Project of Infrastructure
Transcript of Project of Infrastructure
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Summary
Infrastructure IndustryInfrastructure Industry in India have been experiencing a rapid growth in
its different sectors with the development of urbanization and increasing
involvement of foreign investments in this field. The Indian government has
taken initiatives to develop the infrastructure sector, with major
emphasis on construction, engineering, IT, entertainment, textiles, food,and utility to name some.
Reports of different segments in Infrastructure Industry:
The section of the construction industry ofInfrastructure Industry in
India reported an estimated growth of 6.78% year-on-year in 2006. The
industry in India is highly fragmented and has about 300,000 construction
companies operating nationwide. The government has allowed 100%
foreign equity in the construction industry. Among the major
infrastructure projects are the US$7-8bn India-Iran gas pipeline, the
US$2.8bn construction of two power plants, and the US$2.3bn power
project in Tamil Nadu.
Heavy Engineering Industry is one of the largest segments of
Infrastructure Industry in India. It includes a whole range of industries
such as Heavy Electricity Machinery, Turbines, Generators, Transformers,
Switchgears, Textile Machinery etc. all of which are essential infrastructure
for the development of industrial sector in India. For proper industrial
development the utility commodities like the switchgear and control gear,
MCBs, air circuit breakers, switches, rewireable fuses and HRC fuses withtheir respective fuse bases, holders and starters are produced. Construction
machinery, equipment for irrigation projects, diesel engines, tractors, and
transport vehicles, cotton textile and sugar mill machinery are other
manufactured objects of great demand of the Infrastructure Industry.
Some major areas where these are in use are the multi-crore projections for
power generation like nuclear power stations, petrochemical complexes,
and chemical plants integrated steel plants, non-ferrous metal units etc. In
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CONTENTS
Chapter
No. Name of the concept Page No.
I
Introduction 1
Need of the study 2
Objectives of the study 3
Scope of the study 4
Methodology of the study 5
Limitations of the study 6
II Review of Literature 7-22
III Industry Profile 23-42
IV Company Profile 43-52
V Data analysis and interpretation 53-73
VIFindings, Suggestions and
Conclusion74-80
VII Bibliography 81
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CHAPTER I - INTRODUCTION
INTRODUCTION
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India is a developing country. Nowadays many people are interested to
invest in financial markets especially on equities to get high returns, and to
save tax in honest way. Equities are playing a major role in contribution ofcapital to the business from the beginning. Since the introduction of shares
concept, large numbers of investors are showing interest to invest in stock
market.
In an industry plagued with skepticism and a stock market increasingly difficult to
predict and contend with, if one looks hard enough there may still be a genuine aid for
the Day Trader and Short Term Investor.
The price of a security represents a consensus. It is the price at which one person agreesto buy and another agrees to sell. The price at which an investor is willing to buy or sell
depends primarily on his expectations. If he expects the security's price to rise, he will
buy it; if the investor expects the price to fall, he will sell it. These simple statements
are the cause of a major challenge in forecasting security prices, because they refer to
human expectations. As we all know firsthand, humans expectations are neither easily
quantifiable nor predictable. If prices are based on investor expectations, then knowing
what a security should sell for (i.e., fundamental analysis) becomes less important than
knowing what other investors expect it to sell for. That's not to say that knowing what a
security should sell for isn't important--it is. But there is usually a fairly strong
consensus of a stock's future earnings that the average investor cannot disprove
Fundamental analysis and technical analysis can co-exist in peace and complement
each other. Since all the investors in the stock market want to make the maximum
profits possible, they just cannot afford to ignore either fundamental or technical
analysis.
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NEED OF THE STUDY
To start any business capital plays major role. Capital can be acquired in
two ways by issuing shares or by taking debt from financial institutions or
borrowing money from financial institutions. The owners of the company
have to pay regular interest and principal amount at the end.
Stock is ownership in a company, with each share of stock representing a
tiny piece of ownership. The more shares you own, the more of the
company you own. The more shares you own, the more dividends you earn
when the company makes a profit. In the financial world, ownership is
called Equity.
Advantages of selling stock:
A company can raise more capital than it could borrow.
A company does not have to make periodic interest payments to
creditors.
A company does not have to make principal payments
Stock/shares play a major role in acquiring capital to the business in return
investors are paid dividends to the shares they own. The more shares you
own the more dividends you receive.
The role of equity analysis is to provide information to the market. An
efficient market relies on information: a lack of information creates
inefficiencies that result in stocks being misrepresented (over or under
valued). This is valuable because it fills information gaps so that each
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individual investor does not need to analyze every stock thereby making
the markets more efficient.
OBJECTIVES OF THE STUDY
Analyze earnings persistence,its determinants,and its relevance for
earnings forecasting.
Analyze the impact of qualitative factors on industrys and companys
prospects.
Comparative analysis of tough competitors through fundamental
analysis.
Suggesting as to which companys shares would be best for an
investor to invest.
Describe equity valuation and its relevance for financial
analysis.
Explain recasting and adjusting of earnings and earnings
components for analysis.
Explain earnings forecasting,its mechanics,and its effectiveness
in assessing company performance.
Analyze interim reports and consider their value in monitoring
and revising earnings estimates.
SCOPE OF THE STUDY
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Fundmental analysis is the corner stone of investing.Infact ,some would say
that you arent really investing if you arent performing fundamental
analysis.Because the subject is so broad,however,its tough to know
where to start.
Fundamental analysis helps to assess the fair market value of equity shares
by examining the assets,earnings prospects, cash flow projections, and
dividend potential.
Here the study conducted at SHARE KHAN LTD is made toanalyze the price fluctuating in the stock market.For this purpose Ihave choosen the major sector i.e INFRASTRUCTURE.Five topconstruction companies are considered from this sector for thestudy purpose.
. The project is based on tools like fundamental analysis and ratio analysis.
Further, the study is based on information of last five years.
The analysis is made by taking into consideration five constructuction
companies i.e. .LARSEN&TOUBRO,DLF,HINDUSTAN CONSTRUCTION
COMPANY,PUNJ Lloyd,GAMMON INDIA.
The scope of the study is limited for a period of five years.
The scope is limited to only the fundamental analysis of the chosen
stocks.
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METHODOLOGY
Research design or research methodology is the procedure of collecting,
analyzing and interpreting the data to diagnose the problem and react to
the opportunity in such a way where the costs can be minimized and the
desired level of accuracy can be achieved to arrive at a particular
conclusion.
The methodology used in the study for the completion of the project and
the fulfillment of the project objectives.
The sample of the stocks for the purpose of collecting secondary data has
been selected on the basis of Random Sampling. The stocks are chosen in
an unbiased manner and each stock is chosen independent of the other
stocks chosen. The stocks are chosen from the automobile sector.
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The sample size for the number of stocks is taken as 5 for
fundamental analysis of stocks as fundamental analysis is very
exhaustive and requires detailed study.
LIMITATIONS
This study has been conducted purely to understand Equity analysis
for investors.
The study is restricted to five companies based on Fundamental
analysis.
The study is limited to the companies having equities.
Detailed study of the topic was not possible due to limited size of the
project.
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There was a constraint with regard to time allocation for the research
study i.e. for a period of 45 days.
Suggestions and conclusions are based on the limited data of five
years.
