EXECUTIVE SUMMARYThe Indian capital market is vibrant and alive. Its growth in the last two decades has been phenomenal. In 1983, the market capitalization of the shares quoted in the Bombay Stock exchange amounted to a mere $7 billion. It grew to $65 billion in 1992, to $220 billion by April 2000 and it is, at the end of 2003, estimated at $432 billion. India ranks 7th in price index and 4th in total return index. In this project, I am emphasizing fundamental analysis on 2 stocks from 2 sectors and trying to get future price that they are suppose to reach after some months. I have also focused on the performance of this with respect to industry and sensex. Fundamental analysis is very helpful to the investor, which is reflected in the investment purpose. Fundamental analysis consist of three parts, they are economic, industry and company. Any investors who go to systematic investment, he/she would like to know, the complete scenario of the industry. It is interesting to know the how the fundamental analysis helps to forecast the price of equity. The fundamental analysis consists of three parts; they are economic, industry and company. All the factors are involved in this analysis were identified and studied carefully to identify the factors in the existing environment. The data or information collected was based on the personal interaction with the guide of the company.

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Economic analysis was a task to be studied as it affected the companys tax, and it will effect on the revenue of the industry. Also other factors are considered in the economic analysis. And it will interpret for the fundamental analysis. Industry analysis was a challenging factor for the research of the fundamental analysis. All the sub-factors of the industry analysis were taken up from the secondary source to analyses the each factor with the industry. And was related those factors with the company. It also analyses the competitiveness of the each companys strength, like. Quality, services, cost of R/m, etc. Company analysis is last factors of the fundamental analysis and it is one of the most important parts of the company. An approach was made to understand the existing company and its impact on companys market share and its performance. In this project I am going to focus only fundamentally on SBI and TATA Steel. By analyzing this 2 stocks with there respective industry and with index, I will come to know that will these stocks perform better in the future and this would be my hypothesis for the project.

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***CHAPTER 1. INTRODUCTION*** OBJECTIVE OF THE STUDYTo acquire knowledge of the Banking and Steel Sector which I am studying. To find out how the judgment is taken by the analyst on the basis of fundamental analysis of the company. To establish link between expected share price with the projected companys financial performance. To make the company's stock valuation and predict its probable price evolution.

METHODOLOGY OF THE STUDYThe data collected for the study includes the primary as well secondary data. Majority of the data collected for the study of the project is from secondary sources. Secondary sources data were collected from Internet, Journals and the books. The primary data includes the analysis of companys financial statement, ratios, cash flows, companys performance in the market and industry. Also, the primary sources include the survey done of sample size wherein all the professional investors are the part of it and done the analysis on it. Also, there are some inputs/views taken from the stock broker related to stocks and market.

LIMITATIONS OF THE STUDY

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During my project report I faced certain problems which limited my scope of research. The limitations where: As I was in a very short period project so that I do not work so deeply. And fundamental analysis is a huge process. So, it does not include each and every aspect of it. The analysis which has done from survey is restricted to the views which has received from people. Work done on project also includes secondary data information; so all the limitations applicable to secondary data are applicable to this study.

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***CHAPTER 2. LITERATURE REVIEW*** 2.1 INTRODUCTION TO CAPITAL MARKETA nation's capital market includes such financial institutions as banks, insurance companies, and stock exchanges that channel long-term investment funds to commercial and industrial borrowers. Unlike the money market, on which lending is ordinarily short term, the capital market typically finances fixed investments like those in buildings and machinery. The capital market is the market for securities, where companies and governments can raise long term funds. Selling stock and selling bonds are two ways to generate capital and long term funds. Thus bond markets and stock markets are considered capital markets. The capital markets consist of the primary market, where new issues are distributed to investors, and the secondary market, where existing securities are traded .The Indian Equity Markets and the Indian Debt markets together form the Indian Capital markets Nature and Constituents Capital market consists of number of individuals and institutions (including the government) that canalize the supply and demand for longterm capital and claims on capital. The stock exchange, commercial banks, co-operative banks, saving banks, development banks, insurance companies, investment trust or companies, etc, are important constituents of the capital markets. The capital market, like the money market, has three important components, namely the suppliers of loanable funds, the borrowers and the

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intermediaries who deal with the leaders on the one hand and the borrowers on the other. The demand for capital comes mostly from agriculture, industry, trade and the government. The predominant form of industrial organization developed capital Market become a necessary infrastructure for fast industrialization. Capital market not concerned solely with the issue of new claims on capital, but also with dealing in existing claims.

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Importance of Capital Market The capital market serves a very useful purpose by pooling the capital resources of the country and making them available to the enterprising investors well-developed capital markets augment resources by attracting and lending funds on the global scale. A developed capital market can solve this problem of paucity of funds. For an organized capital market can mobilize and pool together even the small and scattered savings and augment the availability of investible funds. While the rapid growth of capital markets, the growth of joint stock business has in its turn encouraged the development of capital markets. A developed capital market provides a number of profitable investment opportunities for small savers. Nature of the Indian Capital Market Like the money market, the Indian capital market also consists of an organized sector and an unorganized sector. In the organized market the demand for capital comes mostly from corporate enterprises and government and semi-government institutions and the supply comes from household savings, institutional investors like banks investment trusts, insurance companies, finance corporations, government and international financing agencies. Whereas, the unorganized market consists mostly of the indigenous bankers and moneylenders on the supply side.

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Development of the market The Indian capital market has undergone remarkable changes in the postindependence era. Certain steps taken by the government to place the market on a strong footing and develop it to meet the growing capital requirements of fast industrialization and development of the economy have significantly contributed to the developments that took place in the Indian capital market over the last five decades or so. The important facts that have contributed to the development of the capital marketing India are the following. 1. Legislative measures: Laws like the companies act, the securities contracts (Regulations) and the capital issues (Control). Act empowered the government to regulate the activities of the capital market with a view to assuring healthy trends in the market, protecting the interests of the investors, efficient utilization of the resources, etc. 2. Establishment of development banks and expansion of the public sectors: Starting with the establishment of the IFCI, a number of development banks have been established at national and regional levels to provide financial and other development assistance to the entrepreneurs and enterprises. These institutions today account for a large chunk of the industrial finance. 3. Growth of underwriting business: There has been a phenomenal growth in the underwriting business thanks mainly to the public financial corporations and the commercial banks. In the last one decade the amount

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underwritten as percentage of total private capital issues offered to public varied between 72 per cent and 97 per cent. 4. Public confidence: Impressive performance of certain large companies encouraged public investment in industrial securities. 5. Increasing awareness of investment opportunities: The improvement in education and communication has created more public awareness about the investment opportunities in the business sector. The market for industrial securities has become broader. 6. Capital Market Reforms: A number of measures have been taken to check abuses and to promote healthy development of the capital market.

