Capital structure & Market Capitalization of Indian banks in light of Cov...
F Ranit Paul
1. SUMMER INTERNSHIP PROJECT REPORT
ON
ANALYSIS OF STOCK MARKET FOR INVESTORS
(INFRASTRUCTURE AND METAL SECTOR)
BY
RANIT PAUL
15BSP1847
BIRLA SUNLIFE INSURANCE COMPANY LIMITED
2. SUMMER INTERNSHIP PROJECT REPORT
ON
ANALYSIS OF STOCK MARKET FOR INVESTORS
(INFRASTRUCTURE AND METAL SECTOR)
BY
RANIT PAUL
15BSP1847
BIRLA SUNLIFE INSURANCE COMPANY LIMITED
A REPORT SUBMITTED IN PARTIAL FULFILMENT OF THE
REQUIREMENTS OF PGPM PROGRAM OF
IBS MUMBAI
&
IQBAL SINGH BANSAL (BP, BIRLA SUN LIFE INSURANCE
COMPANY LIMITED)
DATE OF SUBMISSION: 13th
May, 2016
3. ACKNOWLEDGEMENTS
I am sincerely taking this opportunity to showmy gratefulness and to express my
gratitude towards my company guides, Mr. Iqbal Singh Bansal (Business Partner,
Birla Sun Life Insurance Company Limited), Mr. Subhajit Sengupta (Financial
Advisor, Birla Sun Life CompanyLimited), Ms. Payal Narkar (Agency Manager)
and to my dearest faculty guide, Prof. Davinder Suri (Associate Dean, IBS
Mumbai) for enlightening my path by guiding me throughout my project and
other works assigned during my Summer Internship term.
Growth in my knowledge from the entire process throughout the program is very
precious and hence, hard to explain in few lines. These knowledges have direct
impact on my attitude towards organization and the kind of work culture to some
extent. The entire experience will definitely help me in my near future.
A special thanks to my parents, who have always supported me and were beside
me whenever I lost my motivation and focus. A token of greet to my co-
coordinator Manisha Somani, for sharing job, work assigned and stress along-
with me. Last but not the least, I am very thankful to my friends who have always
tried to help me in sorting out my problems and being very cooperative whenever
I needed them.
Lastly, I thank God for helping me to achieve success in making my Summer
Internship Project Report.
RANIT PAUL
4. Table of Contents
Chapter 1....................................................................................................................................1
Executive Summary ................................................................................................................ 1
Introduction............................................................................................................................ 3
Discussion............................................................................................................................... 5
Market Size, Growth and Recent Developments ......................................................................5
Government Initiatives ..........................................................................................................8
Demand and Supply, Road Ahead ........................................................................................ 11
SWOT Analysis .................................................................................................................. 13
Chapter 2.................................................................................................................................. 14
Fundamental Analysis .............................................................................................................. 14
Infrastructure Sector................................................................................................................ 14
Metal Sector........................................................................................................................... 24
Interpretation ....................................................................................................................... 28
Conclusion............................................................................................................................ 32
Chapter 3.................................................................................................................................. 33
Technical Analysis .................................................................................................................... 33
Infrastructure Sector:............................................................................................................... 34
Metal Sector:.......................................................................................................................... 44
Interpretation and Conclusion.............................................................................................. 48
Chapter 4.................................................................................................................................. 49
FUNDAMENTAL V/S TECHNICAL ANALYSIS ................................................................... 49
Chapter 5.................................................................................................................................. 52
Limitations............................................................................................................................ 52
Glossary................................................................................................................................ 53
Webliography/References ..................................................................................................... 57
5. 1
Chapter 1
Executive Summary
Analysis of stock market for investors provides a detailed view of company’s
financial strength and its performance over a period of 5yrs in the particular
sectors (here, infrastructure and non-ferrous metal).
Companies have been chosen on the basis of market capitalization (large cap) in
the infrastructure sector and also considering HIND ZINC and HIND COPPER
to be the only companies in large cap and mid cap respectively in the non-ferrous
metal sector is selected for analysis. Non-ferrous metal sector has been selected
in addition to the infrastructure sector because they are directly related to each
other. In fact, metal sector is only dependent upon the automobile and
infrastructure sector industries.
A detailed study of the industry (industry analysis) is being made in the report.
Starting from the introduction of sectors and ending with the technical analysis
of the companies. Discussion ofthe market size, growth and recent developments
that tookplace on a sectoralbasis is being made. Then comes the initiatives taken
by the government in the prevailing year and plans that were stuck for years have
been rolled out. After that demand and supply along with the roadmap ahead in
the particular sector have been explained giving importance to the UNION
BUDGET 2016.
Starting with the analytical part, SWOT Analysis of the sector have been made,
which clearly shows that Infrastructure sector is in a very good position and also
it creates opportunity for the metal sectortoo. Though there are some threats and
weaknesses in the dominating sector, strengths and opportunities diminishes the
risk factor. However, threats and weaknesses are so dominant in metal sectorthat
the current scenario will continue further till some point of time unless they can
make use of their opportunity.
Focusing on fundamental analysis, it gives a clear picture while valuating on the
basis of key ratios that LARSEN & TOUBRO is the best company that has
maintained the desired level of outcomes while ABB INDIA and NBCC is down
performing in the infrastructure sector. Also industrial average in PE ratio clears
that L&T, ADANI PORTS and NBCC stocks are undervalued whereas,
SIEMENS and ABB INDIA stocks are overvalued which means undervalued
stocks have the possibility of performing well and overvalued stocks have a high
chance of going down. In metal sector too, HIND ZINC has proved itself to be
maintaining a standard level of results with undervalued stocks as the PE ratio is
6. 2
lower than the industrial average. Besides the competitive analysis, a comparative
study over the company’s performance over the past 5yrs have been made.
Last in the analysis is technical analysis, where several patterns have been
observed in the half yearly and yearly charts of the companies, based upon which
assumptions are made about its stockperformance in near future. Several patterns
are found such as head and shoulder, triple bottom, rounded top, cup with handle
etc. Technical analysts give assumptions which are 20% logical and 80%
psychological whereas fundamental analysts give results just vice-versa.
Apart from the analysis part, a brief study of fundamental and technical analysis
and its comparison have been made which later proves that at times mixing both
fundamental and technical and investing at right time can give good results. Also,
making wrong analysis and entering before or after the right time can result
disastrous.
Last but not the least, some concepts and learnings that is a part throughout this
entire project and key abbreviations are recorded and displayed in the Glossary.
Prior to that is the limitations of this report. And finally, Webliography and
References, from where the data is taken.
7. 3
Introduction
This project includes fundamental analysis (ratios), technical analysis (charts) of
companies in abovementioned sectors and changes seen after the implementation
of union budget for FY 2016. Addition to this project, Selling of Insurance is a
task throughout the whole Internship process. Opportunity for application of
Human Resource Management like Orientation Programs, Recruitment and
Selection of Interns and live exposure to employee handling is also a part of the
Internship program. Managerial skills and interpersonal skills will get sharpened
to a great extent by the end of the term.
Focusing on the project, Infrastructure is the basic physical and organizational
structures and facilities (e.g. building, roads, power supply, etc.) needed for the
operation of society or enterprise. Six companies in infrastructure sector on the
basis of their market capitalization. Thosecompanies fall in the category of large
cap which means thosehave their market capitalization value ofmore than 10,000
crores. Name of thosecompanies are Larsen, Adani Ports, Siemens, BHEL, ABB
India and NBCC.
Being the key driver of the Indian economy, infrastructure is highly responsible
for propelling India’s overall development and enjoys intense focus from
Government for initiating policies that would ensure time-bound creation of
world class infrastructure in the country. It includes power, bridges, dams, roads
and urban infrastructure development.
