Chapter 1 Introduction:

Capital market is the backbone of a countrys economy. It is one of the most efficient
sources for resource mobilization and allocation. The Indian capital market has seen an extensive
growth and shown its potential to the entire global market. This introduction shall give us an
overview of the past, present and future of Indian capital market.
The Indian capital market is one of the oldest capital markets in the world. It dates back
to the 18th century when the securities of the East India Company were traded in Mumbai and
Kolkata. However, the orderly growth of the capital market began with the setting up of The
Stock Exchange of Bombay in July 1875 and Ahmedabad Stock Exchange in 1984. Eventually
19 other Stock Exchanges sprang up in various parts of the country.
The Indian capital market has seen great improvements and transformation from its
inception, and has seen many major developments, which have started basically from the period
of post LPG; i.e. Liberalization, Privatization and Globalization. The Financial Sector Reforms
in general and the Capital Market Reforms in particular were initiated in India in a big way since
1991 1992. These reforms have been aimed at improving market efficiency, enhancing
transparency, checking unfair trade practices and bringing the Indian capital market up to the
International Standards. The National Stock Exchange (NSE) was incorporated in 1992 and was
given recognition as a Stock Exchange in April 1993, which has been playing a lead role as a
change agent in transforming the Indian Capital Market to its present form. To regularize the
Indian capital market, Securities and Exchange Board of India (SEBI) was established in 1998.
The basic necessity to establish this Board was to keep a track on the transactions and to have a
controlling overview over the malicious transactions that could take place.
The Harshad Mehta scam took place in 1992 which showed the loopholes that existed in
the capital market framework which was established by the scam by which Harshad Mehta, a
mere broker at the Bombay Stock Exchange, made up to Rs. 50 billion at that time. Therefore, to
prevent such incidents in the coming future, SEBI was given the statutory status in 1992. This
was positively accepted by the capital market and since 1992 SEBI has emerged as an
autonomous and independent statutory body, by which the following objectives were outlined for
SEBI which it strictly followed to avoid any further Harshad Mehta situations

 The basic objective of SEBI, which was the sole reason for its incorporation, was to
protect the interests of the investors.
There are two additional objectives of SEBI which can be enumerated as follows
Promote the development of securities market.
Regulate the securities market.
The SEBI has been given power under many statutes and the same are being exercised
under the following Acts and statutes - Securities and Exchange Board of India Act, 1992,
Securities Contracts (Regulation) Act, 1956, Depositories Act, 1996 and delegated powers under
the then Companies Act, 1956 and the current Companies Act, 2013.
The Indian capital market is now regarded as one of the worlds most strong capital
markets and the same has been achieved only due to the persistent efforts put in the process by
all the stakeholders, such as SEBI, the brokers, the customers and also the Government which
has time-to-time visited the performance and tried to make the Indian market more investmentfriendly.
There are two components of the capital market; primary and secondary. The primary
market is that part of the capital markets that deals with the issuance of new securities.
Companies, governments or public sector institutions can obtain funding through the sale of a
new stock or bond issue. This is typically done through a syndicate of securities dealers. The
process of selling new issues to investors is called underwriting. In the case of a new stock issue,
this sale is an initial public offering (IPO).
The secondary market is the financial market for trading of securities that have already
been issued in an initial private or public offering. In the secondary market, securities are sold by
and transferred from one investor or speculator to another. It is therefore important that the
secondary market be highly liquid and transparent. Before electronic means of communications,
the only way to create this liquidity was for investors and speculators to meet at a fixed place
regularly. This is how stock exchanges originated.

The stock exchanges then developed greatly due to the increasing importance of capital
markets and therefore there started the establishment of stock exchanges across the country. The
oldest stock exchange in India is the Bombay Stock Exchange. It is believed that the oldest stock
exchange of the country is also the oldest in the Asian continent and claims to have the highest
number of listed companies in it. These are some details regarding Bombay Stock Exchange, the
oldest stock exchange in India

Bombay Stock Exchange was established in 1875 and is Asias oldest stock exchange.

It is also the worlds fastest exchange with a trade speed of 6 microseconds

(1 microsecond = 1 millionth of a second)

The Bombay Stock Exchange is the worlds 11th biggest stock exchange with an overall
market capitalization of Rs. 4,145,578.05 crores

More than 6,000 companies are listed on the Bombay Stock Exchange.
The stock market is influenced not just by the local economy, but also the world economy

has an impact on the stock markets which get clearly reflected in that days trade as the investors
would start liquidating their holdings to realize their money rather than losing more in the market
which seems to have taken a downhill. The same impact is also caused by the policies taken by
the government. Some policies are favorable to a certain industry and the impact of the same can
be sighted in the positive response shown by that particular industrys companies. For example,
in the budget, the current government proposes for development of agriculture, then the
agricultural industry and related ancillary industries also have the potential for improvement and
such other supporting industries would be fertilizer industry, agricultural equipment like tractor,
tiller, etc. manufacturing companies etc. would also see an uptrend in their production.
Capital market has many types of instruments which can be traded under its name, the
first of all being shares (preference and/or equity), corporate bonds, swaps (shares/forex), futures
and options etc. All of these components in the capital market have their own significance in the
capital market. Therefore, while preparing this project we have focused mainly on the secondary
market for equity shares. The main reason for choosing this is because the ease of availability of
data and the analysis on the same can be easily interpreted.

The policies made by the government have a widespread impact. These policies decide
the future of business in a sector. The annual budget proposes changes in taxes, changes of
government policy in sectors, and budgetary and other allocations for ministries. This drives the
prospects of growth in various sectors and stocks. Government policies can impact any industry telecom, energy, oil and gas, refinery, banking, transportation, organized retail, import/export
scenario etc. The government is also a major consumer in a country. Government spending in
any sector can provide thrust to that sector. There are many industries that are dependent on
government policies or government spending. Since different political parties have different
agenda and views, it becomes important for investors to interpret them and invest in stocks that
are in a favorable position.
Therefore this research project has been narrowed down on analyzing the economic
growth pattern of the Indian economy and the impact that it has evidently shown on the
following three industries and then a set of two to three companies in each of the following
industries will be analyzed by comparing them to their peers and the industry as a whole and also
with the growing economy
1. Telecom Industry
2. Information Technology or IT Industry
3. Automobile Industry
The reason for choosing the above industries is also enumerated as follows
1. Telecom Industry The reason for selecting telecom industry is the ever increasing
number of smartphones being purchased for which telecom operators are enjoying a
really great time by making a fortune. Also with the advent of 4G in the country while
there are plans for bringing 5G into the country by the year 2020, this is a very lucrative
sector to look at and the growth expectations that can be set for the above mentioned
sector. The companies which are under the umbrella of our analysis from the telecom
sector are
a. Bharti Airtel Limited (Airtel)
b. Mahanagar Telecom Nigam Limited (MTNL)
c. Reliance Communications Limited (RCom)

2. IT Industry The industry is a relatively newly developing industry when compared to

that of the telecom and the automobile industry. The reason for the increasing
importance of IT industry in any economy, especially Indian economy is because of the
advent of technology in almost every single sector of the economy which makes the
industry quintessential for the growth of any economy. The Indian IT companies have a
varied demand and reputation across the globe, with special importance to its home
nation by providing employment to thousands of new engineering graduates. The
companies which are under the umbrella of our analysis from the IT sector are
a. Infosys Limited
b. Tata Consultancy Services Limited (TCS)
c. Wipro Limited
3. Automobile Industry The ever increasing population of India provides a scope for
increasing demand for vehicles which has a versatile range of products to provide the
nations population with and also shall have a growth trend for themselves. Hence the
said sector was selected for the project. The companies which are under the umbrella of
our analysis from the automobile sector are
a. Tata Motors Limited
b. Maruti Suzuki India Limited
c. Eicher Motors Limited
The reason for selecting the above companies and the impact of their revenues, profits or
losses, the market capitalization of the sector on the whole etc. shall be explained in detail in the
data analysis section of the project. But as an overview, the companies are selected in a manner
that it covers the majority of our requirements for the secondary data.