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2.2 INTRODUCTION TO FUNDAMENTAL ANALYSISFundamental analysis is the examination of the underlying forces that affect the well being of the economy, industry groups, and companies. As with most analysis, the goal is to derive a forecast and profit from future price movements. o At the company level, fundamental analysis may involve

examination of financial data, management, business concept and competition. o At the industry level, there might be an examination of

supply and demand forces for the products offered. o economy. To forecast future stock prices, fundamental analysis combines economic, industry, and company analysis to derive a stock's current fair value and forecast future value. If fair value is not equal to the current stock price, fundamental analysts believe that the stock is either over or under valued and the market price will ultimately gravitate towards fair value. Fundamentalists do not heed the advice of the random walkers and believe that markets are weak-form efficient. By believing that prices do not accurately reflect all available information, fundamental analysts look to capitalize on perceived price discrepancies. For the national economy, fundamental analysis might

focus on economic data to assess the present and future growth of the

Overview:Fundamental analysis is the study of economic, industry, and company conditions in an effort to determine the value of a company's stock. Fundamental analysis typically focuses on key statistics in a

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company's financial statements to determine if the stock price is correctly valued. The main principle of fundamental analysis is to find profitable companies to invest in by comparing revenues, sales, management, etc. Fundamentals include earnings report, dividends, sales, inventories, profit margins, P/E ratio, market share , etc.Those looking to invest in a company will be the most likely to use fundamental analysis. This is because the research is used to not just look at the value of the company, but to look at the company itself. This includes the results of its finances and its potential to grow. The fundamentals can give a better picture the entire company, not just a snapshot. This means that analysis is used to look at the long term of a company not just the short term. The basic idea is if you put a rupee into the business (in the form of buying the stock) how much of a return can you expect. How much yield you will likely see and / or how much growth you will experience based on the operation, markets, competitors and costs of the business. Obviously, not all aspects of these fundamentals can be quantified. Fundamentals are associated with the economic health of a company, measured in terms of revenues, earnings, assets, liabilities, Return on Equity (ROE), Return on Assets (ROA), Return on Investments (ROI), growth prospects and cash flows, etc. The fundamentals tell you about a company. You can say a company is having robust fundamentals if it is growing at a nice pace, generating a profit, has limited debts and abundant cash. The analysis of a company's fundamentals involves getting deep into its financials, rather than day-to-day movement in its share price. Equity researchers normally do fundamental analysis in order to calculate

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the intrinsic value of a company's stock. If a company's stock is trading above the intrinsic value or fair value, then the stock is overvalued. If a company's stock is trading below the intrinsic value, then the stock is undervalued. However, if you watch the stock markets very closely, the share price of most companies never matches the fair value. Often, day traders and investors who would prefer short term investment options invest in those stocks, regardless of the companies' long term growth prospects. However, long term investors generally prefer to invest in companies with robust fundamentals and ignore near-term share price movements.

Approaches of Fundamental Analysis:Investors can use either a top-down or bottom-up approach: The top-down investor starts his analysis with global economics, including both international and national economic indicators, such as GDP growth rates, inflation, interest rates, exchange rates, productivity, and energy prices. He narrows his search down to regional/industry analysis of total sales, price levels, the effects of competing products, foreign competition, and entry or exit from the industry. Only then does he narrow his search to the best business in that area. The bottom-up investor starts with specific businesses, regardless of their industry/region.

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Strengths of Fundamental Analysis Long-term TrendsFundamental analysis is good for long-term investments based on longterm trends, very long-term. The ability to identify and predict long-term economic, demographic, technological or consumer trends can benefit patient investors who pick the right industry groups or companies.

Value SpottingSound fundamental analysis will help identify companies that represent a good value. Some of the most legendary investors think long-term and value. Graham and Dodd, Warren Buffett and John Neff are seen as the champions of value investing. Fundamental analysis can help uncover companies with valuable assets, a strong balance sheet, stable earnings, and staying power.

Business AcumenOne of the most obvious, but less tangible, rewards of fundamental analysis is the development of a thorough understanding of the business. After such painstaking research and analysis, an investor will be familiar with the key revenue and profit drivers behind a company. Earnings and earnings expectations can be potent drivers of equity prices. Even some technicians will agree to that. A good understanding can help investors avoid companies that are prone to shortfalls and identify those that continue to deliver. In addition to understanding the business, fundamental analysis allows investors to develop an understanding of the key value

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drivers and companies within an industry. A stock's price is heavily influenced by its industry group. By studying these groups, investors can better position themselves to identify opportunities that are high-risk (tech), low-risk (utilities), growth oriented (computer), value driven (oil), non-cyclical (consumer staples), cyclical (transportation) or incomeoriented (high yield).

Knowing Who's WhoStocks move as a group. By understanding a company's business, investors can better position themselves to categorize stocks within their relevant industry group. Business can change rapidly and with it the revenue mix of a company. This happened to many of the pure Internet retailers, which were not really Internet companies, but plain retailers. Knowing a company's business and being able to place it in a group can make a huge difference in relative valuations.

Weaknesses of Fundamental Analysis Time ConstraintsFundamental analysis may offer excellent insights, but it can be extraordinarily time-consuming. Time-consuming models often produce valuations that are contradictory to the current price prevailing on Wall Street. When this happens, the analyst basically claims that the whole street has got it wrong. This is not to say that there are not misunderstood companies out there, but it is quite brash to imply that the market price, and hence Wall Street, is wrong.

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Industry/Company SpecificValuation techniques vary depending on the industry group and specifics of each company. For this reason, a different technique and model is required for different industries and different companies. This can get quite time-consuming, which can limit the amount of research that can be performed. A subscription-based model may work great for an Internet Service Provider (ISP), but is not likely to be the best model to value an oil company.

SubjectivityFair value is based on assumptions. Any changes to growth or multiplier assumptions can greatly alter the ultimate valuation. Fundamental analysts are generally aware of this and use sensitivity analysis to present a basecase valuation, a best-case valuation and a worst-case valuation. However, even on a worst-case valuation, most models are almost always bullish, the only question is how much so. The chart below shows how stubbornly bullish many fundamental analysts can be?

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2.3 FUNDAMENTAL ANALYSIS V/S TECHNICAL ANALYSISThese terms refer to two different stock-picking methodologies used for researching and forecasting the future growth trends of stocks. Like any investment strategy or philosophy, both have their advocates and adversaries. Here are the defining principles of each of these methods of stock analysis:

Fundamental analysis is a method of evaluating securities

by attempting to measure the intrinsic value of a stock. Fundamental analysts study everything from the overall economy and industry conditions to the financial condition management of companies.

and

Technical analysis is the evaluation of securities by means

of studying statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security's intrinsic value but instead use stock charts to identify patterns and trends that may suggest what a stock will do in the future. In the world of stock analysis, fundamental and technical analysis is on completely opposite sides of the spectrum. Earnings, expenses, assets and liabilities are all important characteristics to fundamental analysts, whereas technical analysts could not care less about these numbers. Which strategy works best is always debated, and many volumes of textbooks have been written on both of these methods. So, do some reading and

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decide for yourself which strategy works best with your investment philosophy. Technical analysis and fundamental analysis are the two main schools of thought 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 analyze securities.

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ECONOMIC ANALYSISThe purpose of analyze economic condition of the country in fundamental analysis to asses the general economic situation both within the country and inter nationally. The economy is like the tide and the various industry groups and individual companies are like boats. When economy expands most industry groups and companies benefits and grows. When the economy decline, most sectors and companies usually suffer. The stock market does not operate in a vacuum it is an integral part of ht whole economy of a country, more so in a free economy that of United States and to some extent in mixed economy like ours. To gain an insight into the complexities of stock market. One needs to develop a sound economic understanding and be able to interpret the impact of important economic indicators on stock markets. The following are some important factors which should be taken into account while doing fundamental analysis: Economic Growth Per capita income Industrial Production Inflation Interest Rates Foreign Exchange Reserves Budgetary Deficit Domestic Savings and Investment

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Tax Rates Infrastructure Political Situation

Introduction of Indian Economy:The economic history of India since Indus Valley Civilization to 1700 AD can be categorized under this phase. During Indus Valley Civilization Indian economy was very well developed. It had very good trade relations with other parts of world, which is evident from the coins of various civilizations found at the site of Indus valley. Before the advent of East India Company, each village in India was a self sufficient entity. Each village was economically independent as all the economic needs were fulfilled with in the village. Then came the phase of Colonization. The arrival of East India Company in India ruined the Indian economy. There was a two-way depletion of resources. British used to buy raw materials from India at cheaper rates and finished goods were sold at higher than normal price in Indian markets. During this phase India's share of world income declined from 22.3% in 1700 AD to 3.8% in 1952. After India got independence from this colonial rule in 1947, the process of rebuilding the economy started. For this various policies and schemes were formulated. First five year plan for the development of Indian economy came into implementation in 1952. These Five Year Plans, stared by Indian government, focused on the needs of Indian economy. If on one hand agriculture received the immediate attention on the other side industrial sector was developed at a fast pace to provide employment

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opportunities to the growing population and to keep pace with the developments in the world. Since then Indian economy has come a long way. The Gross Domestic Product (GDP) at factor cost, which was 2.3 % in 1951-52 reached 9.4% in financial year 2006-07.