Coming to the metal sector, a base metal is a common and inexpensive metal, as
opposedto a precious metal such as gold or silver. On the basis of the core base
metals and its recent performance in the market, it is valuable to make an analysis
on two companies namely Hind Zinc and Hind Copper. Out of the above
mentioned two companies, former is the large cap and the latter falls in the small
cap category (market capitalization value in between 2000 crores to 5000 crores).
8. 4
Latest analysis by Indian Ratings and Research (Ind-Ra) states that absence of
major market disruptions like rise in US interest rates and falling demand from
China is causing the base metal prices to fall down and reached close to the
bottom. Ind-Ra have a outlook on non-ferrous metal & mining sector for the
FY2016 from “Stable to Negative” to “Stable”.
9. 5
Discussion
Market Size, Growth and Recent Developments
In infrastructure sector, India needs to spent Rs. 31 trillion towards
the sectoral development over the next 5 years with 70% of funds
needed for power, roads and urban infrastructure segments.
According to Mr. Piyush Goyal, Union Minister of Coal, Power and
renewable energy, Indian Power sector itself has an investment
potential of US$ 250 billion in the next 4-5 years, providing
immense opportunities in power generation, distribution,
transmission and equipment.
According to a report released by Indian Construction Equipment
Manufacturers’ Association (ICEMA), Indian Construction
Equipment industry is reviving after a gap of4 years and is expected
to grow US$ 5 billion by FY2019-20 from current size of US$ 2.8
billion.
According to Department of Industrial Policy and Promotion
(DIPP), US$ 24.16 billion was the Foreign Direct Investment
received in construction development sector from April 2000 to
September 2015.
Many Spanish companies are keen on collaborating with India on
infrastructure, high speed trains, renewable energy and developing
smart cities. The GOI has earmarked Rs. 50000 croreto develop 100
smart cities across the country as per the list released in August
2015.
Private equity giant Carlyle Group is planning to invest Rs. 500 crore
in Feedback Infra, which could make the US firm a major
shareholder in the Gurgaon based infrastructure services company.
10. 6
In the month of November 2015, the road segment led in terms of
tenders issued (59% of total lenders) and contracts awarded with an
increasing shift to Engineering, Procurement and Construction
(EPC).
PTC India Financial Services (PFS)and India Infrastructure Finance
Company Limited (IIFCL) have signed a Memorandum of
Understanding (MoU) to jointly provide funding for infrastructure
projects particularly in energy sector.
France has announced a commitment of €2 billion to convert
Chandigarh, Nagpur and Puducherry into smart cities.
The Construction Industry Development Board (CIDB) of Malaysia
has proposed to invest US$ 30 billion in projects like Mini-smart
city adjacent to New Delhi Railway Station, Green city project of
Garhmukhteshwar in UP and Ganga cleaning projects.
Over the next five years GOI plans to invest US$ 137 billion in its
rail network for faster economic growth.
Over the next three years, announcement of US$ 93 billion worth
highway projects which includes National Highways Building
Project (NHDP) with total investment of US$ 45 billion.
International Finance Corporation (IFC) plans to invest at least US$
700 million in existing transport and logistics projects.
World Bank has approved a US$ 650 million debt funding for a part
of the eastern arm of the Dedicated Freight Corridor (DFC) project.
BNP Paribas Lease Group acquired 5% stake in SREI Infrastructure
allowing them to play a larger role in Infrastructure finance business.
IndostarCapital Finance Limited and Reliance Capital Limited have
invested Rs. 200 crore in Alliance Group, a real estate company
(holding company).
11. 7
Zinc has been the mostly used non-ferrous metals after Aluminium
and copper. The non–ferrous metals industry in India is growing
strongly aided by the privatisation process started in early 2000. By
2020, it is expected that the industry, comprising aluminium, copper,
lead and zinc sectors, will be completely privatised, and India will
grow to become a global player in the nonferrous metals industry.
With the privatisation of the largest zinc producer, Hindustan Zinc
Ltd, sold to the Sterlite group in April 2002, the Indian zinc industry
is completely under the private sector and is in the midst of
expansion.
Research & Markets has announced the addition ofthe "Global Zinc
Market 2016-2020" report to their offering. As per the report, the
global zinc market to grow at a CAGR of 3.96% during the period
2016-2020.
Base metal prices have been underperforming since the past two
weeks with concerns over demand outlook and also dollar volatility.
Most of the payers in the domestic non-ferrous metal industry are
expected to record higher volumes in metal production this year as
compared to the previous.
Integrated zinc producers will take advantage of the likelihood of a
deficit in the international market as some large mines progress on
their planned closure.
Metal prices depend substantially on Chinese economic activity.
China accounts for 40%-50% of the global consumption of
aluminium, copper and zinc metals. Latest leading economic
indicators are not encouraging with a weak output and low order
growth rates.
12. 8
Copper is one of the essential metals required for developing
industrial economy and also is one of the leading markets of the
metal mining market.
Projections for 2015 indicate the market should remain balanced,
while in 2016 a small deficit of around 130,000 tonnes is likely as
demand growth outpaces production growth.
Projected Copper Production mines in 2017 is 115000 tonnes and
for smelting and refining in 2016 is 1347000 tonnes.
The size of Indian Copper Industry is around four lakh tons, which
as percentage of world copper market is three percent.
Government Initiatives
GOI rolled out stuck projects worth Rs. 4 lakh crore.
Union Cabinet approves reform such as allowing National
Highways Authority of India (NHAI) to extend the concession
period for current incomplete projects in build-operate-transfer
(BOT) mode.
GOIplans to launch National Infrastructure Investment Fund (NIIF)
with at least Rs. 40000 crore.
The Ministry of Urban Development has approved an investment of
Rs 19,170 crore (US$ 2.88 billion) for improving basic urban
infrastructure in 474 cities in 18 states and Union Territories (UTs)
under Atal Mission for Urban Rejuvenation and Transformation
(AMRUT) for 2015-16.
Department of Industrial Policy and Promotion (DIPP) has set up an
online monitoring system for on-going projects under the Industrial
Infrastructure Upgradation Scheme (IIUS).
13. 9
The Ministry of Urban Development has decided to allow the use of
construction & demolition waste up to 20 per cent in constructionof
load bearing items and up to 100 per cent for non-load bearing
purposes. This provision is expected to significantly help in reuse of
such waste, in line with ongoing efforts under Swachh Bharat
Mission (SBM).
The central government has approved amendments to 'The National
Waterways Bill, 2015' which will provide for enacting a central
legislation to declare 106 additional inland waterways, as the
national waterways.
The Government ofIndia plans to award 100 highway projects under
the public-private partnership (PPP) mode in 2016, with
expectations that recent amendments in regulations would revive
investor sentiments in PPP projects in the infrastructure sector.
The Reserve Bank of India (RBI) has notified 100 per cent foreign
direct investment (FDI) under automatic route in the construction
development sector. The new limit came into effect in December
2014.
The Government of India has relaxed rules for FDI in the
construction sector by reducing minimum built-up area as well as
capital requirement. It has also liberalised the exit norms. In fact, the
Cabinet has also approved the proposal to amend the FDI policy.
In the Budget 2015-16, the capital outlays for roads, and railways
have been increased by Rs 140.3 billion (US$ 2.11 billion) and Rs
100.5 billion (US$ 1.51 billion) respectively.
India and the US have signed a memorandum of understanding
(MoU) in order to establish Infrastructure Collaboration Platform.
The document showcases the relationship between both the
Governments which intend to facilitate US industry participation in
14. 10
Indian infrastructure projects to improve the bilateral relationship
and benefit both economies. The MoU’s scope envisages efforts in
the areas of Urban Development, Commerce and Industry,
Railways, Road Transportand Highways, Micro Small and Medium
Enterprises, Power, New & Renewable Energy, among others.