CHAPTER II - REVIEW OF LITERATURE
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SECURITY ANALYSIS
Investment success is pretty much a matter of careful selection and timing
of stock purchases coupled with perfect matching to an individuals risk
tolerance. In order to carry out selection, timing and matching actions an
investor must conduct deep security analysis.
Investors purchase equity shares with two basic objectives;
1. To make capital profits by selling shares at higher prices.
2. To earn dividend income.
These two factors are affected by a host of factors. An investor has to
carefully understand and analyze all these factors. There are basically two
approaches to study security prices and valuation i.e. fundamental analysis
and technical analysis
The value of common stock is determined in large measure by the
performance of the firm that issued the stock. If the company is healthy and
can demonstrate strength and growth, the value of the stock will increase.
When values increase then prices follow and returns on an investment will
increase. However, just to keep the savvy investor on their toes, the mix is
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complicated by the risk factors involved. Fundamental analysis examines all
the dimensions of risk exposure and the probabilities of return, and merges
them with broader economic analysis and greater industry analysis to
formulate the valuation of a stock.
FUNDAMENTAL ANALYSIS
Fundamental analysis is a method of forecasting the future price
movements of a financial instrument based on economic, political,
environmental and other relevant factors and statistics that will affect the
basic supply and demand of whatever underlies the financial instrument. It
is the study of economic, industry and company conditions in an effort to
determine the value of a companys stock. Fundamental analysis typically
focuses on key statistics in companys financial statements to determine if
the stock price is correctly valued. The term simply refers to the analysis of
the economic well-being of a financial entity as opposed to only its price
movements.
Fundamental analysis is the cornerstone of investing. The basic philosophy
underlying the fundamental analysis is that if an investor invests re.1 in
buying a share of a company, how much expected returns from this
investment he has.
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The fundamental analysis is to appraise the intrinsic value of a security. It
insists that no one should purchase or sell a share on the basis of tips and
rumors. The fundamental approach calls upon the investors to make his buy
or sell decision on the basis of a detailed analysis of the information about
the company, about the industry, and the economy. It is also known as
top-down approach. This approach attempts to study the economic
scenario, industry position and the company expectations and is also known
as economic-industry-company approach (EIC approach).
FUNDAMENTAL ANALYSIS
Fundamental analysis is a method of forecasting the future price
movements of a financial instrument based on economic, political,
environmental and other relevant factors and statistics that will affect the
basic supply and demand of whatever underlies the financial instrument. It
is the study of economic, industry and company conditions in an effort to
determine the value of a companys stock. Fundamental analysis typically
focuses on key statistics in companys financial statements to determine if
the stock price is correctly valued. The term simply refers to the analysis of
the economic well-being of a financial entity as opposed to only its price
movements.
Fundamental analysis is the cornerstone of investing. The basic philosophy
underlying the fundamental analysis is that if an investor invests re.1 in
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buying a share of a company, how much expected returns from this
investment he has.
The fundamental analysis is to appraise the intrinsic value of a security. It
insists that no one should purchase or sell a share on the basis of tips and
rumors. The fundamental approach calls upon the investors to make his buy
or sell decision on the basis of a detailed analysis of the information about
the company, about the industry, and the economy. It is also known as
top-down approach. This approach attempts to study the economic
scenario, industry position and the company expectations and is also known
as economic-industry-company approach (EIC approach).
Thus the EIC approach involves three steps:
1. Economic analysis
2. Industry analysis
3. Company analysis
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1. ECONOMIC ANALYSIS
The level of economic activity has an impact on investment in many ways. If
the economy grows rapidly, the industry can also be expected to show rapid
growth and vice versa. When the level of economic activity is low, stock
prices are low, and when the level of economic activity is high, stock prices
are high reflecting the prosperous outlook for sales and profits of the firms.
The analysis of macro economic environment is essential to understand the
behavior of the stock prices.
The commonly analyzed macro economic factors are as follows:
Gross Domestic Product (GDP): GDP indicates the rate of growth of the
economy. It represents the aggregate value of the goods and services
produced in the economy. It consists of personal consumption expenditure,
gross private domestic investment and government expenditure on goods
and services and net exports of goods and services. The growth rate of
economy points out the prospects for the industrial sector and the return
investors can expect from investment in shares. The higher growth rate is
more favorable to the stock market.
Savings and investment: It is obvious that growth requires investment
which in turn requires substantial amount of domestic savings. Stock
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market is a channel through which the savings are made available to the
corporate bodies. Savings are distributed over various assets like equity
shares, deposits, mutual funds, real estate and bullion. The savings and
investment patterns of the public affectthe stock to a great extent.
Inflation: Along with the growth of GDP, if the inflation rate also increases,
then the real growth would be very little. The effects of inflation on capital
markets are numerous. An increase in the expected rate of inflation is
expected to cause a nominal rise in interest rates. Also, it increases
uncertainty of future business and investment decisions. As inflation
increases, it results in extra costs to businesses, thereby squeezing their
profit margins and leading to real declines in profitability.
Interest rates: The interest rate affects the cost of financing to the firms.
A decrease in interest rate implies lower cost of finance for firms and more
profitability. More money is available at a lower interest rate for the brokers
who are doing business with borrowed money. Availability of cheap funds
encourages speculation and rise in the price of shares.
Tax structure: Every year in March, the business community eagerly
awaits the Governments announcement regarding the tax policy.
Concessions and incentives given to a certain industry encourage
investment in that particular industry. Tax reliefs given to savings
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encourage savings. The type of tax exemption has impact on the
profitability of the industries.
FOREIGN DIRECT INVESTMENT:(FDI)or foreign investment refers to the net
inflows of investment to acquire a lasting management intrest (10 percentor more of voting stock) in an enterprice operating in an economy other
than that of the investor. It is the sum of equity capital,reinvestments of
earning ,other long term capital,and short term capital as shown in the
balance of payments.
Infrastructure facilities: Infrastructure facilities are essential for the
growth of industrial and agricultural sector. A wide network of
communication system is a must for the growth of the economy. Regular
supply of power without any power cut would
boost the production. Banking and financial sectors also should be sound
enough to provide adequate support to the industry. Good infrastructure
facilities affect the stock market favorably.
2.INDUSTRY ANALYSIS
An industry is a group of firms that have similar technological structure of
production and produce similar products and Industry analysis is a type of
business research that focuses on the status of an industry or an industrial
sector (a broad industry classification, like "manufacturing"). Irrespective of specific
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economic situations, some industries might be expected to perform better, and share prices in these industries may
not decline as much as in other industries. This identification of economic and industry specific factors influencing
share prices will help investors to identify the shares that fit individual expectations
Industry Life Cycle: The industry life cycle theory is generally attributed
to Julius Grodensky. The life cycle of the industry is separated into four well
defined stages.
Pioneering stage: The prospective demand for the product is
promising in this stage and the technology of the product is low. The
demand for the product attracts many producers to produce the
particular product. There would be severe competition and only
fittest companies survive this stage. The producers try to develop
brand name, differentiate the product and create a product image. In
this situation, it is difficult to select companies for investment
because the survival rate is unknown.
Rapid growth stage: This stage starts with the appearance of
surviving firms from the pioneering stage. The companies that have
withstood the competition grow strongly in market share and
financial performance. The technology of the production would have
improved resulting in low cost of production and good quality
products. The companies have stable growth rate in this stage and
they declare dividend to the shareholders. It is advisable to invest in
the shares of these companies.
