of the risk reward structure of equity and debt securities and their
valuation. Special emphasis on common stocks. Other topics include fundamental
analysis and technical analysis.
Technical analysis is a method of predicting price movements and future market trends
by studying charts of past market action which take into account price of instruments,
volume of trading and, where applicable, open interest in the instruments.
Fundamental analysis is a method of forecasting the future price movements of a
financial instrument based on economic, political, environmental and other relevant
factors and statistics that will affect the basic supply and demand of whatever underlies
the financial instrument.

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Fundamental analysis Technical analysis

Focuses on what ought to Focuses on what actually

happen in a market happens in a market

Factors involved in price Charts are based on market

analysis: action involving:
1. Supply and demand 1. Price
2. Seasonal cycles 2. Volume
3. Weather 3. Open interest (futures
4. Government policy only)

Main differences between the two types of analysis:

1.2 RATIONALE FOR THE STUDY

In an industry plagued with skepticism and a stock market increasingly difficult to

predict and contend with, if one looks hard enough there may still be a genuine aid for
the Day Trader and Short Term Investor.

The price of a security represents a consensus. It is the price at which one person agrees
to buy and another agrees to sell. The price at which an investor is willing to buy or sell
depends primarily on his expectations. If he expects the security's price to rise, he will

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buy it; if the investor expects the price to fall, he will sell it. These simple statements are
the cause of a major challenge in forecasting security prices, because they refer to human
expectations. As we all know firsthand, humans expectations are neither easily
quantifiable nor predictable.

If prices are based on investor expectations, then knowing what a security should sell for
(i.e., fundamental analysis) becomes less important than knowing what other investors
expect it to sell for. That's not to say that knowing what a security should sell for isn't
important--it is. But there is usually a fairly strong consensus of a stock's future earnings
that the average investor cannot disprove
Fundamental analysis and technical analysis can co-exist in peace and complement each other. Since
all the investors in the stock market want to make the maximum profits possible, they just cannot
afford to ignore either fundamental or technical analysis.

1.3 OBJECTIVES OF THE STUDY

Primary Objective:
a) To do fundamental analysis of chosen securities

Sub-Objectives:
a) to study the various theories of fundamental analysis

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 TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

b) understand the movement and performance of stocks

c) understanding and analyzing the factors that affect the movement of stock
prices in the Indian Stock Markets

1.4 RESEARCH METHODOLOGY & DESIGN

TYPE OF STUDY
The research has been based on secondary data analysis. The study has been exploratory
as it aims at examining the secondary data for analyzing the previous researches that
have been done in the area of technical and fundamental analysis of stocks. The
knowledge thus gained from this preliminary study forms the basis for the further
detailed Descriptive research. In the exploratory study, the various technical indicators
that are important for analyzing stock were actually identified and important ones short
listed.

SAMPLE DESIGN
The sample of the stocks for the purpose of collecting secondary data has been selected
on the basis of Random Sampling. The stocks are chosen in an unbiased manner and
each stock is chosen independent of the other stocks chosen.

SAMPLE SIZE
The sample size for the number of stocks is taken as 4 for fundamental analysis of stocks
as fundamental analysis is very exhaustive and requires detailed study.

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CHAPTER- 3
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TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

FUNDAMENTAL ANALYSIS
A CONCEPTUAL OVERVIEW

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 TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

Fundamental analysis refers to the study of the core underlying elements that influence
the economy of a particular entity. It is a method of study that attempts to predict price
action and market trends by analyzing economic indicators, government policy and
societal factors (to name just a few elements) within a business cycle framework.

I. ECONOMIC ANALYSIS:

POLITICO-ECONOMIC ANALYSIS:
No industry or company can exist in isolation. It may have splendid managers and a
tremendous product. However, its sales and its costs are affected by factors, some of
which are beyond its control - the world economy, price inflation, taxes and a host of
others. It is important, therefore, to have an appreciation of the politico-economic factors
that affect an industry and a company.

The political equation

A stable political environment is necessary for steady, balanced growth. If a country is
ruled by a stable government which takes decisions for the long-term development of the
country, industry and companies will prosper.

Foreign Exchange Reserves

A country needs foreign exchange reserves to meet its commitments, pay for its imports
and service foreign debts.

Foreign Exchange Risk

This is a real risk and one must be cognizant of the effect of a revaluation or devaluation
of the currency either in the home country or in the country the company deals in.

Restrictive Practices
Restrictive practices or cartels imposed by countries can affect companies and industries.
crystallizing the exposure.

Foreign Debt and the Balance of Trade

Foreign debt, especially if it is very large, can be a tremendous burden on an economy.
India pays around $ 5 billion a year in principal repayments and interest payments.
Inflation
Inflation has an enormous effect in the economy. Within the country it erodes purchasing
power. As a consequence, demand falls. If the rate of inflation in the country from which
a company imports is high then the cost of production in that country will automatically
go up.

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The Threat of Nationalization

The threat of nationalization is a real threat in many countries – the fear that a company
may become nationalized.

Interest Rates
A low interest rate stimulates investment and industry. Conversely, high interest rates
result in higher cost of production and lower consumption.

Taxation
The level of taxation in a country has a direct effect on the economy. If tax rates are low,
people have more disposable income.

Government Policy
Government policy has a direct impact on the economy. A government that is perceived
to be proindustry will attract investment.

THE ECONOMIC CYCLE:

It affects investment decisions, employment, demand and the profitability of companies.
The four stages of an economic cycle are:
Depression
Recovery
Boom
Recession

Depression
At the time of depression, demand is low and falling. Inflation is high and so are interest
rates. Companies, crippled by high borrowing and falling sales, are forced to curtail
production, close down plants built at times of higher demand, and let workers go.

Recovery
During this phase, the economy begins to recover. Investment begins anew and the
demand grows. Companies begin to post profits. Conspicuous spending begins once
again.

Boom
In the boom phase, demand reaches an all time high. Investment is also high. Interest
rates are low. Gradually as time goes on, supply begins to exceed the demand. Prices that
had been rising begin to stabilize and even fall. There is an increase in demand. Then as
the boom period matures prices begin to rise again.

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Recession
The economy slowly begins to downturn. Demand starts falling.. Interest rates and
inflation are high. Companies start finding it difficult to sell their goods. The economy
slowly begins to downturn.

II. INDUSTRY ANALYSIS

The importance of industry analysis is now dawning on the Indian investor as never
before.

Cycle
The first step in industry is to determine the cycle it is in, or the stage of maturity of the
industry. All industries evolve through the following stages:
1. Entrepreneurial, sunrise or nascent stage
2. Expansion or growth stage
3. Stabilization, stagnation or maturity stage, and
4. Decline or sunset stage to properly establish itself. In the early days, it may actually
make losses.

The Entrepreneurial or Nascent Stage

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At the first stage, the industry is new and it can take some time for it to properly establish
itself.

The Expansion or Growth Stage

Once the industry has established itself it enters a growth stage. As the industry grows,
many new companies enter the industry.

The Stabilization or Maturity Stage

After the halcyon days of growth, an industry matures and stabilizes. Rewards are low
and so too is the risk. Growth is moderate. Though sales may increase, they do so at a
slower rate than before. Products are more standardized and less innovative and there are
several competitors.

The Decline or Sunset Stage

Finally, the industry declines. This occurs when its products are no longer popular. This
may be on account of several factors such as a change in social habits The film and video
industries.

1. BARRIER TO ENTRY
New entrants increase the capacity in an industry and the inflow of funds. The question
that arises is how easy is it to enter an industry ?
There are some barriers to entry:

a) Economies of scale
b) Product differentiation
c) Capital requirement
d) Switching costs
e) Access to distribution channels
f) Cost disadvantages independent of scale
g) Government policy
h) Expected retaliation
j) International cartels

2. THE THREAT OF SUBSTITUTION

New inventions are always taking place and new and better products replace existing
ones. An industry that can be replaced by substitutes or is threatened by substitutes is
normally an industry one must be careful of investing in. An industry where this occurs
constantly is the packaging industry -bottles replaced by cans, cans replaced by plastic
bottles, and the like. To ward off the threat of substitution, companies often have to
spend large sums of money in advertising and promotion.