In the union budget of 2016-17, few initiatives have been passed
like, Total investment in the road sector, including PMGSY
allocation, would be Rs. 97,000 crore.
Total outlay for infrastructure in Budget 2016 now stands at Rs.
2,21,246 crore.
Allocation of Rs. 55,000 crore in the Budget for Roads. Additional
Rs. 15,000 crore to be raised by NHAI through bonds.
10,000 km of national highways in 2016-17 and 50,000 km state
highways to be converted to NH roads.
New greenfield ports to be developed on east and west coasts.
Revival of underserved airports. Centre to Partner with States to
revive small airports for regional connectivity.
Plan to augment nuclear power in the next 15-20 years.
Reforms in FDI policy in the areas of Insurance and Pension, Asset
Reconstruction Companies, Stock Exchanges.
Basic Customs Duty on zinc alloys increased by 2.5% i.e., 5% to
7.5% which would help to check rising import dumping and
encourage domestic industry.
Housing industry is one of the major users of copper, using around
31 per cent of these metals, worldwide. Copper suppliers to the
affordable housing industry should have been incentivised with
measures such as tax rebates. This would not only further boostthe
affordable housing industry, but also help in growth of the domestic
non-ferrous metal industry.
15. 11
In the Union Budget 2016, No measures have been provided for the
Coppersectorevent though it is the worst hit due to INVERSE Duty
structure because of duty free import under FTA.
Demand and Supply, Road Ahead
Demand for infrastructural development in housing has been seen
after the release of Union Budget 2016, which has proposed an
additional Rs 50,000 deduction on interest on loans for first home
buyers and 100 per cent deduction for profit on development of
affordable housing, besides exempting REITs from dividend
distribution tax.
Indian port sector is poised to mark great progress in the years to
come. It is forecasted that by the end of2017 porttraffic will amount
to 943.06 MT for India’s major ports and 815.20 MT for its minor
ports.
Along with that, Indian aviation market is expected to become the
third largest across the globe by 2020, according to industry
estimates. Thesectoris projected to handle 336 million domestic and
85 million international passengers with projected investment to the
tune of US$ 120 billion. Indian Aviation Industry, which currently
accounts for 1.5 per cent of the gross domestic product (GDP), has
been instrumental in the overall economic development of the
country. Given the huge gap between potential and current air travel
penetration in India, the prospects and possibilities of growth of
Indian aviation market are enormous.
The main consumer for zinc in the domestic market is the steel
industry - over 70 per cent of zinc is used for galvanising. Other
sources of demand for zinc include die-casting, guard rails for
highways and imported-substituted zinc alloys.
16. 12
Zinc demand in India has been growing steadily in the country.
During the 12th Five Year Plan the zinc demand projections as on
2016-17 is 880000 tonnes.
A slowdown in China’s economy has led to a surge in metals from
aluminium to zinc flooding world markets, triggering a rise in trade
tensions from the US to Asia. The Indian Government may also
consider a safeguard duty for non-ferrous metals similar to steel.
The rising use ofzinc oxide in the ceramics and paints industries will
lead to the increased consumption of zinc; this will propel market
growth during the forecast period.
According to the report, the global demand for zinc will likely rise
owing to increased activities in industries such as automobile and
construction. Infrastructure developments in China, India, Brazil,
and Turkey are expected to increase the demand for zinc during the
forecast period.
Further, the reportstates that the global slowdownof the automobile
industry has adversely affected steel consumption in China, which
has resulted in a decline in the demand for zinc. Hind Zinc is the
major player and the only one in large cap amongst the zinc
industries in India.
Coppergoes into various usage such as building, cabling for power
and telecommunications, automobiles etc.
Urbanization, increase in investors, speculation, inflation in prices,
these are somefactors which directly affects the demand for copper.
Natural Calamity, Strikes, Political and Economic conditions,
exchange rates relative to US dollars, these are some factors that
affects supply for copper.
Enhancement of mine production capacity to 12.4Mta by 2017.
Exploration in existing mines for discovering additional reserves.
17. 13
Thrust on Greenfield exploration.
Huge opportunity exists in green field exploration & development
ofnew mines. Hind Copperis the major player in the copperindustry
and falls under small cap category.
SWOT Analysis
18. 14
Chapter 2
Fundamental Analysis
It is a toolto determine the financial health ofthe company and gain insight about
company’s future performance before investing in a stock. It gives the intrinsic
value of stocks. Qualitative measure for doing fundamental analysis is financial
statement analysis which focuses on the calculation and interpretation of key
investment valuation ratios of the company such as earnings per share (EPS),
price/earnings ratio (PE ratio), Dividend Yield, as well as other liquidity and
leverage ratios.
Fundamental analysts consider the market to be 20% psychological and 80%
logical.
Infrastructure Sector
Major players in infrastructure sectoronthe basis oftheir market capitalization
value being more than 10000 crores (Large cap) are given in the following
table: -
Company Name Market Cap
(Rs. cr)
Larsen 111,614.45
Adani Ports 45,540.23
Siemens 40,430.33
BHEL 28,318.73
ABB India 27,760.00
NBCC 11,352.00
19. 15
Larsen & Toubro
Key Financial Ratios of Larsen
and Toubro
-------in Rs. Cr.-------
Mar 15 Mar-14 Mar-13 Mar-12 Mar-11
Per Share Ratios
Basic EPS (Rs.) 54.46 59.36 79.99 72.92 65.33
Dividend / Share(Rs.) 16.25 14.25 18.5 16.5 14.5
Net Profit/Share (Rs.) 54.39 59.26 79.8 72.77 65.01
Profitability Ratios
Return on Net-worth / Equity (%) 13.63 16.32 16.86 17.68 18.13
Return on Capital Employed (%) 10.89 13.75 13.11 14.22 14.23
Total Debt/Equity (X) 0.33 0.28 0.27 0.33 0.29
Liquidity Ratios
Current Ratio (X) 1.44 1.33 1.41 1.27 1.33
Quick Ratio (X) 1.39 1.28 1.35 1.22 1.28
Inventory Turnover Ratio (X) 25.83 28.55 29.49 29.93 27.84
Dividend Pay-out Ratio (NP) (%) 29.87 24.04 23.18 22.67 22.3
Earnings Retention Ratio (%) 70.13 75.96 76.82 77.33 77.7
Valuation Ratios
Earnings Yield 0.03 0.05 0.06 0.06 0.04
PE Ratio 24.29
Industrial Average 40.21
Analysis:
I. L&T ratio table as taken from moneycontrol.com shows very high EPS
during FY 2013 in comparison to the data from FY 2011 to FY 2015 with
a dividend pay-out ratio of 23.18 which shows that more than 75% is
ploughed back which would help in pushing up the market price of the
share. Latest, in the financial year 2015, L&T paid out dividend of Rs. 16
out of EPS of Rs. 54.46 which shows that 70% approximately is ploughed
back which definitely gave hope of increasing shareholder’s wealth. It is
idle for a company to plough-back 70% of the EPS. Retention of earnings
20. 16
have decreased since 2011 whereas net operating revenue have increased
over the period which favours the company.
II. An excessively high net-worth ratio may indicate that a company is
funding its operations with a disproportionate amount of debt and trade
payables. If so, a decline in its business would result in the inability to pay
back the debt which increases the risk of bankruptcy which indicates that
the shareholder may lose their investment in the company. Here we can see
a decline in return on net-worth over the period of 5yrs which provides a
warning for the company. It shows that the company is unable to utilize its
investments and resources properly and are not providing appropriate
return to its shareholders. Sometimes it happens due to new investments.