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1.

GDP:

The Planning Commission on Wednesday expressed optimism that economic growth during the current year will exceed 7 per cent, up from 6.7 per cent recorded during 2008-09. India was growing by 9 per cent before the global financial crisis hit the world economy and pulled down the country's growth rate to 6.7 per cent during 2008-09. Indian economy is unpacking a better than expected performance in the current year and the gross domestic product (GDP) is expected to expand more than 7 percent during the fiscal.

2.

Per capita income

Per capita income, according to advance estimates for national income released today, is expected to grow by 14.4 per cent during the current fiscal, the highest growth rate recorded in a single year in the last decade. Though the Gross Domestic Product growth rate during the current fiscal is estimated to drop to 7.1 per cent from 9 per cent a year ago, per capita income is expected to soar by Rs 4,801 to Rs 38,084 during 2008-09. The country's per capita income, which is an important indicator of economic development of a nation, was Rs 18,885 during 200203.

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The growth in the per capita income takes into account the increase in the country's population, which is likely to rise to 115.4 crore by March 2009 from 113.8 crore a year ago. In percentage terms, the previous highest increase in per capita income during the last decade at 13.5 per cent was witnessed during 2006-07. However, after discounting for inflation (at 1999-2000 prices), the per capita income is expected to rise to Rs 25,661, representing an increase of 5.6 per cent.

3.

Inflation

Food inflation inched up to 17.56% for the week ended January 23, on account of rising prices of potato and pulses. The wholesale price-based food inflation was 17.40% in the previous week. Reserve Bank of India (RBI) in its third quarter review of the monetary policy statement on Jan. 29, 2010 said inflation would be around 8.5% in March. Potato prices jumped by 44.91% over the last year, while pulses became dearer by 44.43%. 4. Interest Rates

India benchmark interest rate stands at 3.25 percent. In India, interest rate decisions are taken by the Reserve Bank of India's Central Board of Directors. The official interest rate is the benchmark repurchase rate. This page includes: India Interest Rate chart, historical data, forecast and news.

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Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2009 4.00 4.00 3.50 3.25 3.25 3.25 3.25 3.25 3.25 3.25 3.25 3.25 2008 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 5.00 2007 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 2006 5.25 5.50 5.50 5.50 5.50 5.50 5.75 6.00 6.00 6.00 6.00 6.00 Source: www.tradingeconomics.com Indias central bank will probably raise interest rates at the end of January and wont take any immediate steps to tame food-price inflation that touched an 11- year high this month, Morgan Stanley economist Chetan Ahya said. There appears to be little evidence to support the view that the rise in food prices has been driven by current loose monetary policy, Singaporebased Ahya said in a report yesterday. The Reserve Bank of India is unlikely to reduce food-price inflation through monetary policy action. Indias benchmark bond yield is at a 14-month high while one-year interest rate swap rates are near the costliest in a year as rising food prices

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fuel inflation expectations. Montek Singh Ahluwalia, a top economic adviser to Prime Minister Manmohan Singh, said yesterday that monetary policy action isnt a solution for rising food prices. The Reserve Bank will be concerned only about the potential of a generalized rise in inflation expectations on account of the persistent rise in food inflation, Ahya said. Ahya expects the central bank to raise interest rates by 25 basis points in January. Reserve Bank Governor Duvvuri Subbarao is scheduled to announce the next monetary policy decision on Jan. 29. He took the first step toward raising borrowing costs in October when he ordered lenders to put aside a higher proportion of deposits in government bonds. 5. Foreign Exchange Reserves

India`s forex reserves decreased further by USD 1,983 million to stand at USD 280,955 million as on Jan. 29, 2009, mainly on account of heavy fall foreign currency assets. As per the weekly statistical supplement of the Reserve Bank of India (RBI) released on Feb. 05, 2009, foreign currency assets decreased by USD 1,718 million to stand at USD 256,362 million. During the same period, the reserve position in the International Monetary Fund (IMF) decreased marginally USD 6 million to stand at USD 1,413 million. Special Drawing Rights (SDRs) decreased by USD 23 million to stand at USD 5,124 million. Gold reserves declined by USD 236 million to stand at USD 18,056 million. Foreign currency assets expressed in USD include the effect of appreciation or depreciation on non-US currencies (such as Euro, Sterling and Yen) held in reserves.

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6.

Budgetary Deficit

A budget deficit arises out of an imbalance between the receipts and payments of the Government. Huge budget deficits have a variety of harmful consequences. Another adverse consequence of a huge budget deficit is the build-up of the national debt. The total revenue receipts of the Central Government is estimated to be Rs. 486,422 crore and the revenue expenditure at Rs. 557,900 crore. The revenue deficit is estimated at Rs. 71,478 crore, which is 1.5 per cent of GDP. The fiscal deficit is estimated at Rs. 150,948 crore, which is 3.3 per cent of GDP in 2007-08. 7. Industrial production

The Quick Estimates of Index of Industrial Production (IIP) with base 1993-94 for the month of October 2009 have been released by the Central Statistical Organisation of the Ministry of Statistics and Programme Implementation. 1. The General Index stands at 290.1, which is 10.3% higher as compared to the level in the month of October 2008. The cumulative growth for the period April-October 2009-10 stands at 7.1% over the corresponding period of the pervious year. 2. The Indices of Industrial Production for the Mining, Manufacturing and Electricity sectors for the month of October 2009 stand at 189.4, 309.6, and 242.0 respectively, with the corresponding growth rates of 8.2%, 11.1% and 4.7% as compared to October 2008. The cumulative growth during April-October, 2009-10 over the corresponding period of 2008-09 in the three sectors have been 7.9%, 7.1% and 6.5% respectively, which moved the overall growth in the General Index to 7.1%.

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3. In terms of industries, as many as sixteen (16) out of the seventeen (17) industry groups (as per 2-digit NIC-1987) have shown positive growth during the month of October 2009 as compared to the corresponding month of the previous year. The industry group Wood and Wood Products; Furniture and Fixtures as well as Transport Equipment and Parts both have shown the highest growth of 18.9%, followed by 18.7% in Basic Chemicals & Chemical Products (except products of Petroleum & Coal) and 18.3% in Machinery and Equipment other than Transport Equipment. 15.5%. 4. As per Use-based classification, the Sectoral growth rates in October 2009 over October 2008 are 5.0% in Basic goods, 12.2% in Capital goods and 14.3% in Intermediate goods. The Consumer durables and Consumer non-durables have recorded growth of 21.0% and 8.1% respectively, with the overall growth in Consumer goods being 11.8%. 5. Alongwith the Quick Estimates of IIP for October 2009, the indices for September 2009 have undergone the first revision and those for July 2009 have undergone the second (final) revision in the light of the updated data received from the source agencies. (It may be noted that revised indices (first revision) in respect of August 2009 have already been released in November 2009 and these indices shall undergo final (second) revision in January 2010). 6. Statements giving Quick Estimates of the Index of Industrial Production at Sectoral, 2-digit level of National Industrial Classification On the other hand, the industry group Jute and Other Vegetable Fibre Textiles (except cotton) have shown a negative growth of

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(NIC)-1987 and by Use-based classification for the month of October 2009, along with the growth rates over the corresponding month of previous year, including the cumulative indices and growth rates, are enclosed.