Indian Capital Market Future Road Map:

SEBI may go in for fresh investor survey at the earliest to understand the investment
behavior of the households during the more recent period.
Honble Union Finance Minister has proposed to set up an investor protection fund under
the aegis of SEBI which would be funded by fines and penalties recovered by SEBI.
SEBI would continue to nurture the Mutual Fund Industry and thereby attract more and
more household participation in the capital market.
Gold Exchange Traded Fund (GETF) has been introduced in India and in addition, SEBI
is also working for the introduction of the Real Estate Mutual Fund, which is likely to
mitigate the housing requirement of many households.
SEBI has been authorized to set up a National Institute of Securities Markets (NISM) for
teaching and training intermediaries in the securities market and promoting research

Links:
http://www.yourarticlelibrary.com/economics/market/components-of-capital-marketprimary-market-and-secondary-market-company-management/8758/
http://www.bseindia.com/sensexview/indexview_new.aspx?index_Code=16&iname=BS
E30
http://www.forbes.com/2009/03/25/government-influence-solutions-opinionscontributors-problems.html

Chapter 2 - Review Of Literature:

A lot of work is done on this topic of Capital markets. Various reports are released by
the government and the private players who deal in Capital markets in India. The review of
some references that have been useful in determining the scope of the project is as follows L.C Gupta (1972) has studied the working and functioning of stock exchanges in
India. In his book he has also given quite a lot of suggestions to advance the working.
The study throws light on the need to normalise and control the volume of speculation
so that the need of price continuity and liquidity is served and the people are satisfied.
It also advocates that the corporate securities should be enlisted in more than one
stock exchange at the same time so that the liquidity is improved. The cost of issues is
suggested to be low, according to the study in order to protect the small investors. He
studied extensively on `Return on New Equity Issues' which states the investment
enactment of new issues of equity shares and with special significance to those of new
companies which deserves separate analysis. The factor that influences significantly
the rate of return on fresh issue of shares or securities to the buyers if the price at
which they are given, is known. The return on equity includes capital appreciation and
dividend. The overall study presents sound estimates of rates of return on equity and
also examines the variability of such returns over time. In his findings study revealed
that there is existence of wild speculation in the stock market of India. This over
speculative character of stock market in India is reflected in very high concentration
of activity in handful of shares to the neglect of remaining shares and absolutely high
trading velocities of the speculative counters. He pronounced that, short-term
speculation, if excessive in nature could lead to "artificial price". Artificial price is
one which cannot be justified by probable earnings, dividends, financial strength and
assets which is brought about by speculators through manipulations and rumours. He
opined that such artificial prices would crash sometime or other as history has proved
and repeated.
C. William Schwert (1988) In his paper analyses the relation of stock volatility with
real and nominal macroeconomic volatility, financial leverage, stock trading activity,
default risk, and firm profitability using monthly data from 1857-1986. An important
fact, previously noted by Officer, is that stock return variability was unusually high
during the 1929-1940 Great Depression. Moreover, leverage has a relatively small

effect on stock volatility. The amplitude of the fluctuations in aggregate stock

volatility is difficult to explain using simple models of stock valuation.
Randal Smith (1992) extracted to investors the underlying principles of winning on
the stock market. He also emphasised on long term vision and a plan to reach the
goals. He advised the investors that in order to be successful, they should never be
negative about it. He revealed that, though there has been a major economic crisis
almost every year, it is reasonable that enduring investors have very steadily made
money in the equity market. He gave a view that investing in stock market should be a
practical endeavour and suggested that investors should also own a stock if they
believe that it would perform in an excellent manner.
Yasaswy N.J. (1993) unveiled how 'turnaround stocks' gives a large amount of
income to the investors and also the risks in investing in such stocks. Turnaround
stocks are stocks with unusual potential and are relatively under-priced at given point
of time. He also revealed that when there is recession in an economy and the
fundamentals are weak, the market, being a barometer of the economy, also tends to
depress. A depressed stock market is a hunting ground for 'bargain hunters', who are
usually aggressive investors. Later or sooner recovery takes place which might take
an extremely long time. He finally concluded that investors watch work is 'caution' as
he may lose if the turnaround strategy does not work out as anticipated.
Samir K. Barua, V. Raghunathan, Jayanth R. Varma (1994) in his paper
presented a review of research done in the field of Indian capital markets during the
fifteen years from 1977 to 1992. The research works included in the survey were
identified by two search procedures. Firstly, it wrote to 118 Indian university
departments and research institutions requesting information on the works done in this
field in their department/institution. After three reminders, they obtained responses
from 53 institutions. Simultaneously, they searched through various Indian journals in
our library, located books listed in the library catalogue and traced through the list of
references provided in various research works.
Considering the size, vintage and development of the Indian capital market,
the total volume of research on it appears to be woefully modest - about 0.1 unit of
work per institution per year. Moreover, a large number of works are merely
descriptive or prescriptive without rigorous analysis. Certain areas such as arbitrage
pricing theory, option pricing theory, agency theory, and signalling theory are

virtually un-researched in the Indian context. Besides, very little theoretical work has
been done by researchers in India. However, with improved availability of databases
and computing resources, and with increasing global interest in Indian markets, they
expect an explosion of work in the near future.
Amanulla and Kamaiah (1995) in his study examines the Indian stock market value
by using Ravallion co-integration and error correction using market integration
approach. The data used are the RBI monthly aggregates share indices which relates
to five regional stock exchanges of India, viz Delhi, Calcutta, Chennai. Bombay,
Ahmedabad during the period of 1980-1983. According to the authors, the results of
the co-integration unveiled long-run equilibrium relation between the price indices of
five stock exchanges and error correction models indicated short run deviation
between the regional stock exchanges.
Philippe Jhorion and Sarkis Joseph Khouryl (1996) reviewed on the international
factors of risks and its effect on the financial markets. He also suggested that domestic
investment is a subset of the global asset allocation decision and that it is impossible
to evaluate the risk of domestic securities without any reference to the international
factors. Investors must also be aware of factors driving stock prices and the
interaction between movement in prices of the stock and also the exchange rates.
According to them, the financial markets have become volatile over the last decade
due to the unpredictable speedy changes like oil price, drive towards economic and
monetary unification in Europe, the wide scale conversion of communist countries to
free market policies etc. They emphasized the need for tightly controlled risk
management measures to guard against the unpredictable trends of financial market.
Redel (1997) focuses on the integration of capital market in developing Asia during
the period of 1970 to 1994 taking into variables such as equity portfolio, capital flows,
Foreign Direct Investment and bond flows. He also closely observed that the
integration of market in Asian developing countries in 1990s was magnitude of broadbased economic reforms specifically in financial sectors and trade which is a very
serious reason for the crises that is followed by the increased capital integration of
market in the 1970s in many countries will not get repeated in the 1990s. He also
concluded that strengthening and deepening the process of liberalization of economy
in the Asian developing countries is an essential factor for minimizing risks and
maximizing all the benefits from increased international capital market integration.