3. BARGAINING POWER OF THE BUYERS

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In an industry where buyers have control, i.e. in a buyer's market, buyers are constantly
forcing prices down, demanding better services or higher quality and this often erodes
profitability. The factors one should check are whether:
a) A particular buyer buys most of the products (large purchase volumes). If such buyers
withdraw their patronage, they can destroy an industry. They can also force prices down.
b) Buyers can play one company against another to bring prices down.

4. BARGAINING POWER FOR THE SUPPLIERS

An industry unduly controlled by its suppliers is also under threat. This occurs when:
a) The suppliers have a monopoly, or if there are few suppliers.
b) Suppliers control an essential.
c) Demand for the product exceeds.
d) The supplier supplies to various industries.
e) The switching costs are high.
f) The supplier's product does not have a substitute.
g) The supplier's product is an important input for the buyer's.
h) The buyer is not important to the supplier.
i) The supplier's product is unique.

5. RIVALRY AMONG COMPETITORS

Rivalry among competitors can cause an industry great harm. This occurs mainly by
price cuts, heavy advertising, additional high cost services or offers, and the like. This
rivalry occurs mainly when:
a) There are many competitors and supply exceeds demand. Companies resort to price
cuts and advertise heavily in order to attract customers for their goods.
b) The industry growth is slow and companies are competing with each other for a
greater market share.
c) The economy is in a recession and companies cut the price of their products and offer
better service to stimulate demand.
d) There is lack of differentiation between the product of one company and that of
another. In such cases, the buyer makes his choice on the basis of price or service.
e) In some industries economies of scale will necessitate large additions to existing
capacities in a company. The increase in production could result in over capacity & price
cutting.
f) Competitors may have very different strategies in selling their goods and in competing
they may be continuously trying to stay ahead

III. COMPANY ANALYSIS:

At the final stage of fundamental analysis, the investor analyzes the company. This
analysis has two thrusts:
How has the company performed vis-à-vis other similar companies and

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How has the company performed in comparison to earlier years

It is imperative that one completes the politico economic analysis and the industry
analysis before a company is analyzed because the company's performance at a period of
time is to an extent a reflection of the economy, the political situation and the industry.
What does one look at when analyzing a company?
The different issues regarding a company that should be examined are:
The Management
The Company
The Annual Report
Ratios
Cash flow

THE MANAGEMENT:

The single most important factor one should consider when investing in a company and
one often never considered is its management.
In India management can be broadly
divided in two types:
Family Management
Professional Management

THE COMPANY:

An aspect not necessarily examined during an analysis of fundamentals is the company.

A company may have made losses consecutively for two years or more and one may not
wish to touch its shares - yet it may be a good company and worth purchasing into. There
are several factors one should look at.

1. How a company is perceived by its competitors?

One of the key factors to ascertain is how a company is perceived by its competitors. It is
held in high regard. Its management may be known for its maturity, vision, competence
and aggressiveness. The investor must ascertain the reason and then determine whether
the reason will continue into the foreseeable future.

2. Whether the company is the market leader in its products or in its segment
Another aspect that should be ascertained is whether the company is the market leader in
its products or in its segment. When you invest in market leaders, the risk is less. The
shares of market leaders do not fall as quickly as those of other companies. There is a
magic to their name that would make individuals prefer to buy their products as opposed
to others.

3. Company Policies

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The policy a company follows is also important. What is its plans for growth? What is its
vision? Every company has a life. If it is allowed to live a normal life it will grow upto a
point and then begin to level out and eventually die. It is at the point of leveling out that
it must be given new life. This can give it renewed vigour and a new lease of life.

4. Labour Relations
Labour relations are extremely important. A company that has motivated, industrious
work force has high productivity and practically no disruption of work. On the other
hand, a company that has bad industrial relations will lose several hundred mandays as a
consequence of strikes and go slows.

5. Where the company is located and where its factories are?

One must also consider where the companies Plants and Factories are located..

THE ANNUAL REPORT:

The primary and most important source of information about a company is its Annual
Report. By law, this is prepared every year and distributed to the shareholders. Annual
Reports are usually very well presented. A tremendous amount of data is given about the
performance of a company over a period of time.
The Annual Report is broken down into the following specific parts:
A) The Director's Report,
B) The Auditor's Report,
C) The Financial Statements, and
D) The Schedules and Notes to the Accounts.

A. The Director’s Report

The Director’s Report is a report submitted by the directors of a company to its
shareholders, advising them of the performance of the company under their stewardship.
1. It enunciates the opinion of the directors on the state of the economy and the political
situation vis-à-vis the company.
2. Explains the performance and the financial results of the company in the period under
review. This is an extremely important part. The results and operations of the various
separate divisions are usually detailed and investors can determine the reasons for their
good or bad performance.
3. The Director’s Report details the company's plans for modernization, expansion and
diversification. Without these, a company will remain static and eventually decline.
4. Discusses the profit earned in the period under review and the dividend.
Recommended by the directors. This paragraph should normally be read with some
skepticism, as the directors will always argue that the performance was satisfactory. If
adverse economic conditions are usually at fault.
5. Elaborates on the directors' views of the company's prospects in the future.

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6. Discusses plans for new acquisition and investments. An investor must intelligently
evaluate the issues raised in a Director’s Report. Industry conditions and the
management's knowledge of the business must be considered.

B. The Auditor's Report

The auditor represents the shareholders and it is his duty to report to the shareholders and
the general public on the stewardship of the company by its directors. Auditors are
required to report whether the financial statements presented do, in fact, present a true
and fair view of the state of the company. Investors must remember that the auditors are
their representatives and that they are required by law to point out if the financial
statements are not true and fair..

C.Financial Statements
The published financial statements of a company in an Annual Report consist of its
Balance Sheet as at the end of the accounting period detailing the financing condition of
the company at that date, and the Profit and Loss Account or Income Statement
summarizing the activities of the company for the accounting period.

BALANCE SHEET
The Balance Sheet details the financial position of a company on a particular date; of the
company's assets (that which the company owns), and liabilities (that which the company
owes), grouped logically under specific heads. It must however, be noted that the
Balance Sheet details the financial position on a particular day and that the position can
be materially different on the next day or the day after.

SOURCES OF FUNDS
SHAREHOLDERS FUNDS
SHARE CAPITAL
(i) Private Placement
(ii) Public Issue
iii) Rights issues
RESERVES
i) Capital Reserves
ii) Revenue Reserves
LOAN FUNDS
i) Secured loans:
ii) Unsecured loans
FIXED ASSETS
INVESTMENTS
STOCK OR INVENTORIES
i) Raw materials
ii) Work in progress
iii) Finished goods

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CASH AND BANK BALANCES

LOANS AND ADVANCES

PROFIT AND LOSS ACCOUNT

The Profit and Loss account summarizes the activities of a company during an
accounting period which may be a month, a quarter, six months, a year or longer, and the
result achieved by the company. It details the income earned by the company, its cost
and the resulting profit or loss. It is, in effect, the performance appraisal not only of the
company but also of its management- its competence, foresight and ability to lead.

RATIOS:
Ratios express mathematically the relationship between performance figures and/or
assets/liabilities in a form that can be easily understood and interpreted.
No single ratio tells the complete story
Ratios can be broken down into four broad categories:

(A) Profit and Loss Ratios

These show the relationship between two items or groups of items in a profit and loss
account or income statement. The more common of these ratios are:
1. Sales to cost of goods sold.
2. Selling expenses to sales.
3. Net profit to sales and
4. Gross profit to sales.

(B) Balance Sheet Ratios

These deal with the relationship in the balance sheet such as :
1. Shareholders equity to borrowed funds.
2. Current assets to current liabilities.
3. Liabilities to net worth.
4. Debt to assets and
5. Liabilities to assets.