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The release of the index for November 2009 will be on Tuesday, 12 January 2010. INDEX OF INDUSTRIAL PRODUCTION - SECTORAL (Base : 1993-94=100) Month Mining Manufacturing Electricity General (104.73) (793.58) (101.69) (1000.00) 2008- 2009- 20082008- 2009- 2008- 20092009-2010 2009 2010 2009 2009 2010 2009 2010 Apr 171.1 176.9 285.0 286.1 218.2 233.6 266.3 269.3 May 177.4 183.4 293.1 298.5 230.1 237.6 274.6 280.3 Jun 158.8 181.4 290.4 313.5 217.1 234.4 269.2 291.6 Jul 161.4 175.5 291.6 313.1 225.9 235.4 271.3 290.8 Aug 160.4 178.0 284.0 315.2 221.6 245.1 264.7 293.7 Sep 162.9 174.9 298.4 328.1 219.3 236.6 276.2 302.8 Oct* 175.1 189.4 278.6 309.6 231.2 242.0 262.9 290.1 Nov 175.4 286.3 216.4 267.6 Dec 188.1 304.5 223.1 284.0 Jan 188.1 304.8 227.9 284.8 Feb 183.2 297.4 212.7 276.8 Mar 209.8 326.9 241.3 305.9 Average Apr-Oct 166.7179.9 288.7309.2 223.3237.8 269.3288.4

Growth over the corresponding period of previous year Oct Apr-Oct 3.2 3.87.9 8.2 -0.6 11.1 4.57.1 4.4 2.86.5 4.7 0.1 4.37.1 10.3

* Indices for Oct 2009 are Quick Estimates.

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NOTE : Indices for the months of Jul'2009 and Sep'2009 incorporate updated production data. 8. Infrastructure

Different constituents of infrastructure have shown improvement in the current financial year. In the power sector, power generation and plant load factor are on course to achieve their annual targets. In the transport sector, the total earnings of the railways have shown an increase close to 11% during April-September 2007, while passenger traffic handled at domestic air terminals grew by about 28% during April-August 2007. An ambitious National Highway Development Programme (NHDP), involving a total investment of Rs.220,000 crore up to 2012, has been established. In telecommunications, telephone connections have increased by 65% while cell phone connections have grown by 53% during AprilAugust 2007. India Post launched its first aircraft, with a 15 tonne load capacity, in August 2007. Needless to say, India must make enormous investments in its social and economic infrastructure in the near future. The Planning Commission has estimated that the total investment in infrastructure in the 11th Five Year Plan must increase from 4.5% to around 8% of the GDP. Under the governing rules of fiscal management

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in the FRBM regime, budgetary deficits are being strictly monitored, restricting the scope for unlimited fiscal expansion. Hence, the solution to the challenge of infrastructure is partly located in public-private partnerships, which not only bridge the gap in resources but also bring in private sector expertise and efficiency in the operation and maintenance of assets. During a decade of experience with PPPs in India, The Government of India has taken several initiatives like viability gap funding, Public Private Partnership Appraisal Committee (PPPAC) and India Infrastructure Finance Company Ltd. (IIFCL) to promote PPPs.

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INDUSTRY ANALYSISThe purpose of industry analysis is to review prevailing conditions within specific industry and its segments. The company's industry obviously influences the outlook for the company. Even the best stocks can post mediocre returns if they are in an industry that is struggling. It is often said that a weak stock in a strong industry is preferable to a strong stock in a weak industry. To assess the industry group potential, an investor would want to consider the overall growth rate, market size, and its importance to economy. While the individual company is still important, its industry group is likely to exert as much as, or more, influence on the stock price. When stock move the usually move as groups; there are very few lone guns out there. An understanding of the industry sector involved, including the maturity of the sector and any cyclical effects that the overall economies have on it, is also necessary. The followings are some important factors which should be considered in Fundamental Analysis 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

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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 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.

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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.

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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

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COMPANY ANALYSISThe purpose of company analysis to analyze the financial and nonfinancial aspects of a company to determine whether to buy, sells, or holds onto the shares of a particular company After determining the economic and industry conditions, the company itself is analyzed to determine its financial health. This is usually done by studying the company's financial statements. From these statements a number of useful ratios can be calculated. The ratios fall under five main categories: profitability, price, liquidity, leverage, and efficiency. When performing ratio analysis on a company, the ratios should be compared to other companies within the same or similar industry to get a feel for what is considered "normal." These are quantitative factors of company analysis; there are also some qualitative factors which should be considered also. Find out as much as possible about the company and their products. Do they have any core competency or fundamental strength that puts them ahead of all the other competing firms? What advantage do they have over their competing firms? Do they have a strong market presence and market share? Or do they constantly have to employ a large part of their profits and resources in marketing and finding new customers and fighting for market share? At the final stage of fundamental analysis, the investor analyzes the company. This analysis has two thrusts:

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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.

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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 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 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? aggressiveness. The investor must ascertain the reason and then determine whether the reason will continue

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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 Directors Report The Directors 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--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.

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3. The Directors 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. 5. Elaborates on the directors' views of the company's prospects in the future. 6. Discusses plans for new acquisition and investments. An investor must intelligently evaluate the issues raised in a Directors 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.

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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 CASH AND BANK BALANCES LOANS AND ADVANCES

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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.

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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. (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:

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(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

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***CHAPTER 3. ANALYSIS OF DATA*** 3.1 ANALYSIS W.R.T STEEL INDUSTRYTATA STEEL Overview of Steel Industry Globally, the steel industry is facing the brunt of economic slowdown; global crude steel production has declined by 1.1% in CY 2008. Dominant among nations, China's crude steel production growth has also slowed down to 2.6% in CY 2008 compared to 15.8% recorded in CY 2007. India which contributed about 4.1% to the world's crude steel production in CY 2008 has retained its position of the fifth largest crude steel producer in the world. However, domestic steel industry is also hit by the impending economic slowdown. In this unfavorable macro-economic scenario, few questions regarding the industry come to mind: To what extent the current slowdown in the economy will take its toll on the steel industry? Will the steel regain its shine in FY 10? Will the contract prices of key raw materials cool off in the international market and to what extent? Will the domestic steel companies be able to benefit out of this? Will the domestic steel industry be able to improve its margins in the coming future? Which sectors would continue to drive the demand of steel products and to what extent? We have attempted to address these queries using the most pragmatic approach. This report on the Indian Steel Industry contains comprehensive data and analysis of the sector apart from giving outlook on the sector. With our established network of primary and secondary sources, we have captured exhaustive data on the various parameters of the industry. We have also