 Bhalla V. K (1997) reviewed about the various factors that influence the equity price
and price earnings ratio. He opined that equity prices are affected majorly by financial
risk considerations that, in turn, affect the earnings and dividends. He also stated that
the market risk in equity is greater than in bonds, and it influences the price to a great
extent. He disclosed that many analysts follow the price earnings (P/E) ratio to value
the equity, which is equal to the market price divided by the earnings per share. He
witnessed that higher interest rates and inflationary expectations tend to reduce the
price earnings ratios whereas growth companies tend to have higher price earnings
ratios. He recommended that an investor should examine the trends of the price
earnings ratio over time for each of the company.
William C. Dudley and R. Glenn Hubbard (2004) examined that in some cases, the
securities trade on public exchanges (for example, the New York Stock Exchange). In
other cases, the securities are traded over-the-counter. This means that prices for the
securities are established by individual securities dealers who compete with one
another to offer the best prices and execution. The capital markets intermediation
occurs via a wide array of instruments, including common and preferred equities,
convertible bonds, corporate bonds, mortgage-backed securities, other asset-backed
securities, and commercial paper. In the second case in which depository
intermediaries play a role, intermediation differs in three important respects. First, the
investor does not have a claim on the ultimate beneficiary of the funds. Instead, the
investors claim is on the depository institution that acts as the intermediary. Second,
the price of this claim does not typically fluctuate in response to shifts in supply and
demand. Instead, the investor agrees to terms with respect to the rate of interest that
will be paid and when the investment will mature. Third, the investor cannot normally
sell this claim to a third party. Instead, to end the contractual arrangement early, the
investor might suffer a penalty, such as 90 days of foregone interest in the case of
early withdrawal of a bank certificate of deposit. Or, in the case of a demand deposit
or savings account that has no maturity date, redemption can occur at any time at the
discretion of the saver, but always assuming the bank remains solvent at par value.
Robert P. Schumaker and Hsinchun Chen (2006) examines a predictive machine
learning approach for financial news articles analysis using several different textual
representations. Through this approach, they investigated 9,211 financial news articles
and 10,259,042 stock quotes covering the S&P 500 stocks during a five week period.
They applied the analysis to estimate a discrete stock price twenty minutes after a

news article was released. Using a Support Vector Machine (SVM) derivative
specially tailored for discrete numeric prediction and models containing different
stock-specific variables, they show that the model containing both article terms and
stock price at the time of article release had the best performance in closeness to the
actual future stock price (MSE 0.04261), the same direction of price movement as the
future price (57.1% directional accuracy) and the highest return using a simulated
trading engine (2.06% return).
Debjiban Mukherjee (2007) made a comparative Analysis of Indian stock market
with International markets. His main study covers the New York Stock Exchange,
Hong Kong Stock exchange, and Tokyo Stock exchange from various socio- politicoeconomic backgrounds. The Bombay Stock exchange and National Stock Exchange
of India have been used in the study as a part of Stock Market in India. The main
objective of this study is to capture the trends, resemblances and patterns in the
activities and movements of the Stock Market in India in comparison to its
international counterparts. The time period has been divided into various divisions to
test the relationship between the various exchanges to prove that the markets
functioning in India are more integrated with its global counterparts and its reaction is
in par with that which has been seen globally. Number of stock exchanges have been
compared on the basis of listed securities, listing agreements, Capitalization of
market, circuit filters, and settlement. It can safely be said that the markets do react to
global cues and any happening in the global scenario let it be macroeconomic or
country specific affecting the various markets.
Prof. Anilkumar Garag and Dr. B Ramesh(2010) Their study is an attempt to find
a relation between the change in the prices of futures contracts of specific stocks and
the change in Open Interest. Participants in the stock markets believe that the amount
of open interest in a particular contract has a bearing on the behaviour of the price of
the contract. This popular perception is put to test in the following research by
correlating the change in open interest in stock futures with the change in the futures
prices. Empirical data has been collected from copies published by the National Stock
Exchange, India and then the data is subjected to correlation analysis to find out the
significance of these parameters. The daily price data and open interest data is
collected for sixteen stocks and the index (NIFTY) for a period of 4 years. The
correlation between the change in futures price and the change in open interest is
calculated for near month contracts of these seventeen futures contracts.

The following two hypotheses have been noted:

Hypothesis 1 - There is a strong and positive correlation between the change in open
interest and change in futures price in single stock future. The hypothesis stands
rejected as the correlations hovers around ZERO. This is substantiated by the T-test
where the hypothesis stands accepted for 12 cases out of 17 cases (64.7%)
Hypothesis 2 - There is a strong and positive correlation between the change in open
interest and nifty futures. The hypothesis stands rejected as the correlation coefficient
is nearly ZERO. This is also substantiated by the T-test.
Juhi Ahuja (2012) presents a brief picture of Indian Capital Market and the structure.
In the last decade or so, it was observed that there has been a paradigm shift in the
Capital market in India. There is application of many reforms and developments in
capital market of India which has made the Indian capital market comparable with the
international capital markets. Now, there are advanced market features and a
developed regulatory mechanism with growing capitalization of market and
mobilization of resources. The emergence of Private Corporate Debt market is also a
good modernisation replacing the banking mode of corporate finance. However, the
market has also witnessed the worst time with the recent global financial crisis that
originated from the United States sub-prime mortgage market and spread over to the
entire world as a taint. The capital market of India delivered an extremely sluggish
performance.
Nikunj R. Patel, Nitesh Radadia and Juhi Dhawan (2012) the purpose of this
research was to investigate the weak form of market efficiency of Asian four selected
stock markets. They have taken a daily closing price of stock markets under the study
from the 1st January 2000 to 31st March 2011 and also divided full sample in three
interval periods, and have applied various test like Runs Test, Unit Root Test,
Variance Ratio, Auto Correlation and other test. BSE Sensex has given the highest
mean returns to the investor followed by SSE Composite and HANGSENG. BSE
Sensex could be considered as high risk markets as it has reported the highest
Standard Deviation. During the period BSE Sensex, HANGSENG and SSE
Composite markets showed positive average daily returns except NIKKEI. The Runs
Test indicated BSE Sensex and NIKKEI markets are weak form inefficient whereas
HANSENG and SSE Composite hold weak form of efficiency. The time series for the

full as well as sample period did not have a presence of unit root in the markets
understudy. On Weak-Form of Market Efficiency of Asian Stock Markets not have a
presence of unit root in the markets understudy. According to Auto correlation test it
is inferred that the equity markets of the Asian region under the study remained
inefficient for some lag whereas they were efficient for the other lag.
Dr. K. V. Ramanathan and Mr. M. Muthu Gopalakrishnan (2013) analysed that
Indian stock markets have high fluctuating stock prices. The share price fluctuations
are always reported in the news and these fluctuations are caused by various factors.
The most stock market is among the most volatile financial institutions in business,
and its the volatility that tends to be the biggest problem with stock market. Volatility
in equity market has become a matter of mutual concern in recent years for investors,
regulators and brokers. Understanding Historical volatility is important for many
investors as well as traders. For investors, this term is important, because it helps in
estimating or calculating their risk. Traders, generally use Historical volatility to
know how volatile a stock or an index will be in the future. The present paper is an
attempt to examine the volatility of sectoral indices listed in Nifty as on March 28,
2013 using daily opening price, closing price, high and low prices of 31 selected
companies. The sample period for the study is 2005-2008(1-4-2005 to 31-3-2008) and
2009-2012(1-4-2009 to 30-3-2012).The sample period chosen helps to identify
volatility relationship during pre-recession and post-recession period. The data have
been analysed by working out Yang-Zhang Estimator and the calculation carried in
excel.
Anju Dagar (2014)