Maturity and stabilization stage: the growth rate tends to
moderate and the rate of growth would be more or less equal to the
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industrial growth rate or the gross domestic product growth rate.
Symptoms of obsolescence may appear in the technology. To keep
going, technological innovations in the production process and
products should be introduced. The investors have to closely monitor
the events that take place in the maturity stage of the industry.
Decline stage: demand for the particular product and the earnings
of the companies in the industry decline. It is better to avoid
investing in the shares of the low growth industry even in the boom
period. Investment in the shares of these types of companies leads to
erosion of capital.
Growth of the industry: The historical performance of the industry in
terms of growth and profitability should be analyzed. The past variability in
return and growth in reaction to macro economic factors provide an insight
into the future.
Nature of competition: Nature of competition is an essential factor that
determines the demand for the particular product, its profitability and the
price of the concerned company scrips. The companies' ability to withstand
the local as well as the multinational competition counts much. If too many
firms are present in the organized sector, the competition would be severe.
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The competition would lead to a decline in the price of the product. The
investor before investing in the scrip of a company should analyze the
market share of the particular company's product and should compare it
with the top five companies.
SWOT analysis: SWOT analysis represents the strength, weakness,
opportunity and threat for an industry. Every investor should carry out a
SWOT analysis for the chosen industry. Take for instance, increase in
demand for the industrys product becomes its strength, presence of
numerous players in the market, i.e. competition becomes the threat to a
particular company. The progress in R & D in that industry is an opportunity
and entry of multinationals in the industry is a threat. In this way the factors
are to be arranged and analyzed.
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3. COMPANY ANALYSIS
In the company analysis the investor assimilates the several bits of
information related to the company and evaluates the present and future
values of the stock. The risk and return associated with the purchase of the
stock is analyzed to take better investment decisions. The present and
future values are affected by a number of factors.
Competitive edge of the company: Major industries in India are
composed of hundreds of individual companies. Though the number of
companies is large, only few companies control the major market share.
The competitiveness of the company can be studied with the help of the
following;
Market share: The market share of the annual sales helps to
determine a companys relative competitive position within the
industry. If the market share is high, the company would be able to
meet the competition successfully. The companies in the market
should be compared with like product groups otherwise, the results
will be misleading.
Growth of sales: The rapid growth in sales would keep the
shareholder in a better position than one with stagnant growth rate.
Investors generally prefer size and growth in sales because the larger
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size companies may be able to withstand the business cycle rather
than the company of smaller size.
Stability of sales: If a firm has stable sales revenue, it will have
more stable earnings. The fall in the market share indicates the
declining trend of company, even if the sales are stable. Hence the
stability of sales should be compared with its market share and the
competitors market share.
Earnings of the company: Sales alone do not increase the earnings but
the costs and expenses of the company also influence the earnings.
Further, earnings do not always increase with increase in sales. The
companys sales might have increased but its earnings per share may
decline due to rise in costs. Hence, the investor should not only depend on
the sales, but should analyze the earnings of the company.
Financial analysis: The best source of financial information about a
company is its own financial statements. This is a primary source of
information for evaluating the investment prospects in the particular
companys stock. Financial statement analysis is the study of a companys
financial statement from various viewpoints. The statement gives the
historical and current information about the companys operations.
Historical financial statement helps to predict the future and the current
information aids to analyze the present status of the company. The two
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main statements used in the analysis are Balance sheet and Profit and Loss
Account.
The balance sheet is one of the financial statements that companies
prepare every year for their shareholders. It is like a financial snapshot, the
company's financial situation at a moment in time. It is prepared at the year
end, listing the company's current assets and liabilities. It helps to study the
capital structure of the company. It is better for the investor to avoid a
company with excessive debt component in its capital structure. From the
balance sheet, liquidity position of the company can also be assessed with
the information on current assets and current liabilities.
Ratio analysis: Ratio is a relationship between two figures expressed
mathematically. Financial ratios provide numerical relationship between two
relevant financial data. Financial ratios are calculated from the balance
sheet and profit and loss account. The relationship can be either expressed
as a percent or as a quotient. Ratios summarize the data for easy
understanding, comparison and interpretations.
Ratios for investment purposes can be classified into profitability ratios,
turnover ratios, and leverage ratios. Profitability ratios are the most popular
ratios since investors prefer to measure the present profit performance and
use this information to forecast the future strength of the company. The
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most often used profitability ratios are return on assets, price earnings
multiplier, price to book value, price to cash flow, and price to sales,
dividend yield, return on equity, present value of cash flows, and profit
margins.
a) Return on Assets (ROA)
ROA is computed as the product of the net profit margin and the total asset
turnover ratios.
ROA = (Net Profit/Total income) x (Total income/Total Assets)
This ratio indicates the firm's strategic success. Companies can have one of
two strategies: cost leadership, or product differentiation. ROA should be
rising or keeping pace with the company's competitors if the company is
successfully pursuing either of these strategies, but how ROA rises will
depend on the company's strategy. ROA should rise with a successful cost
leadership strategy because the companys increasing operating efficiency.
An example is an increasing, total asset, turnover ratio as the company
expands into new markets, increasing its market share. The company may
achieve leadership by using its assets more efficiently. With a successful
product differentiation strategy, ROA will rise because of a rising profit
margin.
b) Return on Investment (ROI)
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ROI is the return on capital invested in business, i.e., if an investment Rs 1
crore in men, machines, land and material is made to generate Rs. 25 lakhs
of net profit, then the ROI is 25%. The computation of return on investment
is as follows:
Return on Investment (ROI) = (Net profit/Equity investments) x 100
As this ratio reveals how well the resources of a firm are being used, higher
the ratio, better are the results. The return on shareholders investment
should be compared with the return of other similar firms in the same
industry. The inert-firm comparison of this ratio determines whether the
investments in the firm are attractive or not as the investors would like to
invest only where the return is higher.
c) Return on Equity
Return on equity measures how much an equity shareholder's investment is
actually earning. The return on equity tells the investor how much the
invested rupee is earning from the company. The higher the number, the
better is the performance of the company and suggests the usefulness of
the projects the company has invested in.
The computation of return on equity is as follows:
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Return on equity = (Net profit to owners/value of the specific
owner's
Contribution to the business) x 100
The ratio is more meaningful to the equity shareholders who are invested to
know profits earned by the company and those profits which can be made
available to pay dividend to them.
d) Earnings per Share (EPS)
This ratio determines what the company is earning for every share. For
many investors, earnings are the most important tool. EPS is calculated by
dividing the earnings (net profit) by the total number of equity shares.
The computation of EPS is as follows:
Earnings per share = Net profit/Number of shares outstanding
The EPS is a good measure of profitability and when compared with EPS of
similar other companies, it gives a view of the comparative earnings or
earnings power of a firm. EPS calculated for a number of years indicates
whether or not earning power of the company has increased.