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forecasted the future sectorwise demand of finished steel. In addition, monthly updates included with the subscription to this report will help the user to keep abreast of the latest developments. Steel Industry in India is on an upswing because of the strong global and domestic demand. India's rapid economic growth and soaring demand by sectors like infrastructure, real estate and automobiles, at home and abroad, has put Indian steel industry on the global map. According to the latest report by International Iron and Steel Institute (IISI), India is the seventh largest steel producer in the world. The origin of the modern Indian steel industry can be traced back to 1953 when a contract for the construction of an integrated steelworks in Rourkela, Orissa was signed between the Indian government and the German companies Fried Krupp und Demag AG. The initial plan was an annual capacity of 500,000 tonnes, but this was subsequently raised to 1 million tonnes. The capacity of Rourkela Steel Plant (RSP), which belongs to the SAIL (Steel Authority of India Ltd.) group, is presently about 2 million tonnes. At a very early stage the former USSR and a British consortium also showed an interest in establishing a modern steel industry in India. This resulted in the Soviet-aided building of a steel mill with a capacity of 1 million tonnes in Bhilai and the British-backed construction in Durgapur of a foundry which also has a million tonne capacity. The Indian steel industry is organized in three categories i.e., main producers, other major producers and the secondary producers. The main producers and other major producers have integrated steel making facility with plant capacities over 0.5 MT and utilize iron ore and coal/gas for

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production of steel. The main producers are Tata Steel, SAIL, and RINL, while the other major producers are ESSAR, ISPAT and JVSL. The secondary sector is dispersed and consists of: (1) Backward linkage from about 120 sponge iron producers that use iron ore and non-coking coal, providing feedstock for steel producers; (2) Approximately 650 mini blast furnaces, electric arc furnaces, induction furnaces and energy optimizing furnaces that use iron ore, sponge iron and melting scrap to produce steel; and (3) Forward linkage with about 1,200 re-rollers that roll out semis into finished steel products for consumer use.

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Structural Weaknesses of Indian Steel Industry

Although India has modernized its steelmaking considerably,

however, nearly 6% of its crude steel is still produced using the outdated open-hearth process.

Labour productivity in India is still very low. According to an

estimate crude steel output at the biggest Indian steelmaker is roughly 144 tonnes per worker per year, whereas in Western Europe the figure is around 600 tonnes.

India has to do a lot of catching in the production of stainless steel,

which is primarily required by the plant and equipment, pharmaceutical and chemical industries.

Steel production in India is also hampered by power shortages. India is deficient in raw materials required by the steel industry.

Iron ore deposits are finite and there are problems in mining sufficient amounts of it. India's hard coal deposits are of low quality.

Insufficient

freight

capacity

and

transport

infrastructure

impediments too hamper the growth of Indian steel industry. Strengths of Indian Steel Industry

Low labour wage rates Abundance of quality manpower Mature production base Positive stimuli from construction industry Booming automobile industry

Outlook The outlook for Indian steel industry is very bright. India's lower wages

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and favourable energy prices will continue to promise substantial cost advantages compared to production facilities in (Western) Europe or the US. It is also expected that steel industry will undergo a process of consolidation since industry players are engaged in an unfettered rush for scale. This is evident from the recent acquisition of Corus by Tata. The deployment of modern production systems is also enabling Indian steel companies to improve the quality of their steel products and thus enhance their export prospects.

Sector structure/Market size The Indian steel industry entered into a new development stage from 200506, resulting in India becoming the 5th largest producer of steel globally. Producing about 55 million tonnes (MT) of steel a year, today India accounts for a little over 7 per cent of the world's total production. India is the only country across the world to post a positive overall growth in crude steel production at 1.01 per cent for the January-March period of 2009. The recovery in steel production has been aided by the improved sales performance of steel companies. The steel sector grew by 5.3 per cent in May 2009. Significantly, state-owned steel maker, Steel Authority of India (SAIL), which reported a net profit of US$ 571 million in January-June 2009, has become the most profitable steel company globally, beating steel majors such as ArcelorMittal, Posco, Bao Steel and Nippon in the half yearly profits. Production

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Steel production reached 28.49 million tonne (MT) in April-September 2009. Further, India, which recorded production of 22.14 MT of steel during April-August 2009, is likely to emerge as the world's third largest steel producer in the current year, according to Goutam Kumar Basak, Executive Secretary, Joint Plant Committee (JPC). The National Steel Policy has a target for taking steel production up to 110 MT by 201920. Nonetheless, with the current rate of ongoing greenfield and brownfield projects, the Ministry of Steel has projected India's steel capacity is expected to touch 124.06 MT by 201112. In fact, based on the status of memoranda of understanding (MoUs) signed by the private producers with the various state governments, India's steel capacity is likely to be 293 MT by 2020. Consumption India accounts for around 5 per cent of the global steel consumption. Almost 70 per cent of the total steel used is for kitchenware. However, its use in railway coaches, wagons, airports, hotels and retail stores is growing immensely. India's steel consumption rose by 5.7 per cent to 26.49 MT in the first six months of the current fiscal over the same period a year ago on account of improved demand from sectors like automobile and consumer durables. A Credit Suisse Group study states that India's steel consumption will continue to grow by 16 per cent annually till 2012, fuelled by demand for construction projects worth US$ 1 trillion. The scope for raising the total consumption of steel is huge, given that per capita steel consumption is only 35 kg compared to 150 kg across the world and 250 kg in China.

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Steel players like JSW Steel and Essar Steel are increasing their focus on opening up more retail outlets pan India with growth in domestic demand. JSW Steel currently has 50 such steel retail outlets called JSW Shoppe and is targetting to increase it to 200 by March 2010. They expect at least 1015 per cent of their total production to be sold by their retail outlets. Essar Steel which currently has over 300 retail outlets across the country, plans to set up 5,000 outlets of various formats soon. It expects to sell 3MT of steel through the retail route in two years. Exports Out of India's annual iron ore production of more than 200 MT, about 50 per cent is exported. Iron ore exports increased 17 per cent to 12.6 MT in February 2009 from 10.8 MT in the same month a year ago, owing to a moderate revival in demand from Chinese steel producers, as per the latest data compiled by a group of top Indian mining firms. Earlier, according to a study, with the rise in demand for steel in China, India's iron ore exports went up by 38 per cent to reach 13.6 MT in December 2008 against 9.8 MT in December 2007. Around 50-60 per cent of Indias iron ore is exported to China. India's exports during April-December 2008 were 64.4 MT. The government has reduced export duty on iron ore lumps from 15 per cent to 5 per cent, which has given a further fillip to exports. Further, the reduction in railway freight has also benefitted the domestic iron ore miners. Investments

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A host of steel companies have lined up major investment proposals. Furthermore, with an expanding consumer market, the Indian steel industry is likely to receive huge domestic and foreign investments.

According to the Investment Commission of India investments of over US$ 30 billion in steel are in the pipeline over the next 5 years.

Tata Steel has raised US$ 500 million by issuing 'global depository receipts' (GDRs) aiming at expansion of its Jamshedpur plant and overseas mining projects.

Steel companies have committed US$ 122.50 million for setting up sponge iron units in Koppal and Bellary in Karnataka. SAIL will invest US$ 724.12 million to set up a 4-million tonne per annum steel mill at its Bhilai Steel Plant. Uttam Galva Steel plans a capital expenditure of US$ 62.8 millionUS$ 104.6 million over the next two years for setting up of a 60 MW power plant. The power plant will help reduce its production costs.

Government Initiative Subsequent to the recent fall in international prices of commodities and to protect Indian producers, the Indian government has announced some changes in customs duty rates, which were effective from November 2008. The government has removed full exemption of customs duty on some industrial and agricultural commodities. Iron and steel products like pig iron, spiegeleisen, semi-finished products, flat products and long products are now subject to a basic custom duty of 5 per cent ad valorem.