portrays that Stock Market is one of the most vigorous sector

which plays an important role in contributing to the wealth of an economy. Growth

rate of stock market signify growth percentage rise in economy. There is a strong
positive relationship between stock market development and economic growth & help
to efficiently direct the flow of savings and investment in the economy in ways that
make possible the stockpiling of capital. It fulfils a central function in the economy
which bring together savers and investors (providers of capital) & with companies and
the state (borrowers) on the other. The main objective is to analyse the link between
stock market performance & economic development. The Bombay Stock Exchange
(BSE), the National Stock Exchange (NSE) and the Calcutta Stock Exchange (CSE)
are the three large stock exchanges of Indian Stock Market & London stock exchange
is oldest stock market in the world. The primary function of the stock exchange is to

play the most important role of supporting the growth of the industry and commerce
in the country.
Dr. M.Venkataramanaiah (2015): Out of three important market parameters,
capitalisation play very decisive role to understand the behaviour of stock market.
Most often capitalisation could be used as a proxy for the public opinion on stock
exchanges. In this study the relationship between number of listed companies and
Sensex and market capitalisation as a whole, market capitalisation to gross national
product, sector wise market capitalisation, security group-wise capitalisation and
company-wise capitalisation were examined. It was found that there was a positive
relationship between market capitalisation and Sensex while there was no positive
relationship between market capitalisation and listed companies and listed companies
and Sensex. Further, it marked that there was positive relation between market
capitalisation and gross national product. Furthermore, it was evident that there was a
gradual

increase in

sector-wise market

capitalisation, security group-wise

capitalisation and company-wise capitalisation during the study period.

DR. G.Shanmugasundharam and DR. John Benedict categorised that the Sectorbased index is designed to provide a single value for the aggregate performance of a
number of companies representing a sector of the economy. This study is an attempt
to provide an empirical support to identify the risk factors in sectoral indices and
CNX Nifty index and also to see the risk relationship in different time intervals. The
indices selected for the study are CNX Nifty index, CNX Auto index, CNX Bank
index, CNX FMCG index, CNX Infrastructure index and CNX Information
Technology index for the period from 01/01/2004 to 30/04/2012. The data has been
taken from the official website of National stock exchange. Two sample T-Test and
One way ANOVA between subjects has been used to identify the risk factor
difference across the risk of sectoral indices and CNX Nifty index. The results show
that there is no difference in the Standard deviation among various sectoral indices.
The One-way ANOVA within groups has been used to identify, if there is any
difference in the risk across time intervals. The results show that there is a significant
difference in the mean scores of various time intervals. The results exhibit important
implications to individual investors and portfolio managers in terms of reducing
portfolio risk and enhancing their returns.

 Komal Rohit Nabira (2015) explained that when Equity is said, what comes to your
mind Stock or Equity Mutual Fund? While a single stock or a mutual fund both comes
under the category of Equity and they are good option for long-term investment.
There are some differences between stock investing and mutual fund investing that is
done by a common man. Its a good idea to know where they differ and in which
situation they differ, so that one can take better investing decisions. New investors
looking to invest for the future are usually faced with two main options - mutual funds
or individual stocks. Mutual funds are actively managed baskets of stocks, designed to
beat the market with the assistance of a fund manager. Individual stocks can be
bought by any investor through a brokerage, and it becomes the responsibility of the
individual investor to maintain his or her portfolio. Mutual funds are widely regarded
as a passive form of investing, while investing in individual stocks is a more active
form.
Prof. Ninad Khuley (2015) analyses that Risk management is one of the most
important functions of financial manager today not only in financing, banking and
insurance companies but also corporate world at large. In todays competitive
environment a company/organization which is very attentive towards risk
management becomes able to survive in the market. There are many methods and
tools which can be used to cope up with the risk management. This paper is focused
on derivative market at Bombay Stock Exchange. BSE with its distinctive feature has
a long, colourful and chequered history. It enjoys a preeminent position by having a
permanent recognition from the Securities Contract (Regulation) Act, 1956. It can be
considered as an essential concomitant of the Indian economy. Coming to risk
management of derivatives in BSE, BSE has an efficient and effective risk
management system, which can be compared with any of the exchange of the world.
The SPAN margining system followed by BSE for margin calculation is one of the
most efficient systems of margining. Along with this the regulatory requirement of
BSE makes the risk management system stronger and effective. Though the margin
with which BSE lags behind NSE is too much for derivatives market, but a committed
effort can help BSE to gain supremacy in this segment. This can be done by making
itself more informative, monitoring the risk management process and taking some
aggressive steps for the improvement of the derivatives segment. All it needs to do is
to take quick and timely decisions for the improvement of the derivatives segment.

 Dr. Rima Shah (2015) in her study examines that in order to meet the working and
fixed capital requirement, every business units have to raise short term and long term
funds. This aspect is covered by financial market. The financial market provides a
place or a system through which the transfer of funds by investors to the business unit.
The financial market consists of two major segments like money market and capital
market. The capital market is divided in primary and secondary market. The stock
exchange is the place where, securities are traded. To know about the investors
perception in financial market, the direct contact based on primary data collection in
the form of questionnaire is used. For that purpose 26 questions are asked to the 50
investors. The objectives for the analysis are to know the awareness level of investors,
use of financial market, investment opportunities and use of published annual reports
for investment decision. From the analysis it is revealed that, 46% investors are
pertaining to 30 to 50 years age group. From the investors, 44% investors are having
good knowledge in the area of investment. The majority investors are investing from
their own savings and they are preferred to invest majority in shares and stocks and
fixed deposit. 64% of the investors are graduates and post graduates and 52% are of
service category while 36% are self-employed. The main aim of the investment is to
earn regular income as well as capital appreciation.

Chapter 3 Research Design/ Synopsis

Title of the project:
The propinquity of Indian Economy to capital markets and its fluctuation.

Abstract:
The development of a particular economy can be determined by various measures such as the
GDP of a country, the average annual inflation rate prevailing in the country, the reserve
requirements of the Central Bank of a nation (Reserve Bank of India in the case of India) and
many other factors that get related to political, economic, social and technological factors of the
country. Here in this research project, we have concentrated on the all of the above mentioned
factors that affect the economy of the nation.

Introduction:
From the early 1980s onwards, there has been a shift in Indias economic policy regime, from
government control over the allocation of resources, towards a greater role for the markets. One
major aspect of these reforms has been the development of financial markets for determining the
allocation of capital in the economy. Several reforms have been announced to promote the
capital market and protect investor interests. Reforms in the secondary market have focused on
three main areas Structure and functioning of stock exchanges,
Automation of trading and post trade systems,
And the introduction of surveillance and monitoring systems.

The Capital Markets play a significant role in any economy from allocation of Capital and Risk
to Policy Making. If there is any single factor that makes a huge impact in improving the GDP of
a country, it is the effective allocation of capital to the Industry and Government. Capital Market
is the best channel to route the savings into long-term productive use. If we look into the
economy and find the enterprises that were hit by high cost of capital, one can observe that
MSME that provides highest number of employment opportunities were worst hit by it. If a

country develops and adopts best Capital Market practices they create multiple effects and helps
in reviving the economy. The SME Exchange is a welcome move for the Small and Medium
Scale Enterprises, but it is alone not enough to revive MSME.
In this view, this project aims to explore the extent of the development in Indian Capital Markets,
the extent of efficiency achieved in allocating the resources and the future course of action to fill
in the gaps whenever necessary.