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e) Dividend per Share (DPS)
The extent of payment of dividend to the shareholders is measured in the
form of dividend per share. The dividend per share gives the amount of
cash flow from the company to the owners and is calculated as follows:
Dividend per share = Total dividend payment / Number of shares
outstanding
The payment of dividend can have several interpretations to the
shareholder. The distribution of dividend could be thought of as the
distribution of excess profits/abnormal profits by the company. On the other
hand, it could also be negatively interpreted as lack of investment
opportunities. In all, dividend payout gives the extent of inflows to the
shareholders from the company.
f) Dividend Payout Ratio
From the profits of each company a cash flow called dividend is distributed
among its shareholders. This is the continuous stream of cash flow to the
owners of shares, apart from the price differentials (capital gains) in the
market. The return to the shareholders, in the form of dividend, out of the
company's profit is measured through the payout ratio. The payout ratio is
computed as follows:
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Payout Ratio = (Dividend per share / Earnings per share) * 100
The percentage of payout ratio can also be used to compute the percentage
of retained earnings. The profits available for distribution are either paid as
dividends or retained internally for business growth opportunities. Hence,
when dividends are not declared, the entire profit is ploughed back into the
business for its future investments.
g) Dividend Yield
Dividend yield is computed by relating the dividend per share to the market
price of the share. The market place provides opportunities for the investor
to buy the company's share at any point of time. The price at which the
share has been bought from the market is the actual cost of the investment
to the shareholder. The market price is to be taken as the cum-dividend
price. Dividend yield relates the actual cost to the cash flows received from
the company. The computation of dividend yield is as follows
Dividend yield = (Dividend per share / Market price per share) *
100
High dividend yield ratios are usually interpreted as undervalued companies
in the market. The market price is a measure of future discounted values,
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while the dividend per share is the present return from the investment.
Hence, a high dividend yield implies that the share has been under priced in
the market. On the other hand a low dividend yield need not be interpreted
as overvaluation of shares. A company that does not pay out dividends will
not have a dividend yield and the real measure of the market price will be
in terms of earnings per share and not through the dividend payments.
h) Price/Earnings Ratio (P/E)
The P/E multiplier or the price earnings ratio relates the current market
price of the share to the earnings per share. This is computed as follows:
Price/earnings ratio = Current market price / Earnings per share
This ratio is calculated to make an estimate of appreciation in the value of a
share of a company and is widely used by investors to decide whether or
not to buy shares in a particular company. Many investors prefer to buy the
company's shares at a low P/E ratio since the general interpretation is that
the market is undervaluing the share and there will be a correction in the
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market price sooner or later. A very high P/E ratio on the other hand implies
that the company's shares are overvalued and the investor can benefit by
selling the shares at this high market price.
i) Debt-to-Equity Ratio
Debt-Equity ratio is used to measure the claims of outsiders and the owners
against the firms assets.
Debt-to-equity ratio = Outsiders Funds / Shareholders Funds
The debt-equity ratio is calculated to measure the extent to which debt
financing has been used in a business. It indicates the proportionate claims
of owners and the outsiders against the firms assets. The purpose is to get
an idea of the cushion available to outsiders on the liquidation of the firm.
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CHAPTER III - INDUSTRY PROFILE
FINANCIAL MARKETS
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Finance is the pre-requisite for modern business and financial institutions
play a vital role in the economic system. It is through financial markets and
institutions that the financial system of an economy works. Financial
markets refer to the institutional arrangements for dealing in financial
assets and credit instruments of different types such as currency, cheques,
bank deposits, bills, bonds, equities, etc.
Financial market is a broad term describing any marketplace where buyers
and sellers participate in the trade of assets such as equities, bonds,
currencies and derivatives. They are typically defined by having transparent
pricing, basic regulations on trading, costs and fees and market forces
determining the prices of securities that trade.
Generally, there is no specific place or location to indicate a financial
market. Wherever a financial transaction takes place, it is deemed to have
taken place in the financial market. Hence financial markets are pervasive
in nature since financial transactions are themselves very pervasive
throughout the economic system. For instance, issue of equity shares,
granting of loan by term lending institutions, deposit of money into a bank,
purchase of debentures, sale of shares and so on.
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CLASSIFICATION OF FINANCIAL MARKETS
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Capital Market
The capital market is a market for financial assets which have a long or
indefinite maturity. Generally, it deals with long term securities which have
a period of above one year. In the widest sense, it consists of a series of
channels through which the savings of the community are made available
for industrial and commercial enterprises and public authorities. As a whole,
capital market facilitates raising of capital.
The major functions performed by a capital market are:
1. Mobilization of financial resources on a nation-wide scale.
2. Securing the foreign capital and know-how to fill up deficit in the
required resources for economic growth at a faster rate.
3. Effective allocation of the mobilized financial resources, by directing
the same to projects yielding highest yield or to the projects needed
to promote balanced economic development.
Capital market consists of primary market and secondary market.
Primary market: Primary market is a market for new issues or new
financial claims. Hence it is also called as New Issue Market. It basically
deals with those securities which are issued to the public for the first time.
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The market, therefore, makes available a new block of securities for public
subscription. In other words, it deals with raising of fresh capital by
companies either for cash or for consideration other than cash. The best
example could be Initial Public Offering (IPO) where a firm offers shares to
the public for the first time.
Secondary market: Secondary market is a market where existing
securities are traded. In other words, securities which have already passed
through new issue market are traded in this market. Generally, such
securities are quoted in the stock exchange and it provides a continuous
and regular market for buying and selling of securities. This market consists
of all stock exchanges recognized by the government of India.
Money Market
Money markets are the markets for short-term, highly liquid debt
securities. Money market securities are generally very safe investments
which return relatively low interest rate that is most appropriate for
temporary cash storage or short term time needs. It consists of a number of
sub-markets which collectively constitute the money market namely call
money market, commercial bills market, acceptance market, and Treasury
bill market.
Derivatives Market
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The derivatives market is the financial market for derivatives, financial
instruments like futures contracts or options, which are derived from other
forms ofassets. A derivative is a security whose price is dependent upon or
derived from one or more underlying assets. The derivative itself is merely
a contract between two or more parties. Its value is determined by
fluctuations in the underlying asset. The most common underlying assets
include stocks, bonds, commodities, currencies, interest rates and market
indexes. The important financial derivatives are the following:
Forwards: Forwards are the oldest of all the derivatives. A forward contract
refers to an agreement between two parties to exchange an agreed quantity of an
asset for cash at a certain date in future at a predetermined price specified in that
agreement. The promised asset may be currency, commodity, instrument etc.
Futures: Future contract is very similar to a forward contract in all respects
excepting the fact that it is completely a standardized one. It is nothing but a
standardized forward contract which is legally enforceable and always traded on
an organized exchange.
Options: A financial derivative that represents a contract sold by one party
(option writer) to another party (option holder). The contract offers the buyer
the right, but not the obligation, to buy (call) or sell (put) a security or other
financial asset at an agreed-upon price (the strike price) during a certain period
of time or on a specific date (exercise date). Call options give the option to buy
at certain price, so the buyer would want the stock to go up. Put options give the
option to sell at a certain price, so the buyer would want the stock to go down.
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Swaps: It is yet another exciting trading instrument. Infact, it is the combination
of forwards by two counterparties. It is arranged to reap the benefits arising
from the fluctuations in the market either currency market or interest rate
market or any other market for that matter.
Foreign Exchange Market
It is a market in which participants are able to buy, sell, exchange and speculate on
currencies. Foreign exchange markets are made up of banks, commercial companies,
central banks, investment management firms, hedge funds, and retail forex brokers and
investors. The forex market is considered to be the largest financial market in the
world. It is a worldwide decentralized over-the-counterfinancial market for the trading
of currencies. Because the currency markets are large and liquid, they are believed to be
the most efficient financial markets. It is important to realize that the foreign exchange
market is not a single exchange, but is constructed of a global network of computers
that connects participants from all parts of the world.