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The Indian government plans to invest over US$ 350 billion in industries related to infrastructure and construction which will give a fillip to the steel sector. Moreover, in the Union Budget 2009-10, the government has made a 23 per cent hike in allocation for highway development and US$ 1.034 billion increase in budgetary support to Railways which will further promote the steel industry. Growth India has traditionally been one of the major producers of steel in the world. Till the 1990s the steel industry of India was regulated and controlled by government policies. After the economic reforms of the early 1990s, the Indian steel industry has evolved significantly to conform to global standards. India has set a vision to be an economically developed nation by 2020. The steel industry is expected to play a major role in India's economic development in the coming years. The steel industry of India has a very high growth potential and is expected to register significant growth in the coming decades. India is expected to emerge as a strong force in the global steel market in coming years. The two major aspects that are expected to play a significant role in the growth of the steel industry in India are Abundant availability of iron ore in the country The country has well established facilities for steel production Steel production in India has grown from 17 MT in 1990 to 36 MT in

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2003. It is expected that by 2011, the steel production in India will grow to 66 MT. The major sectors where consumption of steel is expected to grow in the coming years are Construction Housing Ground transportation Hi-tech engineering industries such as power generation, petrochemicals, fertilizers. The current scenario of the Indian steel industry indicates that there is huge growth potential in this industry. The per capita-consumption of steel in India, according to latest available estimates, is only 29 kg. This is much less compared to the global average of 140kg. The per capita consumption level of developed nations like the United States of America is 400kg. In this respect, one of the major initiatives that need to be taken is to focus on increasing the consumption of steel in the rural areas of India. The potential for the growth of consumption of steel in the rural areas of India for purposes like rural housing, rural infrastructure, etc is high which needs to be tapped efficiently. In order to realize the growth potential in the steel industry of India, it is essential to ensure that the industry can remain competitive. One of the major aspects in this regard is the availability of inputs. Shortage of inputs like coke has led to increase in costs earlier. Moreover proper infrastructure facilities like transport infrastructure, power etc are of prime importance in maintaining the competitiveness of the industry.

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Most developed countries have regulations that are aimed to protect the domestic steel industry. The Indian steel industry has comparatively much lesser protection through regulations. Proper regulatory measures should be adopted by the government to protect the domestic steel industry.

Impact of Budget on Steel Industry The budget impact for the steel industry is expected to be neutral with no effect on industry profitability. Since there has been no change in the customs or Central Value Added Tax duty related to steel products, the prices are not to be impacted.

However, with the provision of higher investment in infrastructure segments such as roads, railways and urban infrastructure under Jawaharlal Nehru National Urban Renewal Mission (JNNURM), the demand for steel is likely to improve marginally. Road ahead While the demand for steel will continue to grow in traditional sectors such as infrastructure, construction, housing automotive, steel tubes and pipes, consumer durables, packaging, and ground transportation, specialised steel will be increasingly used in hi-tech engineering industries such as power generation, petrochemicals, fertilizers, etc. The new airports and railway metro projects will require a large amount of stainless steel. According to an estimate, with the growing need for oil and gas transportation infrastructure, a US$ 118 billion opportunity is waiting to be tapped by steel manufacturers in the next five years. Indian steelmakers are set to make the most of booming global demand for steel pipes and

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tubes with the government withdrawing the 10 per cent duty on the exports of these products. According to a study by ICICI Direct, Indian steel companies are likely to get 19 per cent of the total global demand in the years to come. Micheal Porters Analysis Backed by robust volumes as well as realizations, steel Industry has registered a phenomenal growth across the world over the past few years. The situation in the domestic industry was no exception. In fact, it enjoyed a double digit growth rate backed by a robust growing economy. However, the current liquidity crisis seems to have created medium term hiccups. In this article, we have analyzed the domestic steel sector through Michael Porters five force model so as to understand the competitiveness of the sector.

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Entry barriers: High Capital Requirement: Steel industry is a capital intensive

business. It is estimated that to set up 1 mtpa capacity of integrated steel plant, it requires between Rs 25 bn to Rs 30 bn depending upon the location of the plant and technology used. Economies of scale: As far as the sector forces go, scale of

operation does matter. Benefits of economies of scale are derived in the form of lower costs, R& D expenses and better bargaining power while sourcing raw materials. It may be noted that those steel companies, which are integrated, have their own mines for key raw materials such as iron ore and coal and this protects them for the potential threat for new entrants to a significant extent.

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Government Policy: The government has a favorable policy for

steel manufacturers. However, there are certain discrepancies involved in allocation of iron ore mines and land acquisitions. Furthermore, the regulatory clearances and other issues are some of the major problems for the new entrants. Product differentiation: Steel has very low barriers in terms of

product differentiation as it doesnt fall into the luxury or specialty goods and thus does not have any substantial price difference. However, certain companies like Tata Steel still enjoy a premium for their products because of its quality and its brand value created more than 100 years back. Bargaining power of buyers: Unlike the FMCG or retail sectors, the buyers have a low bargaining power. However, the government may curb or put a ceiling on prices if it feels the need to do so. The steel companies either sell the steel directly to the user industries or through their own distribution networks. Some companies also do exports. Competition: High The steel industry is truly global in terms of competition with large producing countries like China significantly influencing global prices through aggressive exports. Steel, being a commodity it is, branding is not common and there is little differentiation between competing products. It is medium in the domestic steel industry as demand still exceeds the supply. India is a net importer of steel. However, a threat from dumping of cheaper products does exist.

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Bargaining power of suppliers: High The bargaining power of suppliers is low for the fully integrated steel plants as they have their own mines of key raw material like iron ore coal for example Tata Steel. However, those who are nonintegrated or semi integrated has to depend on suppliers. An example could be SAIL, which imports coking coal. Globally, the Top three mining giants BHP Billiton, CVRD and Rio Tinto supply nearly two-thirds of the processed iron ore to steel mills and command very high bargaining power. In India too, NMDC is a major supplier to standalone and nonintegrated steel mills. Threat of substitutes: Low Plastics and composites pose a threat to Indian steel in one of its biggest markets automotive manufacture. For the automobile industry, the other material at present with the potential to upstage steel is aluminium. However, at present the high cost of electricity for extraction and purification of aluminium in India weighs against viable use of aluminium for the automobile industry. Steel has already been replaced in some large volume applications: railway sleepers (RCC sleepers), large diameter water pipes (RCC pipes), small diameter pipes (PVC pipes), and domestic water tanks (PVC tanks). The substitution is more prevalent in the manufacture of automobiles and consumer durables.

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Bargaining power of Consumers: Mixed Some of the major steel consumption sectors like automobiles, oil & gas, shipping, consumer durables and power generation enjoy high bargaining power and get favorable deals. However, small and retail consumers who are scattered and consume a significant part do not enjoy these benefits.

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3.2 ANALYSIS W.R.T. BANKING INDUSTRYOverview of Banking Industry The Indian banking system is financially stable and resilient to the shocks that may arise due to higher non-performing assets (NPAs) and the global economic crisis, according to a stress test done by the Reserve Bank of India (RBI). Significantly, the RBI has the tenth largest gold reserves in the world after spending US$ 6.7 billion for the purchase of 200 metric tonnes of gold from the International Monetary Fund (IMF). The purchase has increased RBIs share of gold holdings from approximately 4 per cent to about 6 per cent. Following the recent financial crisis, new deposits have gravitated towards the public sector banks. According to RBI's 'Quarterly Statistics on Deposits and Credit of Scheduled Commercial Banks: June 2009', nationalised banks, as a group, accounted for 49.7 per cent of the aggregate deposits, while State Bank of India (SBI) and its associates accounted for 24.2 per cent. The share of other scheduled commercial banks, foreign banks and regional rural banks in aggregate deposits were 17.5 per cent, 5.6 per cent and 2.9 per cent, respectively. With respect to gross bank credit also, nationalised banks hold the highest share of 50.4 per cent in the total bank credit, with SBI and its associates at 23.5 per cent and other scheduled commercial banks at 18.0 per cent. Foreign banks and regional rural banks had a share of 5.7 per cent and 2.4 per cent respectively in the total bank credit.