Facts and figures:

In the context of Indian economy, these are the following facts and figures that provides us
with the overview of the current scenario as of September 2015 The Gross Domestic Product (GDP) in India expanded 7 percent in the second quarter of
2015 over the same quarter of the previous year, slowing from a 7.50% growth in the
previous quarter and below market expectations.
Current inflation exists in the economy at 6.00%.
Current bank rate is at 7.75%.
The current CRR rate is 4.00% and SLR is 21.50%.
Repo rate and reverse repo rate at the rate of 6.75% and 5.75% respectively.

Points of cynosure:
Apart from the above details regarding the Indian economy, the topic that we have narrowed
down to the impact on capital markets in purview of the then current Indian economy scenario.
There have been many reports and research papers already existing on topics that are related to
Indian economy and Indian capital market, but in isolation. Therefore, we are here making an
attempt to do a synchronized analysis of both the Indian economy and the capital market, its
interdependencies and the overall impact of fluctuations in either of the two on each other.
There have been studies and researches on the post liberalization period of India which began in
1991 when the Indian economy was gifted with the concept of LPG, i.e; liberalization,
globalization and privatization. We have channelized our concentration on the post LPG period
and the analysis of the impact on capital market shall be addressed in this research project. This

will basically be split in phases of collection of secondary data of government policies, market
prices of stocks and shares along with indices and an interpretation of the so formed trend and a
prediction of a possible trend on the basis of existing governmental policy (enacted or to be
enacted) by Narendra Modi led NDA Government. Capital market is the heart of any economy
through which the savings are channelized into effective long-term investments. A developed
and vibrant Capital Market will immensely contribute towards speedy economic growth and
development.
The entire project shall have a summary of the journals referred and other work of various
authors referred for determining the exact research gap currently existing which shall be
accompanied with various charts and tables which shall provide a statistical edge to the project.

Areas to be covered:

Problem of the study There has been no combined study as to how the capital market
has grown in connect with economic growth.

Scope of study 3 sectors with 3 stocks each and comparing them with overall industry
and economic growth and the possible movement in prices of stocks and revenue
numbers for FY 2015-16.

Sources of data collection Data used is basically secondary data. Therefore, sources of
data collection are websites such as www.bseindia.com, www.moneycontrol.com, etc.

Methodology The basic methodology used is analysis by means of profitability of the

company and trend analysis with regards to share price movements and revenue-profit
earnings of the companies over the years.

Limitation The only limitation of the report is that the predictions that are made with
respect to movement of share prices and revenue generation is based on current market
scenarios, which can change at a future date.

Table of contents of project report:

Introduction Basic introduction to Indian economy and capital markets.

Background History of evolution of capital market.

Importance of capital markets

New Developments Developments such as formation of SEBI, etc.

Challenges (similar to the problem of the study)

Reforms in the Capital Markets

Trading Pattern in the Indian Stock Markets

Problems of Indian Stock Markets

Changes in Stock Exchange

Future Policy - Stock Markets

Chapter 4 Data Analysis:

The period for the analysis is basically selected from the period after LPG, i.e;
Liberalization, Privatization and Globalization was done in the Indian economy. There are certain
sectors which have gained enormously from this policy reform and the objective of this research
project is to analyze the said impact with regards to that sector which are represented by the giants
of that particular sector. The companies chosen for the same are varied in their service providing
clientele or manufacturing base, thus providing a complete picture of the particular sector. Each
sector represents a growth pattern which may or may not be replicated by the shares of the
companies belonging to the same industry or sector due to various reasons like technological
obsolescence, market demand changes, etc.
The type of data that has been selected for the data analysis is secondary data which is
derived from websites that host such secondary data for public references. The same have been
utilized in making an analysis of the data related to the historical share prices, revenue and profits
of the company, contribution to GDP and so on and so forth.
So, the analysis of such data is presented in the form of charts which enables the data to be
more easily comprehendible, Let us begin with the analysis of the same.

Automobile Industry:
The reason for selecting the automobile industry is because of the main factor that has
triggered the growth of this sector, which is the population of this country. The population of India
has increased multiple times and therefore, there shall be an increase in the need for more vehicles
to carry such a huge amount of population. Therefore, the concentration that has been laid down
for the analysis is more towards passenger vehicles than commercial vehicles, though both have
almost the same relevance and weightage with regards to the research that has been done. The
same can be seen by the selection of securities that are made for the analysis. The companies that
are selected and the basis for the selection of the same is as follows
1. Tata Motors Limited Tata Motors Limited is one of the companies of the Tata Group
of Companies which has more than 200 companies under its umbrella. Tata Motors is one
of the leading passenger vehicles manufacturer and also is at the top as per consumer

choice, which are now more in utilization due to the plying of cabs for which mostly Tata
Indica cars are used (Ola Mini or Uber Go). The growth of the company has mainly been
characterized with this phenomenon of increased demand and need for cabs in the country.
Tata Motors is an automobile giant with Rs. 95,693 crores of market capitalization, which
is a huge number. The fluctuation in the share prices of Tata Motors from January 1991 to
the beginning of January 2016 has been considered and the same is as below -

Fluctuation in share prices of

Tata Motors Limited
1,400.00
1,200.00
1,000.00
800.00
600.00
400.00
200.00

A drastic fall in the prices of the shares during the period of January 2011 to January 2012
is because there was a split of shares in the ratio of 1:5 and therefore the stock prices had slashed
down to 1/5th of the then prevailing market price.
The revenue and profitability of Tata Motors from the year 2000-01 has been shown below.
We can see that the revenue had increased multiple times but the profitability of the company was
not at all in correlation with the revenue that the company is generating. This is basically due to
the increased cost of production and the increased standard of living in the country, considerably
higher that it was. This makes the company to pay more salaries and wages and therefore the cost
of production rises. The margin with which the company works is around 5%, of which the
majority portion gets eaten away as commission by middlemen and agents. The company has
reported cumulative losses of around 2,000 crores in the last 2 years which shows the plight of the
company. Despite generating high revenues, the company is unable to maintain its profitability

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which questions the viability of the company for the future run. The impact of losses is reflected
in the stock prices where the company has reduced from Rs. 600 to Rs. 425, thus reducing its
market capitalization

Revenue and Profits of Tata Motors Limited

60,000.00

50,000.00

40,000.00

30,000.00

20,000.00

10,000.00

(10,000.00)
Revenue (in crores)

Profit (in crores)

2. Maruti Suzuki India Limited Maruti Suzuki India Limited is a joint venture of Indian
company Maruti Udyog Limited and the Japanese giant Suzuki, which has been in
existence for more than 3 decades. Maruti Suzuki is the largest Indian automobile
manufacturer and has been recording the highest sales (in units) in India, making it the
first choice of an Indian customer. It is seen that Maruti Suzuki has earned the brand
loyalty amongst majority of the Indian car owners and thus has more than 50% market
share in the Indian passenger car market. The changes in the market price of the shares is
as below. The share has consistently grown over the years and has given considerable
returns to its investors. Being Indias biggest passenger vehicle manufacturer and seller,
the company has outperformed the industry growth rate and hence is a very positive pick
for investors which is bound to yield good positive returns over a reasonable period of
time.