III. Return on Capital Employed reflects the overall profitability of the
company’s operations. Here we can see that the performance and
profitability of the company has declined over the period since 2011 and
hence the management needs to focus on where they are lagging behind.
IV. Looking after debtto equity ratio it is notable that the company has a little
debt and has maintained more or less the same level during the course of
past 5yrs (0.33:1 in 2015) close to the ideal debt-equity ratio of 0.6:1.
V. Latest current ratio (1.44:1) of L&T implies that the company must take
care of increasing a bit of their current assets to reach at the idle position
of 2:1. Likewise, quick ratio or acid test ratio of the company is not much
lower than that of the current ratio and also it’s more than the idle state of
1:1 which implicates that the company is not much dependable on its
inventory.
VI. As abroad rule of the thumb, PEG value below 0.5 indicates a very
attractive buying opportunity and selling opportunity arises when the PEG
reaches 1.5 or 2 in this case. Here, L&T provides a very good buying
opportunity.
VII. PE ratio of the company being lower than that of industrial average shows
that the company is undervalued.
21. 17
Adani Ports
Key Financial Ratios of
Adani Ports and Special
Economic Zone
------------------- in Rs. Cr. -------------------
Mar 15 Mar-14 Mar-13 Mar-12 Mar-11
Per Share Ratios
Basic EPS (Rs.) 10.55 9.8 8.76 5.88 4.92
Dividend / Share(Rs.) 1.1 1 1 1 0.9
Net Profit/Share (Rs.) 10.55 9.74 8.76 5.88 4.92
Profitability Ratios
Return on Net-worth / Equity
(%)
19.49 21.6 26.17 22.55 22.98
Return on Capital Employed
(%)
10.17 10.59 11.48 11.33 15.84
Total Debt/Equity (X) 0.88 0.89 1.16 0.98 0.37
Liquidity Ratios
Current Ratio (X) 1.38 2.56 1.58 0.37 0.26
Quick Ratio (X) 1.34 2.48 1.55 0.35 0.24
Inventory Turnover Ratio (X) 21.78 30.38 38.5 39.7 45.8
Dividend Pay-out Ratio (NP)
(%)
10.43 10.59 11.42 17.01 18.28
Earnings Retention Ratio (%) 89.57 89.41 88.58 82.99 81.72
Valuation Ratios
Earnings Yield 0.03 0.05 0.06 0.05 0.04
PE Ratio 14.21
Industrial Average 40.21
Analysis:
I. There has been a rise in the EPS ofADANI PORTS remarkably in FY 2013
(8.76 from 5.88 in FY 2012) and currently in FY 2015 (10.55 from 9.8 in
FY 14) along-with the proportionatefall in dividend pay-out ratio since FY
2011 which shows that the company is ploughing back around 90% of its
earnings which in a way is generating shareholder’s wealth more
effectively.
22. 18
II. From the table given, it is visible that return on equity or net-worth started
increasing from FY 2011 to 2013 (22.98 to 26.17) and then it started
declining (19.49 in FY 2015) due to new investments and business
expansion and growth purposes clearly visible from ploughing back
percentage and growth in EPS. Shareholders are gaining confidence to
invest more in the company.
III. Though there is a decline in the return on capital employed over the period
of 5yrs but it is clear that diversifying the investments forgrowth will have
its positive impact in long term.
IV. Debt-Equity ratio of the company shows an imbalance in the funding of
the company since 2011 to 2013. However, the company is struggling and
succeeding to bring the balance in the company’s funding procedure over
the past 2yrs as visible from the data from FY 2014 & FY 2015. It is likely
that in 2016 it will reach the desired figure.
V. From the data of 2014, it can be stated that the company is in a position to
take a few more of current liabilities which they did but the figures of 2015
clearly indicates that now they should focus on increasing their current
assets too. However, there is not much of a difference in the quick ratio
and the current ratio which is also a plus point for the company.
VI. The company is undervalued as is visible from the PE and the industrial
average.
23. 19
Siemens
Key Financial
Ratios of Siemens
------------------- in Rs. Cr. -------------------
Sep 15 Sep-14 Sep-13 Sep-12 Sep-11
Per Share Ratios
Basic EPS (Rs.) 33.23 16.94 5.45 9.75 24.95
Dividend /
Share(Rs.)
10 6 5 6 6
Net Profit/Share
(Rs.)
33.24 16.94 5.45 10.08 24.83
Profitability Ratios
Return on Net-worth
/ Equity (%)
23.08 13.78 4.81 8.66 22.15
Return on Capital
Employed (%)
21.51 12.84 4.44 7.84 19.99
Liquidity Ratios
Current Ratio (X) 1.54 1.33 1.21 1.19 1.27
Quick Ratio (X) 1.35 1.15 1.04 1.04 1.14
Inventory Turnover
Ratio (X)
11.06 10.18 12.16 13.7 14.89
Dividend Pay-out
Ratio (NP) (%)
30.09 35.42 91.8 61.53 24.15
Earnings Retention
Ratio (%)
69.91 64.58 8.2 38.47 75.85
Valuation Ratios
Earnings Yield 0.03 0.02 0.01 0.01 0.03
PE Ratio 61.67
Industrial Average 40.21
Analysis:
I. Siemens is showing more than double its EPS in FY 2015 with a dividend
pay-out ratio lowering down since 2013 to 30% approximately which is an
idle situation for the company. This shows that it is reserving appropriate
amount for future growth and uncertainties and is also paying to its
shareholders.
II. Return on Net worth has been the highest in the previous year as compared
to the past 5yrs which proves that the company is succeeding to utilize its
investments and resources effectively.
III. Also there is a high growth in return on capital employed since 2013,
almost 5 times.
24. 20
IV. Although there is an appropriate difference in the quick ratio and the
current ratio, but still it needs to look after increasing their current assets
as well for reaching the standard level i.e., 2:1.
V. SIEMENS is overvalued as visible from the PE Ratio being greater than
the industrial average.
ABB INDIA
Key Financial Ratios
of ABB India
------------------- in Rs. Cr. -------------------
Dec 15 Dec-14 Dec-13 Dec-12 Dec-11
Per Share Ratios
Basic EPS (Rs.) 14.15 10.78 8.46 6.48 8.71
Dividend / Share(Rs.) 3.7 3.7 3 3 3
Net Profit/Share (Rs.) 14.15 10.78 8.46 6.48 8.71
Profitability Ratios
Return on Net-worth /
Equity (%)
9.96 8.12 6.69 5.28 7.28
Return on Capital
Employed (%)
8.19 8 6.67 5.26 7.25
Total Debt/Equity (X) 0.2 0.13 0.23 0.13 0
Liquidity Ratios
Current Ratio (X) 1.49 1.25 1.19 1.25 1.28
Quick Ratio (X) 1.24 1.02 0.97 1.01 1.03
Inventory Turnover
Ratio (X)
8.66 8.65 7.81 8.22 8.05
Dividend Pay-out Ratio
(NP) (%)
26.14 34.31 35.45 46.26 34.44
Earnings Retention
Ratio (%)
73.86 65.69 64.55 53.74 65.56
Valuation Ratios
Earnings Yield 0.01 0.01 0.01 0.01 0.01
PE Ratio 83.03
Industrial Average 40.21
25. 21
Analysis:
I. EPS ofABB India is moderately increasing since FY 2012 after a minimal
fall in FY 2011 which is showing company’s financial improvement. With
a dividend pay-out ratio of around 26%, lowest in the past 5yrs it has
proved that shareholders have gained confidence in the company and let it
retain its earnings.
II. The company is growing steadily with a slow pacein the properutilization
of its resources and investments as is visible from the data ofreturn on net-
worth and the data ofreturn oncapital employed in FY 2015 from FY2012.