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The report also found that scheduled commercial banks served 34,676 banked centres. Of these centres, 28,167 were single office centres and 62 centres had 100 or more bank offices. The confidence of non-resident Indians (NRIs) in the Indian economy is reviving again. NRI deposits have increased by nearly US$ 3.7 billion in the first four months of 2009-10, despite the volatile movements in the interest rates. NRI fund inflows increased since April 2009 and touched US$ 45.33 billion till July 2009, as per the RBI's September bulletin. Most of this has come through Foreign Currency Non-resident (FCNR) accounts and Non-resident External Rupee Accounts. India's foreign exchange reserves rose to US$ 281.861 billion as on October 9, 2009 as against US$ 253.0 billion in April 10, 2009. India has finalized negotiations for a US$ 2 billion loan from the World Bank to help recapitalize state-run banks. Banking in India has a long and elaborate history of more than 200 years. The beginning of this industry can be traced back to 1786, when the countrys first bank, Bank of Bengal, was established. But the industry changed rapidly and drastically, after the nationalization of banks in 1969. As a result, the public sector banks began experiencing numerous positive changes and enormous growth. Then came the much-talked-about liberalization and economic reforms that allowed banks to explore new business opportunities and not just remain constrained to generating revenues from mere borrowing and lending. This provided the Indian banking scenario a remarkable facelift that only continues to get better with time. However, even today, despite the foray of foreign banks in the country, nationalized banks continue to be biggest lenders in the country. This is primarily due to the size of the banks and the penetration of the networks.

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Structure The Indian banking system can be classified into nationalized banks, private banks and specialized banking institutions. The industry is highly fragmented with 30 banking units contributing to almost 50% of deposits and 60% of advances. The Reserve Bank of India is the foremost monitoring body in the Indian Financial sector. It is a centralized body that monitors discrepancies and shortcomings in the system. Industry estimates indicate that out of 274 commercial banks operating in the country, 223 banks are in the public sector and 51 are in the private sector. These private sector banks include 24 foreign banks that have begub their operations here. The specialized banking institutions that include cooperatives, rural banks, etc. form a part of the nationalized banks category. Opportunities The Banking sector is considered the most lucrative option in todays job market. In the industry, a position in Treasury or Forex is considered right on top and this is followed by careers in Private Banking, Investment Banking and Retail Banking. One could work in a variety of areas in banking industry including Recurring Deposit account, banking officer, probationary officer, loan officer, assessor, personal loan officer, home loan officer, home loan agent, loan manager, mortgage loan underwriter, loan processing officer, accountant, product marketing and sales executive, and customer service executive among others. In the Financial Services, some of the important jobs include that of a stockbroker who is essentially a person who buys and sells securities on behalf of individuals and institutions for some commission. While some brokers like to practice with individual clients others work for institutions. Brokers who work for institutional investors are often called securities

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traders. Many prefer to work as dealers, advisors and securities analysts. Security analysts are those who advise companies on floatations of shares as they are expected to have sound knowledge of capital markets. Investment analysts are the backbone of the financial services sector. They study the financial reports of companies, assess various statistical information, profitability projections, compare financial results, survey the industry as a whole and on the basis of the available information, and finally conclude to a decision. Equity Analysts do jobs similar to investment analysts and research the equity markets and make predictions. Major Developments A robust increase in non-interest income has helped the SBI post a net profit of US$ 530.6 million in the second quarter ended September 30, 2009, up 10 per cent from the corresponding period last year. The bank has been growing its savings bank deposit base at the rate of US$ 1.07 billion a month in the last few months, in a bid to grow low-cost deposits and shed high-cost term deposits. This is expected to improve net interest margin by 10-15 basis points in every quarter. The SBI is adding 23 new branches abroad bringing its foreign-branch network number to 160 by March 2010. This will cement its leading position as the bank with the largest global presence among local peers. Amongst the private banks, Axis Banks net profit surged by 32 per cent to US$ 115.4 million on 21.2 per cent rise in total income to US$ 852.16 million in the second quarter of 2009-10, over the corresponding period last year. HDFC Bank, the countrys second largest private sector lender, reported a 30.21 per cent rise in its quarterly net profit, helped by noninterest income.

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For the quarter ended September 2009, ICICI Bank reported a 2.6 per cent jump in net profit at US$ 222.1 million from US$ 216.5 million in the same period a year-back. ICICI Bank has raised US$ 750 million through a five-year bond issue at its Bahrain branch. YES Bank, a new private sector bank, has inked pact with Proparco, a French financing agency, to raise US$ 20 million capital through subordinated bonds to enhance capital adequacy. Government Initiatives In its platinum jubilee year, the RBI, the central bank of the country, in a notification issued on June 25, 2009, said that banks should link more branches to the National Electronic Clearing Service (NECS). Ideally, all core-banking-enabled branches should be part of NECS. NECS was introduced in September 2008 for centralised processing of repetitive and bulk payment instructions. Currently, a little over 26,000 branches of 114 banks are enabled to participate in NECS. In the Second Quarter Review of Monetary Policy for 2009-10, RBI observed that the global economy was showing incipient signs of recovery and the prospects for the domestic economy were improving. To aid the financial recovery, the RBI has introduced a substantial reduction in policy rates since October 2008: the repo rate by 425 basis points and the reverse repo rate by 275 basis points. The CRR was also reduced by 400 basis points. Banks used the ample liquidity available with them to make large investments in government securities and also fairly sizeable investments (of the order of US$ 19.59 billion during the current financial year so far) in units of mutual funds.

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According to the RBI, the stance of monetary policy for the remaining period of 2009-10 will be to: Keep a vigil on the trends in inflation and be prepared to respond

swiftly and effectively through policy adjustments to stabilise inflation expectations. Monitor the liquidity situation closely and manage it actively to ensure that credit demands of productive sectors are adequately met while also securing price stability and financial stability. Maintain a monetary and interest rate regime consistent with price Meanwhile, the RBI has restored the Statutory Liquidity Ratio stability and financial stability, and supportive of the growth process. (SLR) back to 25 per cent on October 27, 2009, which was reduced to 24 per cent in November 2008. The money supply (M3) growth on a year-on-year basis at 18.9 per cent as on October 9, 2009, remained above the indicative projection of 18.0 per cent set out in the First Quarter Review of July 2009. The main source of M3 expansion was bank credit to the government. Reflecting large market borrowings of the Government. Impact of Budget on banking sector Emphasis has been laid on priority sector lending. Refinance schemes of Rs 40 billion and Rs 20 billion will enhance credit flow to micro and small enterprises and rural housing, respectively. For 2009-10, banks have been directed to lend Rs 3,250 billion to the farm sector - a 13 per cent increase over the previous year. The reduction in targeted growth rate, over the

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previous year, will give banks a breather to consolidate their origination systems for farm credit. However, continuation of interest subvention scheme and additional subvention of 1 per cent (for farmers who repay on schedule) along with extension of debt waiver and debt relief scheme might impact the banks' profitability. Micheal Porters Model The nature of competition in the industry in large part determines the content of strategy, especially business level strategy .based it is on the fundamental economics of the industry, the very profit potential of an industry is determine by competition interaction. Where these interactions are intense, profit tends to be whittled away by the activities of competing. Porters model is based on the insight that a corporate strategy should meet the opportunities and threats in the organizations external environment. Especially, competitive strategy should base on and understanding of industry structures and the way they change. Porter has identified five competitive forces that shape every industry and every market. These forces determine the intensity of competition and hence the profitability and attractiveness of an industry. The objective of corporate strategy should be to modify these competitive forces in a way that improves the position of the organization. Porters model supports analysis of the driving forces in an industry. Based on the information derived from the Five Forces Analysis, management can decide how to influence or to exploit particular characteristics of their industry.