Commodities Market
It is a physical or virtual marketplace for buying, selling and trading raw or
primary products. For investors' purposes there are currently about 50
major commodity markets worldwide that facilitate investment trade in
nearly 100 primary commodities. Commodities are split into two types: hard
and soft commodities. Hard commodities are typically natural resources
that must be mined or extracted (gold, rubber, oil, etc.), whereas soft
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commodities are agricultural products or livestock (corn, wheat, coffee,
sugar, soybeans, pork, etc.)
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INDIAN FINANCIAL MARKETS
India Financial market is one of the oldest in the world and is considered to be the
fastest growing and best among all the markets of the emerging economies.
The history of Indian capital markets dates back 200 years toward the end of the 18th
century when India was under the rule of the East India Company. The development of
the capital market in India concentrated around Mumbai where no less than 200 to 250
securities brokers were active during the second half of the 19th century.
The financial market in India today is more developed than many other sectors because
it was organized long before with the securities exchanges of Mumbai, Ahmadabad and
Kolkata were established as early as the 19th century.
By the early 1960s the total number of securities exchanges in India rose to eight,
including Mumbai, Ahmadabad and Kolkata apart from Madras, Kanpur, Delhi,
Bangalore and Pune. Today there are 21 regional securities exchanges in India in
addition to the centralized NSE (National Stock Exchange) and OTCEI (Over the
Counter Exchange of India).
However the stock markets in India remained stagnant due to stringent
controls on the market economy that allowed only a handful of monopolies
to dominate their respective sectors. The corporate sector wasn't allowed
into many industry segments, which were dominated by the state controlled
public sector resulting in stagnation of the economy right up to the early
1990s. Thereafter when the Indian economy began liberalizing and the
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controls began to be dismantled or eased out; the securities markets
witnessed a flurry of IPOs that were launched. This resulted in many new
companies across different industry segments to come up with newer
products and services.
A remarkable feature of the growth of the Indian economy in recent years
has been the role played by its securities markets in assisting and fuelling
that growth with money rose within the economy. This was in marked
contrast to the initial phase of growth in many of the fast growing
economies of East Asia that witnessed huge doses of FDI (Foreign Direct
Investment) spurring growth in their initial days of market decontrol. During
this phase in India much of the organized sector has been affected by high
growth as the financial markets played an all-inclusive role in sustaining
financial resource mobilization. Many PSUs (Public Sector Undertakings) that
decided to offload part of their equity were also helped by the well-
organized securities market in India.
The launch of the NSE (National Stock Exchange) and the OTCEI (Over the
Counter Exchange of India) during the mid 1990s by the government of
India was meant to usher in an easier and more transparent form of trading
in securities. The NSE was conceived as the market for trading in the
securities of companies from the large-scale sector and the OTCEI for those
from the small-scale sector. While the NSE has not just done well to grow
and evolve into the virtual backbone of capital markets in India the OTCEI
struggled and is yet to show any sign of growth and development. The
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integration of IT into the capital market infrastructure has been particularly
smooth in India due to the countrys world class IT industry. This has
pushed up the operational efficiency of the Indian stock market to global
standards and as a result the country has been able to capitalize on its high
growth and attract foreign capital like never before.
The regulating authority for capital markets in India is the SEBI (Securities
and Exchange Board of India). SEBI came into prominence in the 1990s
after the capital markets experienced some turbulence. It had to take
drastic measures to plug many loopholes that were exploited by certain
market forces to advance their vested interests. After this initial phase of
struggle SEBI has grown in strength as the regulator of Indias capital
markets and as one of the countrys most important institutions.
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FINANCIAL MARKET REGULATIONS
Regulations are an absolute necessity in the face of the growing importance
of capital markets throughout the world. The development of a market
economy is dependent on the development of the capital market. The
regulation of a capital market involves the regulation of securities; these
rules enable the capital market to function more efficiently and impartially.
A well regulated market has the potential to encourage additional investors
to partake, and contribute in, furthering the development of the economy.
The chief capital market regulatory authority is Securities and Exchange
Board of India (SEBI).
SEBI is the regulatorfor the securities market in India. It is the apex body to develop
and regulate the stock market in India It was formed officially by the Government of
India in 1992 with SEBI Act 1992 being passed by the Indian Parliament. Chaired by C
B Bhave, SEBI is headquartered in the popular business district of Bandra-Kurla
complex in Mumbai, and has Northern, Eastern, Southern and Western regional offices
in New Delhi, Kolkata, Chennai and Ahmedabad. In place of Government Control, a
statutory and autonomous regulatory board with defined responsibilities, to cover both
development & regulation of the market, and independent powers has been set up.
The basic objectives of the Board were identified as:
to protect the interests of investors in securities;
to promote the development of Securities Market;
to regulate the securities market and
For matters connected therewith or incidental thereto.
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Since its inception SEBI has been working targeting the securities and is
attending to the fulfillment of its objectives with commendable zeal and
dexterity. The improvements in the securities markets like capitalization
requirements, margining, establishment of clearing corporations etc.
reduced the risk of credit and also reduced the market.
SEBI has introduced the comprehensive regulatory measures, prescribed
registration norms, the eligibility criteria, the code of obligations and the
code of conduct for different intermediaries like, bankers to issue, merchant
bankers, brokers and sub-brokers, registrars, portfolio managers, credit
rating agencies, underwriters and others. It has framed bye-laws, risk
identification and risk management systems for Clearing houses of stock
exchanges, surveillance system etc. which has made dealing in securities
both safe and transparent to the end investor.
Another significant event is the approval of trading in stock indices (like S&P
CNX Nifty & Sensex) in 2000. A market Index is a convenient and effective
product because of the following reasons:
It acts as a barometer for market behavior;
It is used to benchmark portfolio performance;
It is used in derivative instruments like index futures and index
options;
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Stock exchanges facilitate for the issue and redemption of securities and
other financial instruments including the payment of income and dividends.
The record keeping is central but trade is linked to such physical place
because modern markets are computerized. The trade on an exchange is
only by members and stock broker do have a seat on the exchange.
List of Stock Exchanges in India
Bombay Stock Exchange
National Stock Exchange
OTC Exchange of India
Regional Stock Exchanges
1. Ahmedabad
2. Bangalore
3. Bhubaneswar
4. Calcutta
5. Cochin
6. Coimbatore
7. Delhi
8. Guwahati
9. Hyderabad
10.Jaipur
11. Ludhiana
12. Madhya Pradesh
13. Madras
14. Magadh
15. Mangalore
16. Meerut
17. Pune
18. Saurashtra Kutch
19. Uttar Pradesh
20. Vadodara
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BOMBAY STOCK EXCHANGE
A very common name for all traders in the stock market, BSE, stands for Bombay
Stock Exchange. It is the oldest market not only in the country, but also in Asia. In
the early days, BSE was known as "The Native Share & Stock Brokers Association."
It was established in the year 1875 and became the first stock exchange in the
country to be recognized by the government. In 1956, BSE obtained a permanent
recognition from the Government of India under the Securities Contracts
(Regulation) Act, 1956.
In the past and even now, it plays a pivotal role in the development of the country's
capital market. This is recognized worldwide and its index, SENSEX, is also tracked
worldwide. Earlier it was an Association of Persons (AOP), but now it is a
demutualised and corporatised entity incorporated under the provisions of the
Companies Act, 1956, pursuant to the BSE (Corporatisation and Demutualization)
Scheme, 2005 notified by the Securities and Exchange Board of India (SEBI).