III. The company is in a position to accept debt financing as the debt-equity
ratio is much below than the standard point. Fluctuations over the period
since 2012 indicates that the company is going into debt funding to a
minimum extent but again increasing its equity funding the next year. It
can consider debt financing and push the ratio to 0.6:1.
IV. From the data of 2014, it can be stated that the company is in a position to
take a few more of current liabilities which they did but the figures of 2015
clearly indicates that now they should focus on increasing their current
assets too. However, there is not much of a difference in the quick ratio
and the current ratio which is also a plus point for the company.
V. PE Ratio ofthe company is double the industrial average, which shows the
stock of the company is highly overvalued.
26. 22
NBCC
Key Financial Ratios of
National Buildings
Construction Corporation
------------------- in Rs. Cr. -------------------
Mar 15 Mar-14 Mar-13 Mar-12 Mar-11
Per Share Ratios
Basic EPS (Rs.) 23.11 20.59 17.29 15.85 15.59
Dividend / Share(Rs.) 5.5 5 3.75 3.5 310
Net Profit/Share (Rs.) 23.11 20.59 17.29 15.85 1,559.30
Profitability Ratios
Return on Net-worth / Equity (%) 20.94 21.92 21.82 23.9 21.45
Return on Capital Employed (%) 20.25 18.54 17.04 19 15.91
Liquidity Ratios
Current Ratio (X) 1.37 1.36 1.35 1.23 1.15
Quick Ratio (X) 1.03 1.02 1.1 1.06 0.97
Inventory Turnover Ratio (X) 4.07 4.21 5.06 7.66 7.68
Dividend Pay-out Ratio (NP) (%) 23.8 24.27 21.68 22.08 20
Earnings Retention Ratio (%) 76.2 75.73 78.32 77.92 80
Valuation Ratios
Earnings Yield 0.02 0.13 0.14 0 0
PE Ratio 37.43
Industrial Average 40.21
Analysis:
I. There has been a constant rise in EPS since FY 2011 while maintaining a
minimum percentage of dividend pay-out ratio as per satisfying the
shareholders.
II. Return on Net-worth is a bit low this year in comparison to the previous
year data which shows that the company has made some new investments.
27. 23
III. Return on Capital Employed has increased this year, considering it to be
the mother of all ratios, it can be said that the company is earning a good
return due to its good performance in the overall basis.
IV. It is visible from the data that the company is maintaining a sufficient level
of inventory with an increase in their current assets, which can be said by
looking at the almost same and few difference in the quick ratio and the
current ratio over the period of 5yrs. It should focus more on increasing
their current assets to reach the standard level, 2:1.
V. Stock of the company is undervalued.
28. 24
Metal Sector
Companies taken in metal sector are in the following table: -
Company Name Market Cap
(Rs. cr)
Hind Zinc 68,534.67
Hind Copper 4,713.99
Hind Zinc
Key Financial Ratios of
Hindustan Zinc
------------------- in Rs. Cr. -------------------
Mar 15 Mar-14 Mar-13 Mar-12 Mar-11
Per Share Ratios
Basic EPS (Rs.) 19.35 16.34 16.33 13.08 11.6
Dividend / Share(Rs.) 4.4 3.5 3.1 2.4 1
Net Profit/Share (Rs.) 19.35 16.34 16.33 13.08 11.6
Profitability Ratios
Return on Net-worth /
Equity (%)
18.86 18.45 21.37 20.55 21.74
Return on Capital
Employed (%)
17.77 17.64 20.54 19.73 20.85
Liquidity Ratios
Current Ratio (X) 11.11 11.02 12.63 13.29 10.61
Quick Ratio (X) 10.71 10.55 12.04 12.75 10.12
Inventory Turnover Ratio
(X)
12.2 11.38 11.43 14.29 13.17
Dividend Pay-out Ratio
(NP) (%)
22.73 21.41 18.98 18.35 8.62
Earnings Retention Ratio
(%)
77.27 78.59 81.02 81.65 91.38
Valuation Ratios
Earnings Yield 0.12 0.13 0.13 0.1 0.08
PE Ratio 8.78
29. 25
Industrial Average 38.54
Analysis:
I. With the minimum increase in EPS over the past 5yrs, there has been a
constant rise in the dividend pay-out ratio which shows that the company
is keeping the shareholders happy by fulfilling their demand and also by
ploughing back appropriate amount for future growth prospects.
II. In the current year data, it can be seen that there is an incline in the return
on net-worth as compared to the data of 2014 but it is less than the data
from 2011 to 2013, it is due to its diversification in its investments.
III. Currently due to macroeconomic factors, the company is struggling in a
difficult situation and hence there is a low return on capital employed.
IV. HIND ZINC should focus on maximizing its current liabilities or lower
down its current assets as the ratio is way higher than the standard level of
2:1.
V. HIND ZINC is highly undervalued company as a result of 4 times lower
than the industrial average.
30. 26
Hind Copper
Key Financial Ratios of
Hindustan Copper
------------------- in Rs. Cr. -------------------
Mar 15 Mar-14 Mar-13 Mar-12 Mar-11
Per Share Ratios
Basic EPS (Rs.) 0.73 3.1 3.84 3.5 2.42
Dividend / Share(Rs.) 0.15 1 1 1 1
Net Profit/Share (Rs.) 0.73 3.1 3.84 3.5 2.42
Profitability Ratios
Return on Net-worth /
Equity (%)
3.63 15.65 21.61 23.14 18.96
Return on Capital
Employed (%)
3.44 15.19 20.67 21.81 17.76
Liquidity Ratios
Current Ratio (X) 4.23 3.49 3.3 2.88 2.67
Quick Ratio (X) 2.43 2.29 2.25 2 1.65
Inventory Turnover Ratio
(X)
2.3 3.52 3.5 4.63 3.61
Dividend Pay-out Ratio
(NP) (%)
20.53 32.3 26.01 28.6 41.28
Earnings Retention Ratio
(%)
79.47 67.7 73.99 71.4 58.72
Valuation Ratios
Earnings Yield 0.01 0.05 0.04 0.01 0.01
PE Ratio 89.57
Industrial Average 38.54
Analysis:
I. Current year EPS clearly states that the company is not earning well,
shareholders’ wealth has declined over time but it had to pay-out a fixed
percent as dividend to keep the shareholders stick to them.
II. Return on Net worth as well as return on capital employed have fallen
drastically due to macroeconomic factors as visible from the financial data.
31. 27
III. Current ratio is way more than the standard level and is maximum this year
as compared to the past five years and also the high difference between the
quick ratio and the current ratio indicates that the company is highly
dependent on its inventory which can also be stated by looking at the
decline in the inventory turnover ratio this year. Company needs to lower
down their inventory.
IV. Company is highly overvalued.
33. 29
RETURN ON
CAPITAL
EMPLOYED
10.89 10.17 21.51 8.19 20.25
EPS – Stock, whose EPS is more is good to invest. Here, from the
analysis made before, we can clearly state that LARSEN AND
TOUBRO is the best to invest with the maximum EPS of Rs. 54.46
in FY 2015. The second best here is SIEMENS with Rs. 33.23.
PE Ratio – Company with low PE ratio is good to invest. Hence,
investors who gives this ratio the utmost importance will invest in
ADANI PORTS. Next best alternative here is LARSEN AND
TOUBRO.
Inventory Turnover Ratio – More is the ratio better is to invest. So,
LARSEN AND TOUBRO is better to invest with the highest
inventory turnover of 25.83 than ADANI PORTS with 21.78 and
any other.