(C) Balance Sheet and Profit and Loss Account Ratios.

These relate an item on the balance sheet to another in the profit and loss account such
as:
1. Earnings to shareholder's funds.
2. Net income to assets employed.
3. Sales to stock.
4. Sales to debtors and
5. Cost of goods sold to creditors.

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(D) Financial Statements and Market Ratios

These are normally known as market ratios and are arrived at by relative financial figures
to market prices:
1. Market value to earnings and
2. Book value to market value.
(a) Market value
(b) Earnings
(c) Profitability
(d) Liquidity
(e) Leverage
(f) Debt Service Capacity
(g) Asset Management/Efficiency
(h) Margins.

The major ratios that are considered:

(i) Market value
(ii) Price- earnings ratio
(iii) Market-to-book ratio
(iv) Earnings
(v) Earning per share
(vi) Dividend per share
(vii) Dividend payout ratio
(viii) Leverage ratios
(ix) Return on investments/total assets

CASH FLOW:
A statement of sources and uses begins with the profit for the year to which are added the
increases in liability accounts (sources) and from which are reduced the increases in
asset accounts (uses). The net result shows whether there has been an excess or deficit of
funds and how this was financed. Investors must examine a company's cash flow as it
reveals exactly where the money came from how it was utilized. Investors must be
concerned if a company is financing either its inventories or paying dividends from
borrowings without real growth as that shows deterioration.

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CHAPTER-4
ANALYSIS

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I FUNDAMENTAL ANALYSIS OF STOCKS

Basically fundamental analysis is covered in 3 parts :

1. Market/ economy analysis
2. Industry Analysis
3. Company Analysis
1) TATA MOTORS

I Market/ Economy Analysis

It covers the macro economy analysis and the various macro economic factors on the
national level like GDP, Monetary policies of India, Fiscal Policies and Inflation and
money supply etc.

GDP
For the year 2009-10 the GDP growth is 6.3% , last year in 2008 -09 it was
6.7% ,and 9% in the year 2007- 08 , 9.7% in year 2006 -07.
Due to recession the GDP this year has gone down .
Strengths of India today are:

A well diversified industrial base which profits from self-reliance in all core
industries .A large & sophisticated financial architecture - The robust capital Markets
today have over 9000 listed companies and boast of a massive Market capitalization.

.
ECONOMY
Economic analysis is the analysis of forces operating the overall economy a country.

Economic analysis is a process whereby strengths and weaknesses of an economy are

analyzed.

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GDP and Automobile Industry

In absolute terms, India is 16th in the world in terms of nominal factory output.
The service sector is growing rapidly in the past few years. This is the pie- chart
showing contributions of different sectors in Indian economy.
The per capita Income is near about Rs38,000 reflecting improvement in the
living standards of an average Indian.

Today, automobile sector in India is one of the key sectors of the economy in
terms of the employment. Directly and indirectly it employs more than 10 million
people and if we add the number of people employed in the auto-component and
auto ancillary industry then the number goes even higher.

As the world economy slips into recession hitting the demand hard and the
banking sector takes conservative approach towards lending to corporate sector,
the GDP growth has downgraded it to 7.1 per cent for 2008-09 and predicted it
to be 6.5 per cent for FY 2009-10 Mr. Montek Singh (Planning Commission of
India). Following is the graph showing a trend of Indian GDP trend in past 3
years.

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The market value of Automobile Industry is more than US$8 bl. and Contribution in
Indian GDP is near about 5% and will be double by 2016. The automotive industry in
India grew at a computed annual growth rate (CAGR) of 11.5 percent over the past five
years, but growth rate in last FY2008-09 was only 0.7% with passenger car sales shows
1.31% growth while Commercial Vehicles segment slumped 21.7%.

Recession
All the major auto companies enjoyed the high growth ride till the mid 2008. But at the
end of the year, industry had to face the hard truth and witnessed the fall in sales
compared to last year. In December 2008, overall production fell by 22 % over the same
month last year. Global recession has hit the Indian auto industry, India is strong and
growing industry but the impact of recession is evident now on industry as sales &
growth of automobile companies have declined. Passenger Vehicles segment registered
negative growth.

One of its supporting facts is that the sales in December 2008 for passenger vehicles fell
by 13.86% over December 2007 Two Wheelers registered minor growth of 1.85 %
during April – December 2008. However, Two Wheelers sales recorded 15.43 percent
fall in December 2008 over the same month last year. Although the sector was hit by
economic slowdown, overall production (passenger vehicles, commercial vehicles, two
wheelers and three wheelers) increased from 10.85 million vehicles in 2007-08 to 11.17
million vehicles in 2008-09. Passenger vehicles increased marginally from 1.77 million
to 1.83 million while two-wheelers increased from 8.02 million to 8.41 million. Total
number of vehicles sold including passenger vehicles, commercial vehicles, two-
wheelers and three-wheelers in 2008-09 was 9.72 million as compared to 9.65 million in
2007-08.
Inflation
Despite of negative inflation these days (-.21% on 22-Aug-09) we saw an increasing
trend of sales in auto sector. A moderate amount of inflation is important for the proper
growth of an economy like India because it attracts more private investment. The fall in
wholesale prices from a year earlier is mainly due to a statistical base effect and doesn’t
suggest contraction in demand, the Reserve Bank of India said few week back, while
revising its inflation forecast for the FY through March to around 5% from 4%.

In last FY despite of skyrocketing oil prices (crude oil price has already up to $130 compared to $20 per
barrel five years back), Indian automobile Industry was not as much affected and experts think that Indian
automobile industry will continue to grow this year despite all obstacles- oil price hike, higher interest rates.

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However, the effect of inflation has affected every sector which is related to car
manufacturing and production. The increase in the price of fuel and the steel due to
inflation has led to a slower growth rate of the car industry in India. The effect of
inflation has taken the rise in the price rate of the cars by 3-4% which in turn suffices the
need to meet the rise in price of the raw materials to build a car. The car market and the
car industry witnessed a fall of 8-9%.

FDI’s
In IndiaFDI up to 100 percent, has been permitted under automatic route to this sector,
which has led to a turnover of USD 12 billion in the Indian auto industry and USD 3
billion in the auto parts industry. India enjoys a cost advantage with respect to casting
and forging as manufacturing costs in India are 25 to 30 per cent lower than their western
counterparts the Investment Commission has set a target of attracting foreign investment
worth US$ 5 billion for the next seven years to increase India's share in the global auto
components market from the existing 0.9 per cent to 2.5 per cent by 2015. FDI inflows in
Automobile Industry 2008-09 was Rs.5,212 Cr an increase of 47.25% compare to 2007-
08, while in April-May 2009 it was around Rs.497 Cr.
Source- FDI
Statistics Govt. of India

Foreign Exchange
India holds the third largest stock of reserves among the emerging market economies
after China and Russia. The overall approach to the management of India's

. Source: rbi.org.in

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foreign exchange reserves in recent years reflects the changing composition of the
balance of payments and the 'liquidity risks' associated with different types of flows and
other requirements.

Taking these factors into account, India's foreign exchange reserves continued to be at a
comfortable level and consistent with the rate of growth, the share of external sector in
the economy and the size of risk-adjusted capital flows. Following is the table shows the
trend of foreign reserves held by central bank in last FY. Reserves came down cause of
recession all over the world however India still able to maintain its reserves hence a
minor fall was seen compare to all other country which shows great strength in long-term
for Indian Economy. Increase in Exports specially from auto industry shows an
expectations of huge income from western countries and new $200 bl. target for exports
by 2011 helps in increasing.
Note:
1.FCA (Foreign Currency Assets): FCAs are maintained as a multicurrency portfolio comprising ajor
currencies, such as, US dollar, Euro, Pound sterling, Japanese yen, etc. and is valued in terms of US
dollars.
2. SDR (Special Drawing Rights): Values in SDR have been indicated in parentheses.
3. Gold: Physical stock has remained unchanged at approximately 357 tonnes.
4. RTP refers to the Reserve Tranche Position in the IMF.