BSE Vision
The vision of the Bombay Stock Exchange is to "Emerge as the premier Indian stock
exchange by establishing global benchmarks."
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BSE Management
Bombay Stock Exchange is managed professionally by Board of Directors. It
comprises of eminent professionals, representatives of Trading Members and the
Managing Director. The Board is an inclusive one and is shaped to benefit from the
market intermediaries participation.
The Board exercises complete control and formulates larger policy issues. The day-
to-day operations of BSE are managed by the Managing Director and its school of
professional as a management team.
BSE Network
The Exchange reaches physically to 417 cities and towns in the country. The
framework of it has been designed to safeguard market integrity and to operate
with transparency. It provides an efficient market for the trading in equity, debt
instruments and derivatives. Its online trading system, popularly known as BOLT, is
a proprietary system and it is BS 7799-2-2002 certified. The BOLT network was
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expanded, nationwide, in 1997. The surveillance and clearing & settlement
functions of the Exchange are ISO 9001:2000 certified.
BSE Facts
BSE as a brand is synonymous with capital markets in India. The BSE SENSEX is the
benchmark equity index that reflects the robustness of the economy and finance. It was the
First in India to introduce Equity Derivatives
First in India to launch a Free Float Index
First in India to launch US$ version of BSE Sensex
First in India to launch Exchange Enabled Internet Trading Platform
First in India to obtain ISO certification for Surveillance, Clearing & Settlement
'BSE On-Line Trading System (BOLT) has been awarded the globally
recognized the Information Security Management System standard
BS7799-2:2002.
First to have an exclusive facility for financial training
Moved from Open Outcry to Electronic Trading within just 50 days
BSE with its long history of capital market development is fully geared to continue its
contributions to further the growth of the securities markets of the country, thus helping India
increases its sphere of influence in international financial markets.
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NATIONAL STOCK EXCHANGE OF INDIA LIMITED
The National Stock Exchange of India Limited has genesis in the report of the
High Powered Study Group on Establishment of New Stock Exchanges, which recommended
promotion of a National Stock Exchange by financial institutions (FIs) to provide access to
investors from all across the country on an equal footing. Based on the recommendations, NSE
was promoted by leading Financial Institutions at the behest of the Government of India and was
incorporated in November 1992 as a tax-paying company unlike other stock Exchange in the
country.
On its recognition as a stock exchange under the Securities Contracts (Regulation) Act, 1956 in
April 1993, NSE commenced operations in the Wholesale Debt Market (WDM) segment in June
1994. The Capital Market (Equities) segment commenced operations in November 1994 and
operations in Derivatives segment commenced in June 2000.
NSE GROUP
National Securities Clearing Corporation Ltd. (NSCCL)
It is a wholly owned subsidiary, which was incorporated in August 1995 and
commenced clearing operations in April 1996. It was formed to build confidence in
clearing and settlement of securities, to promote and maintain the short and
consistent settlement cycles, to provide a counter-party risk guarantee and to
operate a tight risk containment system.
NSE.IT Ltd.
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It is also a wholly owned subsidiary of NSE and is its IT arm. This arm of the NSE is
uniquely positioned to provide products, services and solutions for the securities
industry. NSE.IT primarily focuses on in the area of trading, broker front-end and
back-office, clearing and settlement, web-based, insurance, etc. Along with this, it
also provides consultancy and implementation services in Data Warehousing,
Business Continuity Plans, Site Maintenance and Backups, Stratus Mainframe
Facility Management, Real Time Market Analysis & Financial News.
India Index Services & Products Ltd. (IISL)
It is a joint venture between NSE and CRISIL Ltd. to provide a variety of indices and
index related services and products for the Indian Capital markets. It was set up in
May 1998. IISL has a consulting and licensing agreement with the Standard and
Poor's (S&P), world's leading provider of investible equity indices, for co-branding
equity indices.
National Securities Depository Ltd. (NSDL)
NSE joined hands with IDBI and UTI to promote dematerialization of securities. This
step was taken to solve problems related to trading in physical securities. It
commenced operations in November 1996.
NSE Facts
It uses satellite communication technology to energize participation from
around 400 cities in India.
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NSE can handle up to 1 million trades per day.
It is one of the largest interactive VSAT based stock exchanges in the world.
The NSE- network is the largest private wide area network in India and the
first extended C- Band VSAT network in the world.
Presently more than 9000 users are trading on the real time-online NSE
application.
Today, NSE is one of the largest exchanges in the world and still forging ahead. At NSE, we are
constantly working towards creating a more transparent, vibrant and innovative capital market.
OVER THE COUNTER EXCHANGE OF INDIA
OTCEI was incorporated in 1990 as a section 25 company under the companies Act
1956 and is recognized as a stock exchange under section 4 of the securities
Contracts Regulation Act, 1956. The exchange was set up to aid enterprising
promotes in raising finance for new projects in a cost effective manner and to
provide investors with a transparent and efficient mode of trading Modeled along
the lines of the NASDAQ market of USA, OTCEI introduced many novel concepts to
the Indian capital markets such as screen-based nationwide trading, sponsorship of
companies, market making and scrip less trading. As a measure of success of these
efforts, the Exchange today has 115 listings and has assisted in providing capital for
enterprises that have gone on to build successful brands for themselves like VIP
Advanta, Sonora Tiles & Brilliant mineral water, etc.
Need for OTCEI:
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Studies by NASSCOM, software technology parks of India, the venture capitals funds
and the governments IT tasks Force, as well as rising interest in IT, Pharmaceutical,
Biotechnology and Media shares have repeatedly emphasized the need for a
national stock market for innovation and high growth companies.
Innovative companies are critical to developing economics like India, which is
undergoing a major technological revolution. With their abilities to generate
employment opportunities and contribute to the economy, it is essential that these
companies not only expand existing operations but also set up new units. The key
issue for these companies is raising timely, cost effective and long term capital to
sustain their operations and enhance growth. Such companies, particularly those
that have been in operation for a short time, are unable to raise funds through the
traditional financing methods, because they have not yet been evaluated by the
financial world.
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CHAPTER IV - COMPANY PROFILE
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Company:Sharekhan is a firm which is working under SSKI (S. S. Kantilal Ishwarlal) Ltd.SSKI was founded in 1922. SSKI is One of Indias Oldest Brokerage HousesHaving Eight Decades of Experience into:-
Institutional Broking
Investment Banking
Retail Broking
It is one of the Founding members of the Stock Exchange, Mumbai and Pioneer
Institutional Broker.
SSKI Retail Broking:-
SSKI Entered into Retail Broking in 1985. Share khan is the Retail Broking Arm
of the BIG 80 Years old organization i.e. of SSKI and Sharekhan is the Brand
Name given to its Retail Business. SSKI carries out its Retail Broking Activities
underSharekhan Brand Name.
Sharekhan is One of Indias Leading Broking Houses. They Provides you aComplete Life-Cycle of Investment Solutions in Equities, Derivatives,Commodities & Depository Services.Sharekhan is having its retail presence across India through Sharekhan Branches & Franchisees& www.sharekhan.comSharekhan Outlets act as Full Service Investment Solutions Provider, providing
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paper work. He can buy and sell shares from the website and also view the market
prices of the shares he trades on the terminal.