Fluctuations in share prices of

Maruti Suzuki India Limited

5,000.00
4,500.00
4,000.00
3,500.00
3,000.00
2,500.00
2,000.00
1,500.00
1,000.00
500.00

There is a continuous rise in the prices of the shares which is the result of continuous
increase in revenue and profit margins. In contrast to Tata Motors, which is the second largest
company in the sector, Maruti Suzuki has ensured that it remains under profit in any circumstances.
In the recession of 2008-09, the company did lose out on its export sales but still managed to
remain profitable at a reasonable state and therefore shows that the company has very deep pockets
which can absorb the sudden shocks and losses. The revenue and profit chart of the company is as
follows which depicts the profitability of the company

Revenue and Profits of

Maruti Suzuki India Limited
60,000.00
50,000.00
40,000.00
30,000.00
20,000.00
10,000.00
-

Revenue (in crores)

Profit (in crores)

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JAN-13

JUL-12

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The company has constantly garnered profits into its reserves and therefore is the
most profitable automobile company in the Indian automobile sector. The total market
capitalization of Maruti Suzuki India Limited is 1,23,420 crores, which is the highest in
the automobile sector.
3. Eicher Motors Eicher Motors is one company that has emerged has a very strong
company after the 2000s. This company has outperformed various other companies in the
sector and thus a created a buzz around itself in the minds of the investors. This can be
equated with the market price it had 10 years ago and the market price of its share now.
The market price of one share of Eicher Motors in January 2005 was Rs. 260 and the price
per share in January 2016 is Rs. 17,100. Therefore the impact of this company can be
clearly understood with the growth it has shown in its market price. In spite of having a
market capitalization of Rs 44,600 crore, the company is still unable to capture a large
amount of share in the commercial vehicles segment where it gets stiff competition from
companies like Tata Motors and Ashok Leyland. The changes in the market price of the
companys shares can be seen in the following chart

Fluctuations in share price of

Eicher Motors Limited
25,000.00
20,000.00
15,000.00
10,000.00
5,000.00

The growth pattern of the companys revenue has not been stable and there have been ups
and downs in the revenue earnings of the company. This has impacted the companys chances of
capturing the market share in the commercial vehicles segment which also has been tumbling. The
company, despite such failures of capturing the market share, has ensured to remain profitable and

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has successfully maintained its profit line from falling below par and coming into the red zone of
losses. These continuous efforts has helped Eicher Motors to increase their market capitalization
and therefore has been partially successful in maintaining the investors confidence in the
companys balance sheet. The analysis of the revenue and profits of the company is as follows

Revenue and Profits of Eicher Motors Limited

3,500.00
3,000.00
2,500.00
2,000.00
1,500.00
1,000.00
500.00
-

Revenue (in crores)

Profit (in crores)

Analysis of trends in the automobile sector and the future possible movement
in share prices and revenue/profit earnings and comparison to GDP
contribution and industry growth rate
The vision of the Automotive Mission Plan 2006 - 2016 drafted by the Ministry of Heavy
Industries and Public Enterprises department of the Government of India is to emerge as the best
destination for design and manufacturing of automobiles in the market size of 145 Billion USD
which accounts for 7% to 8% of the GDP of the country. The average growth rate of the Indian
automobile industry is around 8.7%. It can be seen that the current reforms in the Indian
economy are favorable for the growth and development of the entire automobile industry. The
prediction of Indian population reaching 150 crores in a few years, there is high probability that
the demand for passenger vehicles will increase. With increase in the middle class and upper
middle class levels of individuals, a car, which was then a luxury has now become a necessity.

Therefore, these are the following expectations for each of the companys which were considered
in the analysis above.

Tata Motors - Tata Motors has been suffering losses for the last 2 years where it has
reportedly posted a loss of around Rs. 2,000 crores, which is a huge amount. The
expectancy of the continuance of the same trend is quite possible and therefore, despite
the indication of increase in revenue, the combination of Tata and JLRs (Jaguar-Land
Rover) revenue is expected to be reduced from that of last year, as the current 2 quarters
of the year 2015-16 have been negative. Therefore, it is expected that Tata Motors will be
reporting a loss for FY 2015-16 which would be around Rs. 1500 crores. Tata Motors,
on the overall, has a growth rate of 12.6% against the industry average of 8.7%.

Maruti Suzuki Maruti Suzuki has had good 2 quarters for FY 2015-16, and being the
best company in the sector, the company is expected to rake in good profits just like last
year within the range of 11% to 14.5%. The company has had good sale numbers during
the past 2 quarters and the same is expected to have decent sales in the next 2 quarters.
Maruti Suzuki India Limited, on the overall, has an impressive growth rate of 14%
against

the

industry

average,

which

is

just

at

the

rate

of

8.7%.

Eicher Motors Eicher Motors been struggling to maintain a steady growth trend
previously, but has now found the path for increasing their revenues which have
consistently risen for the last 3 years. The company has shown tremendous growth in the
first 2 quarters of FY 2015-16 and is expected to post even more strong numbers in Q3.
The expectancy of such good numbers has also driven the market prices of the company
to rise for more than 5% in the last 2 trading sessions. The company has solid profit
margins in the last 3 years that have been in the range of 15% to 23%. This tremendous
margin has enabled the company to perform amazingly. Therefore, it is expected that the
company would have revenue figures growing above Rs. 5,000 crores from the current Rs.
3,500 crores with a clear cut margin of around 17& to 20% as profits. Eicher Motors, on
the overall, has a strong growth rate of 24% against the industry average of 8.7%,
which is almost thrice to that of the industry average.

Information Technology or IT Industry:

The IT industry is one lucrative industry that has benefitted the most from the policy reform
of LPG, i.e; Liberalization, Privatization and Globalization. The attractiveness of this industry had
risen to greater heights after the 2000s, which has a great impact on the profitability of the
companies in that particular sector. Let us now look at the companies which are selected for the
analysis with respect to the IT industry.
1. Infosys Limited Infosys Limited is the biggest IT company in the Indian IT sector.
Infosys Limited has the highest market capitalization in the IT sector with an amount close
to 2,62,000 crores. Thus, this market capitalization allows the company to have a greater
exposure by not just restricting itself in the Indian market but also covering a majority of
the world market too. The company incorporated in the year 1995, had the share prices
soaring greater heights within a short span of just 5 years. The price of one share of Infosys
Limited had risen from below Rs. 300 per share in 1995 to around Rs. 14,000 in 2000. The
company had issued bonus shares at various intervals and therefore the prices of the shares
had fallen down considerably. The fluctuation in the share prices of the company is as
follows

Fluctuation in share prices of

Infosys Limited
16,000.00
14,000.00
12,000.00
10,000.00
8,000.00
6,000.00
4,000.00
2,000.00
-

The revenue earning capacity of the company has increased multiple times over the years
and has shown greater profit margins in the last 3 years. The trend of the profitability of the
company can be seen as below -

Revenue and Profits of Infosys Limited

60,000.00
50,000.00
40,000.00
30,000.00
20,000.00
10,000.00
-

Revenue (in crores)

Profit (in crores)

The company has steady growth rate of about 10% in increasing their revenues and around
15% in increasing the profits of the company. The company has had 2 good quarters in FY 201516 with profits of Rs. 9500 crores in the past 2 quarters. This implies that the company has
probability of growing at the same rate as last year, with the revenue figures being partially
impacted in the third quarter due to the floods in Chennai, but would not be as impacted as Tata
Consultancy Services (TCS) which has been badly impacted by the Chennai floods. Therefore, the
company is expected to generate adequate profits.

2.