Export
Society of Indian Automobile Manufacturers (SIAM), automobile sales (including
passenger vehicles, commercial vehicles, two-wheelers and three-wheelers) in the
overseas markets increased to 1.53 million units in 2008-09 from 1.23 million units in
2007-08. Export of passenger vehicles increased from 218,401 in 2007-08 to 335,739
units in 2008-09.

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 TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

There is a continuous increase in the export of automobiles since the financial year 2002-
03, except for the decline in the export of commercial vehichles in the financial year
2008-09, which may be attributed to the global economic recession.
Despite recession, the Indian automobile market continues to perform better than most of
the other industries in the economy in coming future, more and more MNC’s coming in
India to setup their ventures which clearly shows the scope of expansion.
Current Scenario of Automobile Industry in Economy
With the latest available data Indian Automobile Industry is expected to grow at 9%-10%
in near future, Two wheeler segment sales grew up by 12.8% with the modest 2.6%
growth rate, under this segment the market leader Hero Honda registered growth of 12%
in its domestic sales where as Bajaj Auto disappointed as sales plunging by 23%, on the
other hand car sales has been grew up by a healthy 22.7% in last February and
Commercial Vehicles reported slower sales. It is assumed that in coming festive season
to meet demand, carmakers going to produce 70000units/month more over the average
1.3lac/month with help of 5000 new hands. Source:
Economic Times

Indian Automobile Industry at Global level:

• India ranks 1st in the global two-wheeler market
• India is the 4th biggest commercial vehicle market in the world
• India ranks 11th in the international passenger car market
• India ranks 5th pertaining to the number of bus and truck sold in the world
• India is the second largest tractor manufacturer in the world.
Volkswagen, Toyota, Nissan & Ford plan new cars to cash in on fastest-growing
compact car section of car market in India.
Source: Economic Times
Sales of different Auto Companies speed up even before festive season Maruti by 29%,
TATA by 11%,Skoda Auto 33%, Hero Honda 33%, Mahindra 42%, Yamaha 63% etc.
Source: Economic Times
(3/09/09)
It is expected that the Automobile Industry in India would be the 7th largest automobile
market within the year 2016.

Projected Growth rate in Automobile Industry

• Passenger vehicle sales in the country will grow at a CAGR of 12 per cent to
touch 3.75 million units by 2014.
• The domestic two-wheeler sales will grow at a CAGR of 8.8% by 2014 at 11.3
million units.

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 TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

• To emerge as the destination of choice in the world for design and manufacture
of automobiles and auto components with output reaching a level of US$ 145
billion accounting for more than 10% of the GDP and providing additional
employment to 25 million people by 2016.

In short, the Indian economy is exhibiting strong fundamentals and displaying

considerable resilience. At the same time, there are continuing signs of demand
pressures, especially high credit growth, that could exert upward pressure on prices when
associated with supply shocks such as from oil. These pressures have the potential for
impacting stability and inflation expectations. While domestic developments continue to
dominate the economy, global factors tend to gain more attention now than before. The
global outlook for growth is positive but downside risks in regard to inflation also RBI is
applying new repo and reverse repo for the balance of inflation and monetary policies.

The following are macroeconomic policies, generally found as part of government-

directed industrial auto policies
(a) Restrictions on domestic and foreign investment.
(b) Domestic content requirements
(c) High tariff walls
(d) Auto export requirements
(e) National production to sales ratios
(f) Distribution controls
(g) Quotas and licensing requirements that significantly restrict imports
(h) Government approval for product related decisions, including vehicle make,
body type, engine size, etc.
(i) Special government categories for auto taxes

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 TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

II INDUSTRY ANALYSIS
Since, 1991 opening of the economy has changed the face of auto industry. Today, it is
amongst the main drivers of growth of Indian economy with an output multiplier of
2.24(for every Re.1 invested, auto sector gives back Rs.2.24 to the economy). In recent
years we have seen increasing number of global players entering Indian market by way
of Joint ventures, collaborations or wholly owned subsidiary
The automobile industry is torn between trying to reduce costs on the one hand and, on
the other, dealing with the high price of performance-enhancing technology and
environmental compliance. Key drivers in the automotive industry are:
• Reducing air pollution
• Reduction of weight
• Recyclability
• Safety
• Better performance and engine efficiency
• Aesthetics
• Longer service Life

INDUSTRY LIFE CYCLE:

The automobile market is at the maturity stage of the life cycle, locally and globally, due
to an increased number of competitors from domestic and foreign markets. The
automobile market is characterized by a low potential for market growth, but high sales
and profit potential as the products have still not saturated the market as a whole.

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 TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

MAJOR COMPETITORS OF TATA MOTORS ARE

Maruti Udyog Ltd.

General Motors India
Ford India Ltd.
Eicher Motors
Bajaj Auto
Hero Motors
Hindustan Motors
Hyundai Motor India Ltd.
Royal Enfield Motors
Telco
TVS Motors

FINANCIALS :

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 TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

Balance sheet
Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06 Mar ' 05

Sources of funds
Owner's fund
Equity share capital 514.05 385.54 385.41 382.87 361.79
Share application money - - - - -
Preference share capital - - - - -
Reserves & surplus 11,855.15 7,428.45 6,458.39 5,127.81 3,749.60

Loan funds
Secured loans 5,251.65 2,461.99 2,022.04 822.76 489.81
Unsecured loans 7,913.91 3,818.53 1,987.10 2,114.08 2,005.61
Total 25,534.76 14,094.51 10,852.94 8,447.52 6,606.81

Uses of funds
Fixed assets
Gross block 13,905.17 10,830.83 8,775.80 7,971.55 6,611.95
Less : revaluation reserve 25.07 25.51 25.95 26.39 -
Less : accumulated depreciation 6,259.90 5,443.52 4,894.54 4,401.51 3,454.28
Net block 7,620.20 5,361.80 3,855.31 3,543.65 3,157.67
Capital work-in-progress 6,954.04 5,064.96 2,513.32 951.19 538.84
Investments 12,968.13 4,910.27 2,477.00 2,015.15 2,912.06

Net current assets

Current assets, loans & advances 10,836.58 10,781.23 10,318.42 9,812.06 7,248.88
Less : current liabilities & provisions 12,846.21 12,029.80 8,321.20 7,888.65 7,268.80
Total net current assets -2,009.63 -1,248.57 1,997.22 1,923.41 -19.92
Miscellaneous expenses not written 2.02 6.05 10.09 14.12 18.16
Total 25,534.76 14,094.51 10,852.94 8,447.52 6,606.81

Notes:
Book value of unquoted investments 12,358.84 4,145.82 2,117.86 1,648.57 2,480.15
Market value of quoted investments 558.32 2,530.55 1,323.08 1,550.00 1,260.05
Contingent liabilities 5,433.07 5,590.83 5,196.07 2,185.63 1,450.32

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 TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06 Mar ' 05
Number of equity sharesoutstanding
5140.08 3855.04 3853.74 3828.34 3617.52
(Lacs)

Opportunities and Threats

a) Opportunities

● Road Development: The ongoing road development program would improve

connectivity to ports, cities and villages through a network of highways and
interconnecting roads by 2010-11. Improved road network would help in faster
movement of goods between various cities and towns. The Company launched TATA
Novus range of vehicles in the heavy segment and TATA ACE for last mile distribution.
● Car penetration in India: Car penetration in India is 7 cars per 1,000 persons.
b) Threats

● Global Competition: India is increasingly attracting global players to set up

manufacturing facility for producing cars, especially small cars. Global automobile
manufacturers are also entering India in commercial vehicle segment to leverage India’s
low cost production advantage to their favor.
● Fuel Prices: The continuing fuel price increase in the domestic market could
significantly impact demand of commercial and passenger vehicles.