Sharekhan.com allows trading at present only on NSE. BSE trading will be
shortly available. To open an account a customer requires filling up a form
consisting of 12 agreements, a passport size photograph, a residential proof, aphoto id proof and a cheque drawn of respective amount in favor of S. S. Kantilal
Ishwarlal securities Pvt. Ltd. & from 22 March , 2007 cheque is drawn in favor of
Sharekhan LTD. it self.
After opening an account with Sharekhan, a customer will be given User id, Membership
password and trading password, which will enable him to access his account and trade.
Research Team of Sharekhan: -
Research and in-depth knowledge of markets provide better than speculations or reacting to rumors.
Research team provides knowledge to their customers about market condition.
In morning they provide Eagle Eye which tells about how the market will
be in whole day.
In afternoon they provide High Noon which tells that up to that time how
was the market and what about the remaining time what will be the
condition of the market.
After the market they analyze the market summery of the whole day and
give idea about next day market.
Mobile-N-Trade facility: -
Now Sharekhan is providing the facility that their customers can do trading with the help of their
mobile handset. For tat purpose they have to pay some extra charge to activate that facility.
Customers:
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In now days each and every person is the customer of Sharekhan.
All the Business Man, Shopkeepers, Young Generation i.e. students ,
Adults,Housewife and the person who have money and likes to take risk are the
potential customer of the Sharekhan. The person who likes to invest their money in
share market is also the customer of Sharekhan.
But mostly the customers are divided into two types depending
upon the transactions they do or money they invest in the share market. They
are
Investoror Traders.The investors are those who Invest their money in the market
once when they have money in excess after fulfilling their needs and wants and the traders are those
who daily do the share transactions as their business and called as Intraday transaction and the
previous is called as Delivery transaction.
Competitors:Sharekhan is one of the major player in on line Trading. In Mumbai the
main competitors of Sharekhan are ICICI Direct, India bulls, Kotak Securities,
HDFC Securities, Anand Rathi, and Motilal Oswal.
1. Religare Enterprises
2. India Info line
3. ICICI DIRECT
4. INDIA BULLS
5. RELIANCE MONEY
6. Kotak Securities
7. MOTILAL OSWAL
These are some of the competitors of sharekhan.
Environment:
Professionally managed companies are those that are managed by
employees. In such companies, the chief executive officer often does not even have
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a financial stake in the company. He is at the helm of affairs because of his ability
and experience. The professional manager is a career employee and he remains at
the seat of power so long as he meets his targets. Consequently, professional
managers are result-oriented. They are not necessarily influenced by loyalty to the
company. As a professional he is usually aware of the latest trends in management
philosophy and tries to introduce these. They try to run the company like a lean,
effective machine striving for increased efficiency and productivity. As a
consequence, professionally managed companies are usually well organized,
growth oriented and good performers. The companies that come readily to mind
are ITC, Infosys, HDFC and Hindustan Lever. However, there is often a lack of
long term commitment and sometimes a lack of loyalty. This is because the
professional manager has to step down in time, to retire, and he cannot therefore
enjoy the fruit of his labors for ever. Nor will his sons succeed him although some
may try to see that his happens. He sell his services to the clients, and such
individuals are consequently not usually know for their loyalty. Companies are
now to promote or create commitment offering employees stock options. Thesedevolve on employees after a specified period of service and are given to them on
performance. The employee thus becomes a part owner and becomes thus involved
in the profitability of the enterprise. Additionally as these devolve on the employee
only after a time, he tends to stay till it does. As these options are given, often
annually, the employee remains with the company for a significant period of time.
It is a win-win situation for both. The company gets the services of a loyal
competent employee. The employee builds his net worth. In many professionally
managed companies there is also a lot of infighting and corporate politics. This is
because managers are constantly trying to climb up the corporate ladder.
The management is open, innovative and also has a strategy. It is prepared
to change when required. It is essentially know where it is going and have a plan of
how to get there. It is receptive to ideas and be dynamic. A company that has many
layers of management and is top heavy tends to be very bureaucratic and
ponderous. There are "many chiefs and few braves". They do not want change and
often stand in the way of change. Their strategy is usually a personal one.
Technology:
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Electronic Contract Note (ECN) :
We are providing the facility of Electronic Contract Note to our clients on their
registered Email Id. The same can also be accessed on this website under Services
menu.
We once again reiterate our commitment for providing state-of-the-art technology
and services to our customers so as to add ease and convenience in their day-to-day
trading.
Distinct Feature of Equity Back-office on Net :
Sauda Details : You can view your day-to-day transaction details such as Order
No, Trade No, Quantity, Market Rate, Amount etc. To view the same, you need to provide the
transaction date. Alternatively, you can also view your transactions by giving a date range in the
Global Report - I Menu - Sauda (Cash) option.
Terminology:
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Terminology is the study of terms and their use ofwor ds and compound
words
that are used in specific contexts.
Terminology also denotes a more formal discipline which systematically studies
the labeling or designating ofconcepts particular to one or more subject fields or
domains of human activity, through research and analysis of terms in context, for
the purpose of documenting and promoting correct usage. This study can be
limited to one language or can cover more than one language at the same time
(multilingual terminology, bilingual terminology, and so forth).
Terminology is not connected to Information Retrieval in any way. "Terms" (i.e.
index terms) used in an Information Retrieval context are not the same as "terms"
used in the context of Terminology
AMC
An Asset Management Company is the fund house or the company that manages
the money.
The mutual fund is a trust registered under the Indian Trust Act. It is initiated by a
sponsor. A sponsor is a person who acts alone or with a corporate to establish a
mutual fund. The sponsor then appoints an AMC to manage the investment,
marketing, accounting and other functions pertaining to the fund.
NAV
The Net Asset Value is the price of a unit of a fund. When a fund comes out with an NFO, it is priced
Rs 10. Later, depending on the value of the investments, this price could rise or fall.
Load
This is a fee that is charged when you buy or sell the units of a fund.
When you buy the units of a fund, you pay a percentage of it as a fee. This is
known as the entry load.
Let's say you are investing Rs 10,000 and the entry load is 2%. That means you
pay Rs 200 as the entry load and Rs 9,800 is invested in the fund.
Now, let's assume you are selling the units of your fund. And the Rs 10,000 you
invested initially is now Rs 15,000. Let's further assume the exit load is 2%. So
you pay Rs 300 and get back Rs 14,700.Generally, if funds charge an entry load, they will not charge an exit load. Or vice
versa. Only one of the loads is charged. The load is a percentage of the NAV.
Portfolio
This is the term given to all the investments made by the fund as well as the
amount held in cash.
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A Systematic Investment Plan refers to periodic investing in a mutual fund. Every
month or every three months, the investor will have to commit to putting in a fixed
amount. This will go towards the purchase of units.
Let's say that every month you commit to investing, say, Rs 1,000 in your fund. At
the end of a year, you would have invested Rs 12,000.
If the NAV on the day you invest in the first month is Rs 20, you will get 50 units.
The next month, the NAV is Rs 25. You will get 40 units.
The following month, the NAV is Rs 18. You will get 55.56 units.
So, after three months, you would have 145.56 units. On an average, you would
have paid around Rs 21 per unit. This is because, when the NAV is high, you get
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fewer units per Rs 1,000. When the NAV falls, you get more units per Rs 1,000.