Tata Consultancy Services (TCS) Tata Consultancy Services is the biggest IT Company
in India, Almost 60% of the revenue of the Tata Group is generated by TCS. The company
has an overall market capitalization of 4,54,000 crores which makes it the biggest company
in the IT sector, in terms of market capitalization. The company has performed exceptionally
in terms of share prices and thus has provided a fair market cap for itself. TCS has been the
pioneer in the country for export of technological services and has garnered to more of the
international market also. The domestic market is basically made of 3 giants of the IT sector,
namely TCS, Infosys and Wipro. The fluctuation in the share prices of the company has been
as follows

Fluctuation in share prices of

Tata Consultancy Services Limited
3,000.00
2,500.00
2,000.00
1,500.00
1,000.00
500.00

JUN-15

The company has had amazing 4 years in the past where the revenue has increased by around
10% YoY, which makes the company a very profitable one too. The company has not reported
any loss in the last 10 years which is also a great achievement. TCS had performed will in the first
2 quarters in FY 2015-16 but the same is not expected to replicate in the next two quarters. The
company has contributed to the nations imports in a huge number that has made the company a
very important part of the Indian economy. TCS has major markets outside in India in developed
nations like the United States of America (USA), United Kingdom (UK) etc. The analysis of the
companys

profit

for

the

past

10

years

is

Revenue and Profits of TCS Limited

90,000.00
80,000.00
70,000.00
60,000.00
50,000.00
40,000.00
30,000.00
20,000.00
10,000.00
-

Revenue (in crores)

Profit (in crores)

as

follows

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The company has continuously increased their revenue generating ability but is unable to
generate profits in the same ratio as the companys revenue generation capacity. The profits of the
company have increased marginally and therefore the company is struggling to increase the profit
margins in a greater proportion as the increase in revenue.

3. Wipro Limited - The third largest IT company in terms of market capitalization with a
total market cap of 1,36,600 crores, Wipro Limited is one of the top 3 giants of the IT
sector which includes the other giants like Infosys and TCS. Wipro is regarded as a global
service provider of integrated business processes and technological solutions and is also
counted among the three leading offshore BPO service provider. In recent times, Wipro
has been facing some problems with respect to its profits. The rise in profits not met the
expectations and also the revenue growth of Wipro has been unsatisfactory. The changes
in the share prices of the company is as follows -

Fluctuation in share prices of

Wipro Limited
8,000.00
7,000.00
6,000.00
5,000.00
4,000.00
3,000.00
2,000.00
1,000.00

The dot com bubble has had a great impact on the prices of the share, wherein the stock
prices reach an all-time high of around Rs. 7,000 per share, but after that, the stock prices had a
tumbling fall and lost more than 70% of its value which was again gained in the gap of a year. But
the stock has always been subject to high volatility and therefore has paid the price for such
volatility. The current market price of the shares are around Rs. 550.

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The revenue and profitability of the company can be seen in the following chart -

Revenue and Profits of Wipro Limited

50,000.00
45,000.00
40,000.00
35,000.00
30,000.00
25,000.00
20,000.00
15,000.00
10,000.00
5,000.00
-

Revenue (in crores)

Profit (in crores)

The company finally has found a track in increasing their revenues and maintaining a trend
of the same. But the profitability of the company does not support the same standing. Wipro has
had decent first 2 quarters. And the expectancy of increasing the profitability of Wipro is mostly
negated and this would have a negative impact on the share price of the company. The companys
revenues have increased at the rate of 10% YoY but the profits have not been in correlation to that
of the revenue. Looking at the trends of the last 4 years, revenue have increased by 50% over the
4 years but the profits have increased by only 39%.

Analysis of trends in the IT sector and the future possible movement in share
prices and revenue/profit earnings and comparison to GDP contribution and
industry growth rate
The contribution of services sector to the Indian economy has been around 56% of which
IT industry has contributed to more than 10%, which effectively makes the contribution of IT
sector to the overall growth of GDP at around 5.6%. The IT sector has been the most recent
and the most fast developing sector in the Indian economy. The pace at which technology evolves
has stupendously traumatized the companies which do not develop and evolve with changes in the
technological space. To ensure ones existence (with regards to a company), the company should
adopt the technological advancement in its day-to-day operations and therefore, the role of IT

companies has come into prominence. Therefore, these are the following expectations for each of
the companys which were considered in the analysis above.

Infosys Limited The Company has performed well in the first 2 quarters of this financial
year 2015-16 and is expected to continue the same for the second half of the financial year
2015-16. Infosys has posted strong numbers in the first half with profits of around Rs.
9,000 crores and therefore is expected to post better numbers in the next 2 quarters, despite
the Chennai floods which has impacted the revenue of TCS, its fierce competitors. The
companys revenue is expected to grow at the same rate as last year. The growth
expectancy for this year is expected to be in the range of 9% to 11%, while the average
industry growth rate is 5.6%.

Tata Consultancy Services Limited TCS has been badly impacted by the recent
Chennai floods and therefore the Q3 numbers of the company will be definitely impacted.
The company has had good first half of FY 2015-16, but the second half shall see some
downfall due to the natural calamity caused in the city of Chennai which is the base area
of operations for TCS. The company is expected to fall short of the profit margin that was
decided for the year which was expected to be more than Rs. 19,000 crores (the profit of
last FY 2014-15). The growth expectancy of TCS for this year is expected to be in the
range of 14% to 16%, while the average industry growth rate is 5.6%.

Wipro Limited Wipro has performed on similar grounds to that of the previous year and
therefore the performance of the company is not expected to rise the bar when compared
to that of last year. The company had generated a revenue of Rs. 41,000 crores with profit
of around Rs. 8,200 crores. The same is expected to be replicated in the current year too.
Hence, it is assumed that the prices of shares shall remain stable and the profitability of the
company also remains at the same existing levels as similar to that of previous year. The
growth rate for Wipro Limited is expected to be in the range of 9% to 10%, while the
average industry growth rate is 5.6%.

Telecom Industry:
The telecom industry has great prominence now in the life of every Indian, as no one in
this world can now survive without telecommunication, and the most important medium in
enabling the telecommunications is mobile phones. Mobile phones have become an integral part
of our lives, and it is presumed in the current scenario that there is no life without mobile phones.
And with continuous usage of mobile phones, the business of telecom companies started gaining
importance. The increased usage of phones made the necessity of installing more towers and
making the telecommunications infrastructure stronger for gaining more satisfied customers. Let
us now look at the companies which are selected for the analysis with respect to the telecom
industry.
1. Bharti Airtel Limited Bharti Airtel or just Airtel is the biggest telecom service provider
in the country, which is the major player along with competitors like Idea, Vodafone, and
Reliance etc. Airtel has the majority of customers under its umbrella, therefore giving it a
widespread coverage and dominance in the market. It has better connectivity when
compared to other government service providers like BSNL, MTNL etc. The fluctuation
in the prices of the companys stock prices are as follows

Fluctuations in share prices of

Bharti Airtel Limited
1,200.00
1,000.00
800.00
600.00
400.00
200.00

FEB-15

The prices of the shares during August 2007 and December 2007 had risen to the
then all-time high of around Rs. 1,000 per share but after that the prices had taken a

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AUG-04

FEB-04

AUG-03

FEB-03

FEB-02

AUG-02

downhill and never returned back to those highs. The company suffered severely during
the recession that shook the world between the period of June 2009 and December 2009,
where the company lost most of the value of its shares. The company has successfully then
maintained the levels of prices which would act as a stop loss barrier.
The revenue of the company has been on a rising stance for around 5 years, though
the profitability of the company has witnessed ups and downs. The same can be seen in
the chart below. The companys revenue has increased significantly but the profits have
not increased accordingly. Therefore, the expectancy of high profits can be reasonably
assured with the increase in the revenues greater than the previous year growth. Revenue
had previously increased by around 20% while the profits had increased by almost 100%
(YoY).