Dividend Pay-out Ratio – Lesser the ratio will be the better is to
invest. Hence, ADANI PORTS is a better option over all other with
just 10.43. Widening the margin, NBCC comes second bestto invest
with 23.80 if this ratio is given the higher weightage.
Return on Net-Worth/Equity – Company having higher return on
equity is best for investment purposes. SIEMENS with the highest
percent of 23.08 is suitable enough to invest among others. NBCC
is the next best alternative in this case with 20.94%.
Return on Capital Employed – This is considered to be the mother
of all ratios and hence, whichever company has the higher return is
suitable to invest. In the comparison, SIEMENS tops the spot with
21.51% following NBCC, which is marginally lower, 20.25%.
34. 30
Metal Sector:
Company Name
Ratio
HIND ZINC HIND COPPER
EPS 19.35 0.73
PE RATIO 8.78 89.57
INVENTORY
TURNOVER RATIO
12.20 2.30
DIVIDEND PAY-OUT
RATIO
22.73 20.53
RETURN ON NET-
WORTH / EQUITY
18.86 3.63
RETURN ON
CAPITAL
EMPLOYED
17.77 3.44
EPS – HIND ZINC is the better stockto invest with a very high EPS of Rs.
19.35 over HIND COPPER.
PE Ratio – HIND ZINC is again the bestfor investment with a PE ratio of
less than 10% of the PE ratio of HIND COPPER.
35. 31
Inventory Turnover Ratio – Again HIND ZINC is a good option to invest
with a higher inventory turnover ratio of 12.2 over 2.3 of HIND COPPER.
Dividend Pay-out Ratio – HIND COPPER has a better dividend pay-out
ratio over HIND ZINC.
Return on Net-Worth/Equity – HIND ZINC is the best to invest with 6
times higher return on equity than HIND COPPER.
Return on Capital Employed – HIND ZINC is clearly the best to invest
with 17.77%.
36. 32
Conclusion
From the interpretation of the ratios in infrastructure sector, it is clearly evident
that LARSEN AND TOUBRO is the best company to invest bagging the first or
second position in most of the key ratios amongst all.
In the metal sector interpretation, HIND ZINC has proved to be the bestcompany
to invest in all aspectoverHIND COPPER and that too with very high differences
in their ratios.
Industrial Average of the sectors showthecompany’s stockvaluation. If the stock
is undervalued, then it is expected to grow and perform well in future. Whereas,
if the stock is overvalued, then it has a high chance of losing its good phase.
Intentionally, the infrastructure and the metal sector have been taken for making
analysis because of both being interrelated to each other. As from the discussion
part, it is clear that the market size of the infrastructure sector is vast and also it
has a huge target in future prospects too, metal sector will have a good
opportunity to grow while providing the raw materials for infrastructure
development. ZINC is mostly used as an alloy in large quantities by the steel
industries and COPPER is mainly used for wiring purposes in housing sector.
Hence, progress and development in infrastructure comes with a huge scope for
the metal industry to prosperfrom the downgrading position. Recent scenario of
metal industry reported that China is the major importer of metals like zinc,
copper, aluminium, etc., from India and hence, slowing down of their economic
activity have directly impacted on the metal industry of India which resulted in
the poor performance of the company’s financials.
However, several projects have already been started and plans ofmany are passed
and are yet to start in the future. Many foreign investments took initiatives in
India finding the country to be a good place to invest. Metal industry is eyeing
towards the overall infrastructural development for making a turnaround from
their downgrading situation.
37. 33
Chapter 3
Technical Analysis
Technical Analysis – It is the statistical analysis of securities generated by
market activity like past prices and volume. Instead of measuring the
security’s intrinsic value, it uses charts and other tools to identify patterns
that can suggest future activities.
o Overall Trend – This can be accomplished with trend lines, moving
averages orpeaktrough analysis. As long as the price remains above
its uptrend line, selected moving averages orprevious lows, the trend
will be considered bullish.
o Support – Areas of congestion or previous lows below the current
price mark support levels. A break below support would be
considered bearish.
o Resistance – Areas of congestion and previous highs above the
current price mark the resistance levels. A break above resistance
would be considered bullish.
o Momentum – Measured with an oscillator suchas MACD. If MACD
is above its 9-day EMA (exponential moving average) or positive,
then momentum will be considered bullish, or at least improving.
o Buying/Selling Pressure – For stocks and indices with volume
figures available, an indicator that uses volume is used to measure
buying or selling pressure. When Chaikin Money Flow is above
zero, buying pressureis dominant and if vice-versa, selling pressure
is dominant.
o Relative Strength – The price relative is a line formed by dividing
the security by a benchmark. For stocks it is usually the price of the
stockdivided by the S&P 500. The plot of this line over a period of
time will tell if the stock is outperforming (rising) or
underperforming (falling) the major index.
Technical analysts consider the market to be 80% psychological and 20%
logical.
38. 34
Infrastructure Sector:
Larsen & Toubro
Analysis:
In this L&T candlestick chart with 6 months’ duration, Inverted Head &
Shoulder Pattern have been detected within the duration from 19th January
2016 to 17th March 2016.
In this chart, after a period, the downward trend reaches a climax, which
is followed by a rally that tends to carry the share back approximately to
the neckline. After a decline below the previous low followed by a rally,
the head is formed. The advance from this point continues across the
neckline and constitutes the breakthrough.
The pattern contains three troughs in successive manner with the two
outside troughs namely the right and the left shoulder which is lower than
the middle trough (head) being the deepest one. The reaction highs in the
middle of the pattern can be connected to form resistance, or a neckline.
After the completion of pattern there is a minimal rise in price of stock
have been observed.
Here, the resistance line is also acting as a support line prior to January
2015.
39. 35
Analysis:
Resistance: It refers to that line beyond which a stock’s price will not
increase. It indicates that price level at which a sufficient supply of stock
is available to stop and possibly, for a time, head off an uptrend in prices.
Areas of congestion and previous highs above the current price mark the
resistance levels. A break above resistance would be considered bullish.
Support: A support line refers to that level beyond which a stock’s price
will not fall. It denotes that price level at which there is a sufficient amount
of demand to stop and possibly, for a time, turn a downtrend higher. Areas
of congestion or previous lows below the current price mark the support
levels. A break below support would be considered bearish.
At 1.4k price mark, the line acted as supportline till around October2015
and after that it started acting as resistance line.
40. 36
Adani Ports
Analysis:
Trend lines are often referred to as supportand resistance lines onan angle.
These lines are used to show direction and speed of price. It describes
patterns during periods of price contraction.
An uptrend line has a positive slope and is formed by connecting two or
more low points. The second low must be higher than the first for the line
to have a positive slope. Uptrend lines act as supportand indicate that net-
demand (demand less supply) is increasing even as the price rises. A rising
price combined with increasing demand is very bullish, and shows a strong
determination on the part ofthe buyers. As long as prices remain above the
trend line, the uptrend is considered solid and intact. A break below the
uptrend line indicates that net-demand has weakened and a change in trend
could be imminent.
A downtrend line has a negative slope and is formed by connecting two or
more high points. The second high must be lower than the first for the line
to have a negative slope. Downtrend lines act as resistance, and indicate
that net-supply (supply less demand) is increasing even as the price
declines. A declining price combined with increasing supply is very
bearish, and shows the strong resolve of the sellers. As long as prices
remain below the downtrend line, the downtrend is solid and intact. A
break above the downtrend line indicates that net-supply is decreasing and
41. 37
that a change of trend could be imminent. Currently, a downtrend is
expected.
Analysis:
A head and shoulder pattern is being marked during the period from August
2015 to September 2015.
It is a reversal pattern which occurs following an extended uptrend forms
and its completion marks a trend reversal. The pattern contains three
successivepeaks with the middle peak (head) being the highest and the two
outside peaks (shoulders) being low and roughly equal. The reaction lows
of each peak can be connected to form support, or a neckline.