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 TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

● Input costs: Commodity items particularly steel, non-ferrous metals, rubber and
engineering plastics have witnessed huge price increases in the past. These prices are
expected to increase further affecting the Company’s profitability.
● Interest rate hardening and other inflationary trends: With interest rates hardening and
liquidity crunch in the system, growth in sales may be adversely impacted.
● Government Regulations: Stringent emission and safety requirements could bring new
complexities for automotive and component manufacturers impacting the Company’s
business.

Risks and Concerns:

● Interest Rates: FY 2008-09 started with increasing interest rate regime and tightening
liquidity position in the economy. Increasing interest rates could further affect vehicle
demand which could have an adverse impact on the Company’s revenues and profits.
● Exchange rates: The Company exports vehicles to many countries and exchange rate
fluctuations in the order execution period could impact the Company’s business.
● Domestic market: The Company plans to reduce the impact of this cyclicality on its
business, by strengthening its less cyclical businesses like buses, light trucks, small
commercial vehicles.
● Overseas market: In overseas markets, the Company competes with global players
which have multiple vehicle platforms, large financial capability and global branding.
● Manufacturing: The Company manufactures vehicles at multiple locations and given
the geographical dispersion of its suppliers it faces Logistics Problems.
● New Competition: Competitive activity is expected to increase in commercial vehicle
and passenger vehicle domestic market in coming years.
● New projects: The Company currently is in midst of executing many new projects
ranging from launch of new car platforms to development of new Truck models.

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 TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

III Company Analysis

Key Highlights
Symbol: TTL

Sector: Consumer Goods

Industry: Auto Manufacturers Major

Market Cap: 4.65B(29th Aug)

Data Since: 1945

Last close: Rs

Brief summary of the company

Tata Motors Limited is India’s largest automobile company, reported gross revenue
(stand-alone) of Rs.28599.27 crores (2007-08: Rs.33093.93 crores) in 2008-09, a year
marked by severe demand contraction in the automobile industry. Revenues (net of
excise) for the year were Rs. 25660.79 crores compared to Rs.28739.41 crores in 2007-
08, a decline of 10.7%. The Profit before Tax was Rs.1013.76 crores compared to
Rs.2576.47 crores in 2007-08, a decline of 60.7%. The Profit after Tax for the year was
Rs.1001.26 crores compared to Rs.2028.92 crores, a decline of 50.7%.

It is the leader in commercial vehicles in each segment, and among the top three in
passenger vehicles with winning products in the compact, midsize car and utility vehicle
segments. The company is the world’s fourth largest truck manufacturer, and the world’s
second largest bus manufacturer.

More than 3 million Tata vehicles ply on Indian roads making Tata a dominant force in
the Indian automobile industry.

Joint Venture with Fiat and Hitachi

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 TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

Tata Motors has decided to enter into a 50-50 JV with Fiat, at Pune, for manufacturing
passenger vehicles, engines and transmissions for both, domestic and international
markets.. The Company has also entered into a JV with Hitachi, to set up a new plant in
Kharagpur

Product Mix
Tata Motors is India's only fully integrated automobile manufacturer with a portfolio that
covers trucks, buses, utility vehicles and passenger cars. It would be no exaggeration to
say that Tata Motors provides the wheels for India's growth.

Plants
Tata Motors owes its leading position in the Indian automobile industry to its strong
focus on indigenisation. Their manufacturing plants are situated at Jamshedpur in the
East, Pune in the West and Lucknow in the North.

Share holding pattern as on 31-Mar

Profit and loss

Mar 2009Mar 2008Mar 2007Mar 2006Mar 2005Mar 2004
Rs.Cr Rs.Cr Rs.Cr Rs.Cr Rs.Cr Rs.Cr
INCOME :
Sales Turnover 28292.56 32885.03 31611.21 23673.43 20152.03 15165.85

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 TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

Excise Duty 2877.53 4347.04 4425.44 3380.13 3063.44 2270.30

Net Sales 25415.03 28537.99 27185.77 20293.30 17088.59 12895.55
Other Income 1369.90 996.05 574.11 693.92 560.29 427.79
Stock Adjustments -238.04 -40.48 349.68 256.91 144.00 -141.98
Total Income 26546.89 29493.56 28109.56 21244.13 17792.88 13181.36
EXPENDITURE :
Raw Materials 18398.94 20190.19 19374.93 14263.86 11929.48 8341.39
Power & Fuel Cost 304.94 325.19 327.41 258.51 237.81 214.52
Employee Cost 1539.26 1534.41 1361.20 1141.48 1037.93 879.49
Other Manufacturing
1300.24 1396.22 1618.68 1251.02 1017.11 722.95
Expenses
Selling and Administration
1350.93 1298.67 1322.88 985.74 795.03 645.73
Expenses
Miscellaneous Expenses 1869.40 1838.72 1153.53 784.56 673.78 644.75
Less: Pre-operative Expenses
916.02 744.23 577.05 308.85 218.13 144.89
Capitalised
Total Expenditure 23847.69 25839.17 24581.58 18376.32 15473.01 11303.94
Operating Profit 2699.20 3654.39 3527.98 2867.81 2319.87 1877.42
Interest 810.90 425.61 368.51 293.49 217.81 202.48
Gross Profit 1888.30 3228.78 3159.47 2574.32 2102.06 1674.94
Depreciation 874.54 652.31 586.29 520.94 450.16 382.60
Profit Before Tax 1013.76 2576.47 2573.18 2053.38 1651.90 1292.34
Tax 0.00 139.01 476.00 363.35 363.82 96.00
Fringe Benefit tax 15.00 7.00 6.50 19.00 0.00 0.00
Deferred Tax -2.50 401.54 177.22 142.15 51.13 386.00
Reported Net Profit 1001.26 2028.92 1913.46 1528.88 1236.95 810.34
Extraordinary Items 531.63 149.49 37.40 145.42 24.77 -29.95
Adjusted Net Profit 469.63 1879.43 1876.06 1383.46 1212.18 840.29
Adjst. below Net Profit 15.29 0.00 0.00 0.00 0.00 0.00
P & L Balance brought
1383.07 1013.83 776.76 585.60 365.80 123.71
forward
Statutory Appropriations 0.00 0.00 0.00 0.00 0.00 0.00
Appropriations 713.63 1659.68 1676.39 1337.72 1017.15 568.25
P & L Balance carried down 1685.99 1383.07 1013.83 776.76 585.60 365.80
Dividend 311.61 578.43 578.07 497.94 452.19 282.11
Preference Dividend 0.00 0.00 0.00 19.94 0.00 0.00
Equity Dividend % 60.00 150.00 150.00 130.00 125.00 80.00
Earnings Per Share-Unit Curr 21.50 50.52 47.10 37.59 32.44 21.93
Earnings Per Share(Adj)-Unit
21.50 48.93 45.61 36.40 31.42 21.24
Curr
Book Value-Unit Curr 269.88 202.68 177.57 143.93 113.64 101.69

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TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

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 TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

Financial highlights

Mar '
Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06
05

Profitability ratios
Operating margin (%) 6.71 10.53 9.70 10.68 11.62
Gross profit margin (%) 3.30 8.26 7.50 8.09 9.01

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 TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

Mar '
Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06
05
Net profit margin (%) 3.77 6.96 6.94 7.35 7.02

Leverage ratios
Long term debt / Equity 0.49 0.49 0.31 0.41 0.59
Total debt/equity 1.06 0.80 0.58 0.53 0.60
Fixed assets turnover ratio 1.88 2.69 3.08 2.55 2.62

Liquidity ratios
Current ratio 0.84 0.89 1.24 1.24 0.99
Current ratio (inc. st loans) 0.43 0.64 0.85 1.07 0.98
Quick ratio 0.58 0.66 0.91 0.96 0.76
Inventory turnover ratio 13.47 14.44 13.26 12.63 14.06

Payout ratios
Dividend payout ratio (net profit) 34.52 32.51 35.34 37.13 41.68
Dividend payout ratio (cash profit) 17.94 24.02 26.16 26.73 29.39
Earning retention ratio 62.49 60.13 59.90 58.31 58.18
Cash earnings retention ratio 81.29 72.18 71.32 70.98 70.54

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 TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

RATIO ANALYSIS

EPS measures the profit available to the equity shareholders per share, that is, the
amount that they can get on every share held. Till 2008 both the companies had a
rising EPS but in 2009 both of them fall and the effect more on Tata motors as they
bought two brands Ford Motors and fall in sales results in low EPS. But as trend
shows TATA motors have potential so an shareholder expect better in future.