Revenue and Profits of Bharti Airtel Limited

70,000.00
60,000.00
50,000.00
40,000.00
30,000.00
20,000.00
10,000.00
-

Revenue (in crores)

Profit (in crores)

2. Mahanagar Telecom Nigam Limited (MTNL) MTNL is a government undertaking

which had been the main service provider until the advent of private service providers had
occurred. Since then, the company, unlike its counterparts has been suffering losses. The
fluctuation in the share prices of the company is as follows

Fluctuations in share prices of

Mahanagar Telecom Network Limited
350.00
300.00
250.00
200.00
150.00
100.00
50.00
-

The prices have considerably fallen down due to lack of demand for the services
provided by MTNL. The decline in the prices can be correlated with the revenue earning
pattern of the company too. The following chart depicts the revenue earning of the
company

along

with

its

profit

earnings

Revnue and Profits for MTNL

20,000.00
15,000.00
10,000.00
5,000.00
(5,000.00)
(10,000.00)
Revenue (in crores)

Profit (in crores)

The upward green bar in the year 2013-14 is due to major sale of assets, which
enabled the company to report a profit in the previous 5 years. The company again posted
a loss, this signals to the possible closure or liquidation of the company or sale of the
company to a private enterprise.

3. Reliance Communications Limited Reliance Communications, at the time of its

inception had been a great package of benefits to its customers, which enabled the company
to grab various customers form different service providers. But the company failed to maintain
such lucrativeness for a longer duration. The company had lost the share valuation that it had
received within a span of 3 years and had fallen from the high of around Rs. 770 to Rs. 200
and still trades around the same low price. The following chart describe the same.

Fluctuations in share prices of

Reliance Communications Limited

The company has also lost on capturing a huge chunk of the market share despite
having a great start. The company made profits for a duration of around 3 years, after which
it started reporting lower or negative profits, i.e; losses. RCom is struggling to make a mark
despite having an advantage of low costs to customers when compared to those of its
competitors like Airtel, Vodafone, etc. The profitability of the company is shown as below -

Revenue and Profits of

Reliance Communications Limited
25,000.00
20,000.00
15,000.00
10,000.00
5,000.00
(5,000.00)

2005-06

2006-07

2007-08

2008-09

2009-10

Revenue (in crores)

2010-11

2011-12

Profit (in crores)

2012-13

2013-14

2014-15

NOV-15

JUL-15

MAR-15

JUL-14

NOV-14

NOV-13

MAR-14

JUL-13

MAR-13

JUL-12

NOV-12

NOV-11

MAR-12

JUL-11

NOV-10

MAR-11

JUL-10

MAR-10

JUL-09

NOV-09

NOV-08

MAR-09

JUL-08

MAR-08

JUL-07

NOV-07

NOV-06

MAR-07

JUL-06

MAR-06

900.00
800.00
700.00
600.00
500.00
400.00
300.00
200.00
100.00
-

Analysis of trends in the telecom sector and the future possible movement in
share prices and revenue/profit earnings
India is currently the worlds second-largest telecommunications market and has registered
strong growth in the past decade and half. The Indian mobile economy is growing rapidly and has
contribute substantially to Indias gross domestic product (GDP). The total mobile services
market revenue in India is expected to touch US$ 37 billion in 2017 and is growing at the
rate 8.4%. The data till the year 2009-10 can be graphically seen as below. The then growth rate
of the telecom industry was 6.7%.

The telecom sector has now become a sensation in the Indian economy. The sector which
was highly dominated by the government enterprises which made huge profits then are now on the
verge of liquidation. The key highlights of the analysis that has been done on the stocks that have
been selected here is as follows

Bharti Airtel The only profit making company (in propinquity and consecutiveness) in
the entire industry has had comparatively weaker growth when compared YoY. The
company had increased it revenue in the year 2014-15 at the rate of 20% and profits had
increased by 100% (YoY). But the same is not expected in the current year as the company
has shown weaker returns in the first half of FY 2015-16. It is expected that Bharti Airtel
shall report a lesser profit when compared to last year. Also the share prices are expected
to remain in the range of Rs. 340 Rs. 400 by year end. The base of the company seems
strong as it is growing at the rate of 18% to 20%, while the industry average growth
rate is 8.4%.

MTNL MTNL has been reporting huge losses for consecutive years and it is expected
that the government wont allow the losses of the company impact its exchequer and would
either liquidate the company or sell it to a private enterprise with a fair valuation. The stock
prices are expected to decline to their new 52-week lows and possible reporting of losses
for this financial year too. The company is going in the reverse direction of the industry
with a declining growth of -8% while the industry grows at 8.4%.

Reliance Communications Limited RCom has consistently failed to deliver to its best
which can be seen from its inconsistent profitability. The company has had a combination
of profit and loss reporting timelines. Therefore, RCom is expected to post huge loss for
the FY 2015-16 as the first two quarters have been bad in terms of profitability. Hence, it
can be concluded that the company would report loss for the current year which would be
easily seen in the reduced share prices of the company. The growth rate of Reliance
Communications, in terms of revenue is in the range of 15% to 18%, but the
profitability of the company is struggling to maintain a standard trend, while the
industry grows at the rate of 8.4%.

Chapter 5 - Conclusion:
Capital market in the Indian Economy which is the main focus of our study acts like a brake
on channeling savings to low yielding enterprises which impels enterprises to focus on
performance. It very closely observes performance through the movements of share prices in
the market and the threats of the takeovers. This further enhances efficiency of resource
utilization and thereby significantly increases returns on investment. Thus, the capital market
converts a given stock of investible resources into a larger flow of goods and services and
augments economic growth. In fact, the literature is full of empirical studies that have
established a causal robust (statistically significant) two-way relation between the
developments in the securities markets i.e., Capital market and economic growth. The Capital
Markets play a significant role in any economy from allocation of Capital and Risk to Policy
Making. Our Study was narrowed down to three most significant sectors of the Indian
Economy. They are as follows:

Automobile sector

Telecom sector

Information Technology sector

Automobile sector:
The primary reason for choosing the automobile industry was because of the population of this
country which is the main factor that has triggered the growth of this sector. With the increase
in the population of India there arises the need for more vehicles to carry such a huge
population. It can be seen that the current reforms in the Indian economy are favourable for
the growth and development of the entire automobile industry.

IT sector:
The IT industry is one lucrative industry that has most benefitted the most from the policy
reform of LPG, i.e; Liberalization, Privatization and Globalization. The IT sector has been the
most recent and the most fast developing sector in the Indian economy. The pace at which
technology evolves has stupendously traumatized the companies that do not develop and
evolve with changes in the technological space.

Telecom Industry:
The telecom industry has great prominence now in the life of every Indian, as no individual in
this world can now survive without telecommunication, and thereby becoming the most
important part of our lives and the most important medium in enabling the telecommunications
is mobile phones. This sector which was highly dominated by the public sector has now come
to the verge of liquidation the reason being stated in the data analysis of this project.
These trends of the various sectors in our economy provide a further confirmation that the
1990s will ultimately be remembered not only as the era of emerging markets, but as the decade
in which global capitalism returned to its pre-1914 frontiers. This phenomena resulting from
the rebirth of liberal economic ideas in many developing countries, and India being one of
them has expanded role of securitized forms of financial intermediation everywhere and a
search for higher asset returns by investors in the mature industrial countries.