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Bargaining power of suppliers is very low Nature of suppliers Few alternatives RBI rules and regulations Suppliers are not concentrated forward integration

Threat of competitors Barriers to entry Product differentiation very difficult Licensing requirement Large no of banks High market growth rate Low switching costs Undifferentiated services High fixed cost High exit barriers

Threat of substitute Non banking financial sector increasing rapidly Deposits in posts Stock Market

Bargaining power of consumer very high Large no. of alternatives Low switching costs Undifferentiated services Full information about the market

Rivalry among Competing Firms Rivalry among competitors is very fierce in Indian Banking Industry. The services banks offer is more of homogeneous which makes the Company to offer the same service at a lower rate and eat their competitor markets share. Market Players use all sorts of aggressive selling strategies and activities from intensive advertisement campaigns to promotional stuff. Even consumer switch from one bank to another, if

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there is a wide spread in the interest. Hence the intensity of rivalry is very high. The no of factors has contributed to increase rivalry those are. 1. A large no of banks There is so many banks and non financial institution fighting for same pie , which has intensified competition? 2. High market growth rate India is seen as one of the biggest market place and growth rate in Indian banking industry is also very high. This has ignited the competition. 3. Homogeneous product and services The services banks offer is more of homogeneous which makes the company to offer the same service at a lower rate and eat their competitor markets share. 4. Low switching cost Costumers switching cost is very low, they can easily switch from one bank to another bank and very little loyalty exist . 5. Undifferentiated services Almost every bank provides similar services. Every bank tries to copy each other services and technology which increase level of competition. 6. High fixed cost 7. High exit barriers High exit barriers humiliate banks to earn profit and retain customers by providing world class services. 8. Low government regulations There are low regulations exist to start a new business due LPG policy adopted by India.

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BARGAINING POWER OF SUPPLIERS Banking industry is governed by Reserve Bank of India. Reserve Bank of India is the authority to take monetary action which leads to direct impact on circulation of money in the Economy. The rules and regulation lay down by RBI. Suppliers of banks are depositors .these are those people who have excess money and prefer regular income and safety. In banking industry suppliers have low bargaining power. 1. Nature of suppliers Suppliers of banks are those people who prefer low risk and those who need regular income and safety as well. Banks best place for them to deposits theirs surplus money. 2. Few alternatives 3. RBI rules and regulations Banks are subject to RBI rules and regulations. Bank has to behave in a way that RBI wants. So RBI takes all decisions related to interest rates. This reduces bargaining power of suppliers. 4. Suppliers not concentrated Banking industry suppliers sure not concentrated. There are numerous with negligible portion of offer .so this reduce their bargaining power. BARGAINING POWER OF CONSUMERS In today world, Customer is the King. Banks offers different services According to clients need and requirement. They offer loans at Prime Lending Rate (PLR) to their trust worthy clients and higher rate to others clients.

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Customers of banks are those who take loans and uses services of banks. Customers have high bargaining power. These are 1. Large no of alternatives Customers have large no of alternatives, there are so many banks, which fight for same pie. There are many non financial institutions like icici, hdfc, and ifci, etc. which has also jump into these business .there are foreign banks , privet banks, co-operative banks and development banks together with specialized financial companies that provides finance to customers .these all increase preference for customers. 2. Low switching cost Cost of switching from one bank to another is low. Banks are also providing zero balance account and other types of facilities. They are free to select any banks service. Switching cost are becoming lower with internet banking gaining momentum and a result customers loyalties are harder to retain. 3. Undifferentiated service Bank provide merely similar service there are no much diffracted in service provides by different banks so, bargaining power of customers increase. They can not be charged for differentiation. 4. Full information about the market Customers have full information about the market due to globalization and digitalization Consumers have become advance and sophisticated .they are aware with each market condition so banks have to be more completive and customer friendly to serve them. For good creditworthy borrowers bargaining power is high due to the availability of large number of banks.

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POTENTIAL ENTRY OF NEW COMPETITORS Reserve Bank of India has laid out a stagnant rules and regulation for new entrant in Banking Industry. We expect merger and acquisition in the banking industry in near future. Hence, the industry is less porn of new competitor. Barriers to an entry in banking industry no longer exist. So lots of privet and foreign banks are entering in the market. Competitors can come from an industry to disintermediate bank product differentiation is very difficult for banks and exit is difficult. So every bank strives to survive in highly competitive market so we see intense competitive can mergers and acquisitions. Government policies are supportive to start new bank. There is less statutory requirement needed to start a new venture? Every bank to tries to achieve economics of scale through use of technology and selecting and training manpower. There are public sector banks, private sector and foreign banks along with non banking finance companies competing in similar business segments. POTENTIAL DEVELOPMENT OF SUBSTITUTE PRODUCTS Every day there is one or the other new product in financial sector. Banks are not limited to tradition banking which just offers deposit and lending. In addition, today banks offers loans for all products, derivatives, ForEx, Insurance, Mutual Fund, Demit account to name a few. The wide range of choices and needs give a sufficient room for new product development and product enhancement. Substitute products or services are those, which are different but satisfy the same set of customers. In private banking industry following are the substitutes:

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NBFC: Non-banking financial Institutions play an important role in giving financial assistance. Mobilization of financial resources outside the traditional banking system has witnessed a tremendous growth in recent years in the India. NBFC is a close substitute of banking in respect of raising funds. Borrower can easily raise funds from NBFC because it requires less formal procedure for getting funds compare to private banks. Post Office Products: Post office is also providing some service like fixed deposit facility, saving account, recurring account etc. The interest rate of saving account is higher than private banks. It is fully secured by the government so people who do not want to take risk for them post office saving is good substitute. Government Bond: Govt. Bond also attracts savings from the general public. It is less risky and more secured as compare to savings in private banks. Mutual Funds: Mutual funds are also now proving as good substitutes for banks. They assure for providing high return with less time in comparison of banks. The administrative expenses are also very low as compared to banks. Investment in Mutual funds is more flexible than investment in banks. Stock Market: People who are ready to bear risk and wants a high return on their investment, stock market is a good substitute for them. Day by day investors are moving towards stock market as interest rate in banks are decreasing. So now stock market has proved as a big competitor for baking sector. Debentures: Debentures is also proved as a good substitute of banks fixed deposit as return on debenture is fixed and high. There are

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different types of debentures, which attract various classes of investors. Other Investment Alternatives: Now common peoples attraction is shifting from banks to other various alternatives such as gold, precious metals, land, small savings etc. As we can see the growing trend in these alternatives in comparison of decreasing interest rates in banks.

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3.3 ANALYSIS W.R.T TATA STEELTATA STEEL Shareholding PatternShareholding Pattern

0.59 24.21 31.25 Promoter Institution Non-Institution Other 43.95

The companys shareholding constitutes 31.25% of promoters holdings. The larger contribution goes to Institutions holding i.e institutional buyers as well as FIIs which contributes 43.95% of holding. On the other side Non-institution