EPS = Net income - Dividends on Preferred stock

average outstanding shares

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TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

43
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

44
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

45
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

46
TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

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 TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

The trend shows that Tata’s net profit margin is quite stable until it falls to 3.77 in 2009.
While the net profit of India’s no.1 car manufacturer Maruti Suzuki shows a negative
trend from 2007 onwards. But the future prospect for both the company’s profit is higher.
Profit margins come down as recession hits economy badly hence sales get reduced and
cost get increased very much.

Net profit Ratio= (Net profit) × 100

(Net sales)

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 TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

A high debt to equity ratio suggests that a company has financed its growth
mostly via debt. We see that the debt –equity ratio of TATA motors is very
high compared to that of Maruti. It means that a lot of debt is used by
TATA’s to finance its increased operations. Sometimes the cost of the debt
financing may outweigh the return that the company generates on the debt
through investment and business activities and can lead to bankruptcy.
Maruti is going very swiftly in this field.

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 TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

The quick ratio is a very stringent measure of solvency. A general rule of thumb suggests
that the quick ratio should be around 1. Maruti is always showing a positive trend as its
ratio is always greater than 1 except in 2008, while TATA motors was doing good till
2007, but the performance decreased from 2008 onwards as shortage of cash was there
and current liabilities and provision increased by Rs800Cr.

Tata motors and Maruti Suzuki both the companies showed a positive trend in paying
dividends till 2008, but the scenario changed in 2009 as both the company’s dividend per
share fell. According to graph TATA’s dividend was much higher than that of Maruti, it
always provided dividend of above 10 per share to its shareholders while maruti stick to
below 5 per share, even though the fall in dividend in 2009, still both the companies are
earning good profit.

Dividend Per Share= Total amount of dividend/ share outstanding

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 TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

2) HPCL
Globalization and the Indian Petroleum Industry
Indian petroleum industry in the post independent period (1947-2001) it may be divided
into three distinct phases

• (i) early phase (1947 to 1969)- when the government consolidated its control over
the industry with Soviet assistance;

• (ii) development phase (1970 to 1989)- in this period the US companies played
dominant role replacing the Soviets and

• (iii) the economic liberalisation phase of 1990s.

PORTER’S MODEL

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 TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

Barriers to entry: We believe that barriers to entry are high for the industry. Following are
factors that vindicate this view.

1. Economies of scale: As far the sector dynamics goes, scale of operations does matter.
Benefits from economies of scale are derived in the form of better bargaining power when it
comes to sourcing of raw materials, ability to use various crude products for a given output and
selling the end product to the consumers. Refining is highly capital intensive in nature (Reliance
is setting up a 29.4 MMT refinery in India for a sum of Rs 270 bn or Rs 9,200 m per MT). While
the cost of this refinery is lower than industry standards, this is the benefit of a larger size
complex refinery.

In addition to the refining capacity, companies should have presence on the marketing side as
well so as to capture marketing margins (in a completely de-regulated environment). Though the
current government policy is unfavorable towards the marketing companies (which are forced to
subsidise the customers on behalf of the government), globally, companies with presence in
refining and marketing are able to increase/decrease prices driven purely by business
environment. Even in the high crude price scenario like what we are witnessing currently, global
integrated players are making profits. In India, currently, IOC, HPCL, BPCL, ONGC and RIL
account for a lion’s share of the industry’s refining capacity. In this sense, the sector is fairly
consolidated.

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 TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

2. Capital requirement: As mentioned earlier, refining is a capital-intensive business. The costs

associated with establishing a refining is in the vicinity of Rs 9,000 m to Rs 10,000 m per MT
(depending on the complexity of the refinery). Also, a presence on the marketing front requires
investments worth Rs 2 bn as per government regulations. Further, to establish retail outlets, it
costs roughly Rs 15 m to Rs 20 m per outlet (depending upon the location). Even if one has the
capital to set up the marketing network, , space is unavailable in many larger cities (another entry
barrier). Also, integrated players need to shell out money in building pipeline facility, which costs
around Rs 15 m per kilometer.

3. Government policy: Considering the current policy environment, perhaps, this is ‘the’ major
entry barrier for companies (especially those with a marketing network plan). The government
plays an active and integral role in policy determination, especially when it comes to pricing of
petroleum products. Even though the energy sector was supposed to have been deregulated in
April 2002, much has been on paper with very little implementation. Thus, regulations act as
deterrent to new entrants.

Bargaining power of buyers: Currently high due to the government policy (indirectly). As far as
the sale of refined products is concerned, either the refineries sells it directly (to the industrial
sector and marketing companies) or through their own distribution networks. Exports are also an
opportunity.

As far as the industrial sector is concerned, the bargaining power of refineries is less. This is
because prices in this segment are internationally benchmarked (the sector is de-regulated at the
refinery gate level).

As far as the revenues from the marketing network are concerned, currently, diesel, petrol, LPG
and kerosene are subsidised. Government decides the pricing of these products and therefore,
the bargaining power of consumers is high (indirectly, owing to the vote bank). Subsidised
products account for 70% of total industry sales. As far as exports are concerned, margins are
lower.

Bargaining power of suppliers: High. The major raw material for the sector is crude oil (90% of
total cost), prices of which are determined by global demand-supply factors (OPEChas a major
say in determining global crude prices). Since India imports 70% of its total crude requirement,
that too largely Brent crude, bargaining power is close to ‘nil’ (unless there are specific
government-to-government arrangements).

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 TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

Competition: Moderate in refining. Currently, demand outpaces supply, which can be seen from
higher capacity utilization across the board. The balance is in favor of producers. Competition is
high on the marketing front.

Threat of Substitutes: Moderate to low. Though much has been talked about bio-fuels and fuel
cell-based technologies, these are still not a meaningful threat to petroleum products, especially
petrol and diesel. At the same time, higher natural gas finds (in India and liquefied natural gas
transported from Middle East) is threatening the demand for naphtha and furnace oil in India (the
substitution effect has been significant in the past three years).

Conclusion
Viewing all the aforesaid factors in conjunction with the global scenario, we believe that refining
margins are likely to be higher going forward. That said, considering the capacity expansion in
India in the next five years, supply is likely to far outpace demand, thus forcing players to depend
on exports to maintain capacity utilisation at optimum level (some of the expansions are
dedicated for exports). On the other hand, growth prospects of marketing companies are bleak,
based on the current government policy regime.

SWOT ANALYSIS
STRENGHS
• Favourable production – sale mix.
• Entry on petrochemicals and gas sector will reduce dependence on R&M sector.
• Second largest refining capacity and pipeline infrastructure in the industry.
• Good presence in high demand regions of west and north India.

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 TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

WEAKNESSES
• Dependence on refining function high.
• Moderate share in high profitable retail segment.
• Diversifications in petrochemicals could trouble the company.
• High burden of subsidy loss on cooking gas and kerosene.

OPPORTUNITIES
• Per capita energy consumption low in country.
• Deficiency of coal will benefit oil and gas sector.
• Growing domestic market for gas.
• Overseas presence in upstream and downstream will determine growth.

THREATS
• Rising oil prices could dampen demand.
• High regulatory risk.
• Loss of market share to private players.
• Entrance of private players in pipelines will take away monopoly of company in
north India.