SWOT Analysis:
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Strengths
Global parentage and expertise. Experience senior management.
World class technology and
infrastructure.
Strict risk control systems.
Fundamental and technical
research.
Multiple products under one roof.
Weakness
Less visibility in Indian
market.
Opportunities
To grab the growing Indian
market.
Threats
Global economic slowdown.
The Indian capital market is
fluctuating.
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CHAPTER V
DATA ANALYSIS & INTERPRETATIONS
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ANALYSIS OF INFRASTRUCTURE INDUSTRY
Infrastructure Industry in India have been experiencing a rapid growth in its
different sectors with the development of urbanization and increasing involvement
of foreign investments in this field. The Indian government has taken initiatives to
develop the infrastructure sector, with major emphasis on construction,engineering, IT, entertainment, textiles, food, and utility to name some.
To understand this industry for the purpose of investment we need to analyze it by
the following approach:
Fundamental Analysis (E.I.C Approach)
a. Economy analysis
b. Industry analysis
c. Company analysis
Fundamental Analysis
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 company s financial statements to determine if
the stock price is correctly valued.
Most fundamental information focuses on economic, industry and company
statistics.
The typical approach to analyzing a company involves three basic steps:
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1. Determine the condition of the general economy.
2. Determine the condition of the industry.
1. ECONOMY ANALYSIS
Economic analysis is the analysis of forces operating the overall economy a country.
Economic analysis is a process whereby strengths and weaknesses of an economy
are analyzed. Economic analysis is important in order to understand exact condition
of an economy.
GDP AND INFRASTRUCTURE INDUSTRY
Year wise comparison of India's GDP
Graph on GDP of India from 2003 to 2011
Graph on Constant GDP of India from 2003 to 2011
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India GDP Growth RateThe Gross Domestic Product (GDP) in India expanded 8.20 percent in the fourth
quarter of 2010 over the same quarter, previous year. From 2004 until 2010, India'saverage quarterly GDP Growth was 8.40 percent reaching an historical high of 10.10
percent in September of 2006 and a record low of 5.50 percent in December of
2004. India's diverse economy encompasses traditional village farming, modern
agriculture, handicrafts, a wide range of modern industries, and a multitude of
services. Services are the major source of economic growth, accounting for more
than half of India's output with less than one third of its labor force. The economy
has posted an average growth rate of more than 7% in the decade since 1997,
reducing poverty by about 10 percentage points. This page includes: India GDP
Growth Rate chart, historical data and news.
Country Indicator Reference Actual Previous Next Release
India GDP Growth Rate Dec/2010 8.20 8.90
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Infrastructure Sector Growth Rate in India GDP has been on the rise in the last
few years. The Growth Rate of the Infrastructure Sector in India GDP has grown due
to several reasons and this in its turn has given a major boost to the country's
economy.
Economy of IndiaIndia gross domestic product (GDP) means the total value of all the services and
goods that are manufactured within the borders of the country within the specified
period of time.
The Indian economy is the twelfth biggest in the whole world for it has the GDP of
US$ 1.09 trillion in 2007. The economy of India is the second major growing
economy in the whole world for it has the GDP growing at the rate of 9.4% in 2006-
2007.
The Infrastructure Sector in India
The Infrastructure Sector in India was after independence completely in the hands
of the public sector and this hampered the growth of this sector. India's less
spending on real estate, power, telecommunications, construction, and
transportation prevented the country from sustaining very high rates of growth. The
amount that India was spending on the Infrastructure Sector was 6% of GDP or US$
31 billion in 2002.
The contribution of the Infrastructure Sector in the India GDP
Infrastructure Sector Growth Rate in India GDP came to 3.5% in 1996- 1997 and the
next year, this figure was 4.6%. The Growth Rate of the Infrastructure Sector in
India GDP increased after the Indian government opened the sector to 100% foreign
direct investment (FDI). This was done in order to boost the Infrastructure Sector in
the country. The result of opening the sector to the private sector has been that
Infrastructure Sector Growth Rate in India GDP has increased at the rate of 9%. It is
estimated that the Growth Rate of the Infrastructure Sector in India GDP will grow at
the rate of 8.5% between 2006 and 2010. The biggest ongoing project in the
Infrastructure Sector in India is the Golden Quadrilateral, which is improving the
main roads that connect the four cities of Chennai, Mumbai, Delhi, and Kolkata.
GOVERNMENT BUDGET AND DEFICIT
Union Budget 2010 Impact on Infrastructure sector
While talking about bridging the policy gaps in Infrastructure sector, the Finance
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Minister in his Union budget 2010 speech proposed the sustain the driving force for
improving infrastructure in urban and rural districts. He allocated Rs.1, 73,552 crore
for infrastructure growth in the country in budget 2010.
Government has set the target of constructing 20km of national highways on daily
basis and to trigger these changes projects have been undertaken via public privatepartnerships (PPPs). The FM increase the allotment of road transport to Rs.19, 894
crore against the previous Rs.17, 520 crore for 2010-11. In an attempt to revise and
enlarge the railway network, he also allocated Rs.16, 752 crore while presenting the
union budget.
He notified the completion of introductory activities for the establishment of 6
industrial investment nodules with ecological infrastructure of international
standard. In addition, the Delhi-Mumbai Industrial Corridor project has been
undertaken for integrated local expansion.
Restoration of Infrastructure Bonds after a period of 5 years was also in the Budget
2010 agenda. It is one of the best tax saving schemes and keeping this in
consideration the FM has proposed an extra limit of Rs.20, 000/- for investing in
Infrastructure Bonds.
In order to provide long term monetary support to infrastructure projects,
government has also set up the India Infrastructure Finance Company Limited
(IIFCL). The expenditures of IIFCL are likely to reach Rs.9, 000 crore by the end of
March 2010 and Rs.20, 000 crore in the corresponding period of FY 2011.
Price level and inflation
India Inflation RateThe inflation rate in India was last reported at 8.82 percent in February of 2011.
From 1969 until 2010, the average inflation rate in India was 7.99 percent reaching
an historical high of 34.68 percent in September of 1974 and a record low of -11.31
percent in May of 1976. Inflation rate refers to a general rise in prices measured
against a standard level of purchasing power. The most well known measures of
Inflation are the CPI which measures consumer prices, and the GDP deflator, which
measures inflation in the whole of the domestic economy. This page includes: India
Inflation Rate chart, historical data and news.
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Country Indicator Reference Actual Previous Next Release
India Inflation Rate Feb/2011 8.82 9.30
Intrest rate
India Interest RateThe benchmark interest rate (reverse repo) in India was last reported at 6.25
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 repurchaserate. From 2000 until 2010, India's average interest rate was 5.82 percent reaching
an historical high of 14.50 percent in August of 2000 and a record low of 3.25
percent in April of 2009. This page includes: India Interest Rate chart, historical data
and news.
Country Indicator Reference Actual Previous Next Release
India Interest Rate Mar/2011 5.75 5.50
Foreign direct investmentIndia needs to worry on the foreign direct investment (FDI) front. According to the
statistics released by Indias Ministry of Commerce and Industry, the country has
received only $18.35 billion in FDI in the first 11 months (April-February) of the
financial year 2010-2011, compared to $24.63 billion that came in the 11 months of
the previous financial year. Although it is a significant dip, the government has notmentioned the reasons for the fall except for saying that the trend will be reversed
as it h