It is clearly visible that the price of the stock started declining after the
neckline breakthrough.
There may not be a very high fluctuation.
42. 38
Siemens
Analysis:
The Triple Bottom Reversal is a bullish reversal pattern typically found on
bar charts, line charts and candlestick charts. There are three equal lows
followed by a break above resistance.
Triple Bottom Reversal should also be treated as a neutral pattern until a
breakout occurs. The ability to hold supportis bullish, but demand has not
won the battle until resistance is broken. Volume on the last advance can
sometimes yield a clue. If there is a sharp increase in volume and
momentum, then the chances of a breakout increase.
After the triple bottomformation, the price of the stockwent on increasing
and soonit is expected to touchthe resistance lines and the price again may
start to fall.
43. 39
Analysis:
Rounded top formation forms when the market gradually yet steadily shifts
from a bullish to bearish outlook. It consists of a gradual change in trend
from up to down.
Rounded bottom formation forms when the market gradually yet steadily
shifts from a bearish to bullish outlook. It consists of a gradual change in
trend from down to up. This formation is the exact oppositeof rounded top
formation. The volume decreases as the price decreases which signifies a
decrease in the selling pressure.
A very little trading activity canbeseen when the price movement becomes
neutral and goes sideways and the volumes are also low. Then, as price
start to increase, the volume increases.
The prices take on a bowl shaped pattern as the market slowly and casually
changes from an upward to a downward trend.
Stockprice is increasing at a slow pace and it may continue to rise further
till it touches the resistance lines.
44. 40
ABB
Analysis:
The Cup with Handle is a bullish continuation pattern that marks a
consolidation period followed by a breakout. The cup forms after an
advance and looks like abowlor rounding bottom. As the cup is completed,
a trading range develops on the right hand side and the handle is formed.
A subsequent breakout from the handle's trading range signals a
continuation of the prior advance.
The cup is a bowl-shaped consolidation and the handle is a short pullback
followed bya breakout with expanding volume. A cup retracement of 62%
may not fit the pattern requirements, but a particular stock's pattern may
still capture the essence of the Cup with Handle.
A progress in company’s stock performance has been observed and it is
improving.
45. 41
Analysis:
This chart represents a continual change in trend lines over a period of 1
year.
Frequent fluctuations have been observed from February 2016 to mid of
April 2016 as visible in the graph.
Stock price already started to fall because of resistance lines.
46. 42
NBCC
Analysis:
There has been an uptrend line observed fromthe month of February 2016,
so, the investors who have invested in company’s stock at that time is
gaining now.
Looking at the resistance line, it can be assumed that the stock price may
fall shortly in near future.
Though there is an uptrend but there is a high chance of an occurrence of
downtrend.
47. 43
Analysis:
Yearly analysis of NBCC is showing that the price of the stockhas almost
reached at its resistance and the price is likely to fall in near future.
It is better to put a stop loss option and purchase the stock with an
expectation to a rise in price further.
48. 44
Metal Sector:
HIND ZINC
Analysis:
Here in the 6 months’ duration of candlestick analysis, during the month
of March 2016 to April 2016, a gap has been observed which is named as
“Island Cluster”.
Lookout forisland clusters, identified byan exhaustion gap followed (after
a few days)bya breakaway gap in the oppositedirection, they are powerful
reversal signals.
Exhaustion gaps occur at the end of a strong trend and are the last surge
before the trend expires, normally on heavy volume. They differ from
continuation gaps in that they are not followed by new highs (in an up-
trend) or new lows (in a down-trend) and are closed shortly afterwards.
Short sell must be done.
Breakaway gaps are normally accompanied by heavy volume and occur
when prices break out of a trading range. They are usually followed by a
series of new highs in an upside breakout or, a series of new lows in a
downside breakout, and are seldom closed. Stop Loss needs to be kept.
49. 45
Analysis:
High fluctuations have been observed since February 2016.
An Island Cluster have been observed.
Stockprice seems to be falling this quarter due to not much of fluctuations
seen in the 1-year duration.
50. 46
HIND COPPER
Analysis:
A lot of inverted hammer has been observed in this chart. The Inverted
Hammer formation, just like the Shooting Star formation, is created when
the open, low, and close are roughly the same price. Also, there is a long
upper shadow, which should be at least twice the length of the real body.
When the low and the open are the same, a bullish Inverted Hammer
candlestick is formed and it is considered a stronger bullish sign than when
the low and close are the same, forming a bearish Hanging Man (the
bearish Hanging Man is still considered bullish, just not as much because
the day ended by closing with losses).
After a long downtrend, the formation of an Inverted Hammer is bullish
because prices hesitated their move downward by increasing significantly
during the day. Nevertheless, sellers came back into the stock, future, or
currency and pushed prices back near the open, but the fact that prices were
able to increase significantly shows that bulls are testing the power of the
bears. What happens on the next day after the Inverted Hammer pattern is
what gives traders an idea as to whether or not prices will go higher or
lower.
51. 47
Analysis:
A breakaway gap has been noticed during the period from August to
October. Here, it infers that the price will continue to fluctuate
continuously in the prevailing trend.
Breakaway gaps occurwhen the price action is breaking outoftheir trading
range or congestion area. To break out of these areas requires market
enthusiasm and either many more buyers than sellers for upside breakouts
or more sellers than buyers for downside breakouts.
A good confirmation for trading gaps is if they are associated with classic
chart patterns. For example, if an ascending triangle all of a sudden has a
breakout gap to the upside, this can be a much better trade than a breakaway
gap without a good chart pattern associated with it.
52. 48
Interpretation and Conclusion
While interpreting all the technical charts of the selected companies, it is
evident that LARSEN & TOUBRO has a high chance of having a rise in their
stockprice. SIEMENS can be considered to be the second company to invest
now to make money in future.
Focusing into metal sector, it can be presumed that stock price will fall
because those are almost in peaks and due to macroeconomic factors it is
reported that it may fall further. This is not a good time to invest in the metal
industries. Major impact will be on HIND COPPER as compared to HIND
ZINC.
53. 49
Chapter 4
FUNDAMENTAL V/S TECHNICAL ANALYSIS
Technical analysis and fundamental analysis are the two main schools ofthought
in the financial markets. As we've mentioned, technical analysis looks at the price
movement of a security and uses this data to predict its future price movements.
Fundamental analysis, on the other hand, looks at economic factors, known as
fundamentals. Let's get into the details of how these two approaches differ, the
criticisms against technical analysis and how technical and fundamental analysis
can be used together to analyse securities.
THE DIFFERENCES
Charts vs. Financial Statements
At the most basic level, a technical analyst approaches asecurity from the charts,
while a fundamental analyst starts with the financial statements.
By looking at the balance sheet, cash flow statement and income statement, a
fundamental analyst tries to determine a company's value. In financial terms, an
analyst attempts to measure a company's intrinsic value. In this approach,
investment decisions are fairly easy to make - if the price of a stocktrades below
its intrinsic value, it's a good investment. Although this is an oversimplification
(fundamental analysis goes beyond just the financial statements) for the purposes
of this tutorial, this simple tenet holds true.
Technical traders, on the other hand, believe there is no reason to analyse a
company's fundamentals because these are all accounted for in the stock's price.
Technicians believe that all the information they need about a stockcan be found
in its charts.
Time Horizon
Fundamental analysis takes a relatively long-term approach to analysing the
market compared to technical analysis. While technical analysis can be used on a
timeframe of weeks, days or even minutes, fundamental analysis often looks at
data over a number of years.