COMPANY ANALYSIS
The Annual Report is broken down into the following specific parts:

A) The Director's Report,

B) The Auditor's Report,
C) The Financial Statements, and
D) The Schedules and Notes to the Accounts.
.
A.THE DIRECTOR’S REPORT
The Director’s Report is a report submitted by the directors of a company to its
shareholders, advising them of the performance of the company under their stewardship.
Fundamental Analysis

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 TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

B. THE AUDITOR'S REPORT

The auditor represents the shareholders and it is his duty to report to the shareholders and
the general public on the stewardship of the company by its directors

C. FINANCIAL STATEMENTS
It comprises of Balance Sheet, Profit and Loss account, Cash Flows. Its analysis would
be discussed later.

D.SCHEDULES
The schedules detail pertinent information about the items of Balance Sheet and Profit &
Loss Account. It also details information about sales, manufacturing costs,
administration costs, interest, and other income and expenses

1. THE MANAGEMENT
HPCL is a public sector undertaking. Thus it is a professionally managed company.
There are some parameters of management on which a company is analysed :
a. integrity of management
b. past record of management
c. how highly is the management rated by its peers in the same industry
d. how the management fares in adversity
e. the depth of the knowledge of management
f. open and innovative management
on all these parameters HPCL scores good.

1. COMPANY
Many times a company has made losses in the previous years but that does not mean
that the company is bad to invest. Thus many factors are studied while studying a
company.
a) perception of competitors
HPCL is the second largest petroleum company after IOCL. Thus it is a competitor
of IOCL and it is trying hard to compete with IOCL on every front. That is why now
it has decided to diversify itself in the oil exploration sector

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 TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

b) company policies
As this is a PSU thus the policies are made by the government. The oil sector is one
which is highly regulated by government. Thus from time to time it is required to
watch out the various policies changed.

3. ANNUAL REPORT
The most primary and most important source of information about a company is its
Annual Report. This is prepared every year and distributed to its shareholders.

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 TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

Ratio Analysis

3) HDFC BANK

The Indian banking industry: sector overview

With the economic growth picking up pace and the investment cycle on the way to
recovery, the banking sector has witnessed a transformation in its vital role of
intermediating between the demand and supply of funds
Public sector banks have been very proactive in their restructuring initiatives be it in
technology implementation or pruning their loss assets. Windfall treasury gains made in
the falling interest rate regime were used for writing off the doubtful and loss assets.

Retail lending (especially mortgage financing) formed a significant portion of the

portfolio for most banks and they customized their products to cater to the diverse
demands.
Apart from streamlining their processes through technology initiatives such as ATMs,
telephone banking, online banking and web based products, banks also resorted to cross
selling of financial products such as credit cards, mutual funds and insurance policies to
augment their fee based income.
PORTER’S FIVE FORCES MODEL FOR THE
BANKING INDUSTRY

1) BARRIERS TO ENTRY:
a. Economies of scale: Since the existing players in the market are well
established and already have a customer base, they are able to bear the
cost of using the advantages of technology to their maximum advantage.

b. Capital requirement for entry:

i. The Banking Regulation Act prescribes the minimum capital
requirements for a bank Moreover, banks have to maintain a
capital adequacy ratio of 9% under the Basel I norms.
ii.Government has declared that the foreign banks will be permitted
to establish their presence in India by way of setting up a wholly

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 TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

owned banking subsidiary (WOS) with a minimum capital of

Rs.300 crore.

c. Access to distribution channels: Since banks have to set up their own

distribution channels, all the cost has to be directly born by them.

d. Cost advantage independent of size: Existing banks have huge

databases of customers which they use when they want to sell a new
product launched by them.

e. Legislation or Government action: Banks are governed by Banking

Regulation Act, 1949 which specifies the rules and regulations applicable
to banks. RBI is the governing body of banks in India.

2) BARGAINING POWER OF BUYERS:

Due to increased competition, the services offered by banks to customers have

improved considerably.

3) BARGAINING POWER OF THE SUPPLIERS:

Suppliers to banks can be both - the customers and RBI.

a. Customers of banks provide money to banks in the form of deposits and
in return earn some interest on that.
b. RBI acts as a supplier to banks by selling govt. securities, treasury bills,
govt. bonds, etc.
c. Call money market: Banks sometimes have to borrow from other banks to
meet CRR and SLR requirements, or other capital requirements as
provided by RBI.

4) THREAT OF SUBSTITUTES:

a. Product-for-product substitution:
i. Banks provide interest on deposits made by people. Similar
services are offered by post offices which may act as substitutes to
the deposit schemes of banks.
ii.Some banks offer locker services to customers for yearly rates.
Similar services are provided by many post offices.

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 TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

b. Generic substitution: People who deposit their savings in banks can

invest their money in other sources like mutual funds, shares and other
securities and life insurance schemes.

5) COMPETITIVE RIVALRY:

a. Extent of competitor balance:

b. Market growth rates:.
c. High Exit Barriers

PEST Analysis for Banking Industry.

1. Political factors-: The major factors affecting the banking sector are the
following.

Banking sector reforms – As per the RBI roadmap for reforms in the first stage
from 2005 to 2009 foreign banks will be allowed to set up wholly owned
subsidiaries as well as get greater freedom to set up new branches.
Fulfilling the minimum priority sector credit -The government mandation of
fulfilling the minimum priority sector credit (of which 18 per cent is food credit)
has forced the domestic banks to cater to this segment despite the low
profitability and vulnerability of asset quality.
Banks have also been allowed to set up Offshore Banking Units in SEZ’s

2. Economic factors-:

Basell II norms for the risk management in banking sector - The new Basel
Accord has its foundation on three mutually reinforcing pillars. The first pillar is
compatible with the credit risk, market risk and operational risk. The second
pillar gives the bank responsibility to exercise the best ways to manage the risk
specific to that bank.
Concurrently, it also casts responsibility on the supervisors to review and validate
banks’ risk measurement models. .

Consolidation and merger and acquisitions in the banking sector-. HDFC

bank also acquired TIMES BANK in 2001 which increased its customer base by
3 lakh customers.

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 TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

Universal Banking has been introduced. ICICI Bank ,HDFCs closest

competitor is already into Universal Banking so HDFC is also getting into it as
now it is providing retail banking and also depository facilities in the form of
demat account.

3. Social factors-

Big and growing middle class in India -: This has been a major factor in the
growth of the retail loans like consumer loans in the form of home loans, car loans,
education loans, auto loans etc. Retail loans have grown from 19% in FY’99 to
51% FY’06.Consumer credit accounts for a meager 28.6 per cent of the country's
GDP and the buoyancy in the economy offers sufficient scope for it to grow.

Geographical and Cultural diversity- This is leading to a greater demand for

financial products and customization by the customers.

4. Technical factors-

The Indian Financial Network (INFINET) was inaugurated in June 1999. It is based
on satellite communication using VSAT technology and would enable faster
connectivity within the financial sector.