The different timeframes that these two approaches useis a result of the nature of
the investing style to which they each adhere. It can take a long time for a
company's value to be reflected in the market, so when a fundamental analyst
estimates intrinsic value, a gain is not realized until the stock's market price rises
to its "correct" value. This type of investing is called value investing and assumes
54. 50
that the short-term market is wrong, but that the price of a particular stock will
correct itself over the long run. This "long run" can represent a timeframe of as
long as several years, in some cases.
Furthermore, the numbers that a fundamentalist analyzes are only released over
long periods of time. Financial statements are filed quarterly and changes in
earnings per share don't emerge on a daily basis like price and volume
information. Also remember that fundamentals are the actual characteristics of a
business. New management can't implement sweeping changes overnight and it
takes time to create new products, marketing campaigns, supply chains, etc. Part
of the reason that fundamental analysts use a long-term timeframe, therefore, is
because the data they use to analyse a stockis generated much more slowly than
the price and volume data used by technical analysts.
Trading Versus Investing
Not only is technical analysis more shortterm in nature that fundamental analysis,
but the goals of a purchase (or sale) of a stock are usually different for each
approach. In general, technical analysis is used for a trade, whereas fundamental
analysis is used to make an investment. Investors buy assets they believe can
increase in value, while traders buy assets they believe they can sell to somebody
else at a greater price. The line between a trade and an investment can be blurry,
but it does characterize a difference between the two schools.
CAN THEY CO-EXIST?
Although technical analysis and fundamental analysis are seen by many as polar
opposites - the oil and water of investing - many market participants have
experienced great success bycombining the two. Forexample, some fundamental
analysts use technical analysis techniques to figure out the besttime to enter into
an undervalued security. Oftentimes, this situation occurs when the security is
severely oversold. By timing entry into a security, the gains on the investment
can be greatly improved.
Alternatively, some technical traders might look at fundamentals to add strength
to a technical signal. For example, if a sell signal is given through technical
patterns and indicators, a technical trader might look to reaffirm his or her
decision by looking at some key fundamental data. Oftentimes, having both the
55. 51
fundamentals and technical on your side can provide the best-casescenario for a
trade.
While mixing some of the components of technical and fundamental analysis is
not well received by the most devoted groups in each school, there are certainly
benefits to at least understanding both schools of thought.
57. 53
Glossary
Investments
o Definition – Money earned is partly spent and the rest are saved for
meeting future expenses. Instead of keeping idle, savings can be
used in order to get return on it in future. This is called Investment.
o Necessity – Earning return on idle resources, generating a specified
sum of money for a specific goal in life and to make a provision for
an uncertain future.
o Rules – Invest early, invest regularly, invest for long term and not
short term
o Types – Short term (6 months), Medium term (3 to 5 years), Long
term (More than 5 years)
o Formula – 100 – Current Age
o Types of Investors – Aggressive Investors, Assertive Investors,
Balanced Investors, Moderately Conservative Investors,
Conservative Investors.
o Factors determining Interest rates (Macroeconomic) – Demand for
money, Level of Government borrowings, Supply of money,
Inflation rate, Reserve Bank of India (RBI) policies and Government
policies.
Kickstarter
o Presentation on Project
Monument – A smart storage device for photos, videos, and events
to keep pace with the evolution in moment capturing gadget.
Fundamental Analysis – It is a toolto determine the financial health of the
company and gain insight about company’s future performance before
investing in a stock. It gives the intrinsic value of stocks. Qualitative
measure for doing fundamental analysis is financial statement analysis
which focuses on the calculation and interpretation of key investment
valuation ratios of the company such as earnings per share (EPS),
price/earnings ratio (PE ratio), price/earnings to growth ratio (PEG ratio),
Dividend Yield, as well as other liquidity and leverage ratios.
Fundamental analysts consider the market to be 20% psychological and
80% logical.
Technical Analysis – It is the statistical analysis of securities generated by
market activity like past prices and volume. Instead of measuring the
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security’s intrinsic value, it uses charts and other tools to identify patterns
that can suggest future activities.
o Overall Trend – This can be accomplished with trend lines, moving
averages orpeaktrough analysis. As long as the price remains above
its uptrend line, selected moving averages orprevious lows, the trend
will be considered bullish.
o Support – Areas of congestion or previous lows below the current
price mark support levels. A break below support would be
considered bearish.
o Resistance – Areas of congestion and previous highs above the
current price mark the resistance levels. A break above resistance
would be considered bullish.
o Momentum – Measured with an oscillator suchas MACD. If MACD
is above its 9-day EMA (exponential moving average) or positive,
then momentum will be considered bullish, or at least improving.
o Buying/Selling Pressure – For stocks and indices with volume
figures available, an indicator that uses volume is used to measure
buying or selling pressure. When Chaikin Money Flow is above
zero, buying pressureis dominant and if vice-versa, selling pressure
is dominant.
o Relative Strength – The price relative is a line formed by dividing
the security by a benchmark. For stocks it is usually the price of the
stockdivided by the S&P 500. The plot of this line over a period of
time will tell if the stock is outperforming (rising) or
underperforming (falling) the major index.
Technical analysts consider the market to be 80% psychological and
20% logical.
Indicators-Technical indicators provide unique outlook onthe strength and
direction of the underlying price action for a given timeframe. It acts as an
alert to study price action.
Types of Indicators – Leading, Lagging and Moving Averages. Leading
indicators are designed to lead price movements. Benefits of this are early
signalling for entry and exit, generating more signals and allow more
opportunities to trade. Some of the well-known leading indicators are
Commodity Channel Index (CCI), Momentum, Relative Strength Index
(RSI), Stochastic Oscillator and Williams %R. On the other hand, lagging
indicators don’t warn for the upcoming change in prices, they simply tell
what prices are doing. Whereas, moving averages smootha data series and
make it easier to spot trends, something that is helpful in volatile markets.
Types of charts – Candlesticks, Head and Shoulder, Rounded Bottom, etc.
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Derivatives- Financial instruments which derive their value from some
underlying assets.
Spot Market- Otherwise known as cash market is a securities market in
which securities are sold for cash and delivered immediately after the
settlement period.
Index- A basket of identified stocks, and its value is computed by taking
the weighted average of the prices of the constituent stocks of the index.
Forwards-A contractbetween two parties to buy or sell an assetat a certain
future date fora certain price that is pre-decided on the date ofthe contract.
The future date is referred to as expiry date and the pre-decided price is
referred to as Forward Price. Forwards are private contracts and their terms
are determined by the parties involved.
Futures- It is an agreement between two parties in which the buyer agrees
to buy an underlying asset from the seller, at a future date at a price that is
agreed upon today. It is not a private transaction but gets traded on a
recognized stock exchange. It is standardized by the exchange.
Options- It is a derivative contractbetween a buyer and a seller, where one
party gives to the other party the right, but not the obligation to buy from
or sell to the first party the underlying asset on or before a specific day at
an agreed upon price.
Abbreviations
AMC Asset Management Company
BIFR
Board for Industrial and Financial
Reconstruction
BMC
Base Minimum Capital
CCIL
Clearing Corporation of India Limited
ADB
Asian Development Bank
AIFI
All India Financial Institutions
ADR
American Depository Receipts
CBDT
Central Board of Direct Taxes
ATS
Alternative Trading System
ASC
Accounting Standards Committee
CD
Certificate of Deposits
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BLESS
Borrowing and Lending Security
Scheme
ALBM
Automated Lending and Borrowing
Mechanisms
SPOC
Single Point of Contact
BCP
Business Continuity Plan
PRO-RATA
Proportionately Allocation of Shares
to the Shareholders
Apart from the report, several coordinating activities were followed, going
for orientation programs, taking interviews, backoffice work and applying
of managerial roles were also a key part of this entire summer internship
program.