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 TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

Qtr. over Qtr. EPS Growth Rate

FY
FY (03/09) FY (03/07)
(03/08)
1st Qtr -18% -9% ---
2nd Qtr 13% 5% 6%
3rd Qtr 15% 14% 18%
4th Qtr NA 12% 15%
Yr. over Yr. EPS Growth Rate
TOP FOREIGN REGIONAL BANKS
FY (03/09)
COMPANIES BY MARKET CAP
FY (03/08)
1st Qtr 10% 31%
2nd Qtr 18% 29%
3rd Qtr 20% 25%
Company 4th Qtr NA
Symbol Price Change Market Cap P/E
Banco Bilbao Vizcaya Argentaria BBV 0.09%
22.40 Industr 75.96B
S&P 14.83
Growth Rates % Company
y 500
Lloyds TSB Group plc LYG 39.59 0.13% 55.45B 21.52
Sales (Qtr vs year ago qtr) 63.90 1.70 -9.20
ABN AMRO Holding NV (YTD vs YTD)ABN
Net Income 27.72
NA 1.65% -5.30
-5.80 52.45B 12.89
Net Income (Qtr vs year ago qtr) 44.80 10.60
SanPaolo IMI SpA IMI 40.95 2.38% -11.40
32.40B N/A
Sales (5-Year Annual Avg.) 39.94 19.49 13.14
Banco Bradesco S.A.
Net Income BBD
(5-Year Annual Avg.) 31.22
30.21 1.51% 12.68
19.59 30.50B 10.10
Dividends (5-Year Annual Avg.) 23.16 8.95 11.74
HDFC Bank Ltd. HDB 55.58 0.79% 5.83B 30.04

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 TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

Company Analysis : HDFC Bank (HDB)

Key Highlights

Symbol: HDB
Sector: Financial
Industry: Foreign Regional Banks
Market Cap: 43882 Cr
Data Since: 2002-01-02
Last close: 1710
Full time employees: 9030

The Housing Development Finance Corporation Limited (HDFC) was

amongst the first to receive an ‘in principle’ approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector, as part of the
RBI’s liberalization of the Indian Banking Industry. It was incorporated in
August 1994 in the name of ‘HDFC Bank Limited’ , with its registered
office in Mumbai. HDFC began operations as a Scheduled Commercial
Bank in January 1995.

Balance Sheet HDFC

Rs. Cr
Period &
2009/03 2008/03 2007/03 2006/03 2005/03
months
SOURCES OF FUNDS
Owned Funds
Equity Share
284.45 284.03 253.00 249.56 249.12
Capital
Share
Application 0.00 0.00 0.00 0.00 0.00
Money
Preferential
0.00 0.00 0.00 0.00 0.00
Share Capital
Reserves &
12,852.94 11,663.31 5,298.39 4,218.77 3,633.99
Surplus
Loan Funds

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 TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

Secured Loans 55,180.08 51,736.68 39,668.70 31,344.00 25,609.12

Unsecured
28,676.00 17,414.54 17,524.33 15,377.35 11,038.28
Loans
TOTAL 96,993.47 81,098.56 62,744.42 51,189.68 40,530.50

USES OF FUNDS
Fixed Assets
Gross Block 493.85 488.57 493.10 515.37 567.86
Accumulated
290.45 280.07 280.03 268.06 273.02
Depreciation
Less:
Revaluation 0.00 0.00 0.00 0.00 0.00
Reserve
Net Block 203.41 208.49 213.07 247.31 294.85
Capital Work-
0.00 40.40 16.02 31.60 54.51
in-progress

Investments 10,468.75 6,915.01 3,666.23 3,876.34 3,130.04

Net Current Assets

Current Assets,
Loans & 91,036.66 77,310.27 61,730.73 49,304.18 39,071.85
Advances
Less: Current
Liabilities & 4,715.35 3,375.61 2,881.63 2,269.74 2,020.75
Provisions
Total Net
86,321.31 73,934.66 58,849.09 47,034.43 37,051.10
Current Assets

Miscellaneous
Expenses not 0.00 0.00 0.00 0.00 0.00
written off
TOTAL 96,993.47 81,098.56 62,744.42 51,189.68 40,530.50
Number of
Equity shares
28.45 28.40 25.30 24.96 24.91
outstanding
(Cr.)
Bonus
component in 121.96 121.96 121.96 121.96 121.96
Equity Capital

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 TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

Notes:
Book Value of
Unquoted 8,282.75 4,714.44 3,084.50 3,340.81 1,423.74
Investments
Market Value
of Quoted 5,942.80 8,554.84 4,778.37 4,270.17 3,418.12
Investments
Contingent
279.03 450.29 305.37 559.04 264.69
liabilities

How fast is the company growing?

Companies are judged by their sales and earnings growth rates than on the absolute
value of their sales and earnings. Look for companies that consistently grow faster
than there peers.
2008/0 2007/ 2006
Year 2009/03 2005/03
3 03 /03
5,875.5 4,264
Sales 10,994.79 8,176.35 3,399.88
0 .21
Var % 34.47 39.16 37.79 25.42
Profit After 1,570.3 1,257
2,282.54 2,436.25 1,036.59
Tax 8 .30
Var % -6.31 55.14 24.90 21.29

How profitable is the company?

Investors prefer companies that increase profit margins -- the percentage of
sales that they keep -- every year. This is accomplished either by lowering
expenses or raising prices. Look for companies that consistently find ways to
squeeze more profits out of sales than their peers.
Year 2009/03 2008/03 2007/03 2006/03 2005/03
Profit After
2,282.54 2,436.25 1,570.38 1,257.30 1,036.59
Tax
Var % -6.31 55.14 24.90 21.29

Year 2009/03 2008/03 2007/03 2006/03 2005/03

OPM (%) 96.82 96.34 95.84 95.05 94.84

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 TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

Var % 0.50 0.52 0.83` 0.22

Step4 : How is the company's financial health?

66
 TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
Int
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The financial health of a company is dependent on a

combination of profitability, short-term liquidity and long term
liquidity. Companies, which are profitable, but have poor short
term or long term liquidity measures, do not survive the troughs
of the trade cycle. Also firms, which are not profitable but are
cash rich, do not survive in the long term either. Such companies
are taken over for their cashflow or by others who believe that
they can improve the profitability of the business. Thus, those
companies that do succeed and survive over the long term have
a well-rounded financial profile, and perform well in all aspects of
financial analysis.Profitability ratios reflects the business
environment of the time.

The key profitability ratios are:

Return on Total Assets (ROTA) 2.50%
Return on capital employed (ROCE) 2.35%
Net profit margin 20.71%

Short-term liquidity is the ability of the company to meet its short-

term financial commitments. Short-term liquidity ratios measure
the relationship between current liabilities and current assets.
Current assets are stocks and work-in-progress, debtors and
cash that would normally be re-circulated to pay current
liabilities. The ideal ratio 1:1. But a very high ratio indicates that
the company is unable to manage its cash properly.
The key short-term liquidity ratios are:

Long term liquidity or gearing is concerned with the financial

structure of the company. Long term liquidity ratios measure the
extent to which the capital employed in the business has been
financed either by shareholders through share capital and
retained earnings, or through borrowing and long-term finance.
Highly geared companies are risky. Look for a balance.
The key long-term liquidity ratios are: 67
 TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

LIMITATIONS

Like all studies based on samples, this study also suffers from some limitations.

1. As the study depends on human perceptions so there are chances of study getting
biased.
2 Error due to some oversight or misinterpretation.
3 The scope of study was limited due to some constraints.
4. Any other error which could have crept in the course of the Project.

CHAPTER-6
CONCLUSION

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 TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

CONCLUSION
RECOMMENDATIONS:
1) TATA MOTORS- At current market price , we should buy the share because of the
following reasons:
Since, 1991 opening of the economy has changed the face of auto industry. Today, it is
amongst the main drivers of growth of Indian economy with an output multiplier of
2.24(for every Re.1 invested, auto sector gives back Rs.2.24 to the economy).
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat, at
Pune, for manufacturing passenger vehicles, engines and transmissions for both,
domestic and international markets.. The Company has also entered into a JV with
Hitachi, to set up a new plant in Kharagpur

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 TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

2) HPCL:
Strengths:
Favourable production – sale mix
Entry on petrochemicals and gas sector will reduce dependence on R&M sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential:
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
Overseas presence in upstream and downstream will determine growth

3) HDFC BANK: Growing stock and its advisable to invest in this stock for long term.
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3
lakh customers.
Growth in net revenues of 42.2%. Net profit up by 32%. Total customer asset increased
by 44.9%

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CHAPTER-7
GLOSSARY

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TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

CHAPTER-8
BIBLIOGRAPHY
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 TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

BIBLIOGRAPHY

Sharekhan, “Fundamental Analysis: Which Company?” (October, 2004)

WEBSITES:

www.tradingday.com
www.marketscreen.com
www.icicidirect.com
www.nseindia.com
www.investopedia.com
www.indiainfoline.com
www.economictimes.com

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