Technical and Fundamental Analysis of Selected Securities of Indian Stock Market

TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES
END TERM PROJECT
TECHNICAL AND FUNDAMENTAL ANALYSIS

OF SELECTED SECURITIES OF INDIAN STOCK
MARKET
In partial fulfillment for the requirement of the MBA

Programme
SUBMITTED BY
Under the guidance of :
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S.No. TITLE Pg.No.
1. CH 1 Introduction 6
1.1 Rationale 8
1.2 Objectives 8
1.3 Research Methodology 9
2. CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW 10
2.1 DOW THEORY 12
2.2 ELLIOT WAVES BASICS 16
2.3 MOVING AVERAGE 17
3. CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW 19
3.1 Economic Analysis 20
3.2 Industry Analysis 22
3.3 Company Analysis 24
3.3.1 The Management 24
3.3.2 The Company 25
3.3.3 The Annual Report 25
3.3.4 Ratios 27
3.3.5 Cash Flow 28
4. CH 4 Analysis 30
5. CH 5 Limitations 71
6. CH 6 Conclusion 73
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7 Glossary 77
8 References and Bibliography 80
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CHAPTER- 1
INTRODUCTION
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1.1 INTRODUCTION
Investing, like marriage, isn't something that should be entered into lightly. You wouldn't
get married on a first date, would you? Ok, maybe some of us would, but that's not really
very Foolish. Before we marry... er, I mean invest in a company, there are more than a
few things we need to know about it.
Securities Analysis
An analysis of securities and the organization and operation of their markets. The
determination of the risk reward structure of equity and debt securities and their
valuation. Special emphasis on common stocks. Other topics include options, mutual
fluids and technical analysis.
Technical analysis is a method of predicting price movements and future market trends by
studying charts of past market action which take into account price of instruments,
volume of trading and, where applicable, open interest in the instruments.
Fundamental analysis is a method of forecasting the future price movements of a

financial instrument based on economic, political, environmental and other relevant
factors and statistics that will affect the basic supply and demand of whatever underlies
the financial instrument.
Main differences between the two types of analysis:
Fundamental analysis Technical analysis
Focuses on what ought to Focuses on what actually

happen in a market happens in a market
Factors involved in price Charts are based on market

analysis: action involving:
1. Supply and demand 1. Price
2. Seasonal cycles 2. Volume
3. Weather 3. Open interest (futures
4. Government policy only)
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1.2 RATIONALE FOR THE STUDY
In an industry plagued with skepticism and a stock market increasingly difficult to predict
and contend with, if one looks hard enough there may still be a genuine aid for the Day
Trader and Short Term Investor.
The price of a security represents a consensus. It is the price at which one person agrees
to buy and another agrees to sell. The price at which an investor is willing to buy or sell
depends primarily on his expectations. If he expects the security's price to rise, he will
buy it; if the investor expects the price to fall, he will sell it. These simple statements are
the cause of a major challenge in forecasting security prices, because they refer to human
expectations. As we all know firsthand, humans expectations are neither easily
quantifiable nor predictable.
If prices are based on investor expectations, then knowing what a security should sell for
(i.e., fundamental analysis) becomes less important than knowing what other investors
expect it to sell for. That's not to say that knowing what a security should sell for isn't
important--it is. But there is usually a fairly strong consensus of a stock's future earnings
that the average investor cannot disprove
Fundamental analysis and technical analysis can co-exist in peace and complement each other. Since
all the investors in the stock market want to make the maximum profits possible, they just cannot
afford to ignore either fundamental or technical analysis.
1.3 OBJECTIVES OF THE STUDY
Primary Objective:
a) To do technical and fundamental analysis of chosen securities
Sub-Objectives:
a) to study the various theories of technical analysis and fundamental analysis
b) understand the movement and performance of stocks

c) understanding and analyzing the factors that affect the movement of stock
prices in the Indian Stock Markets
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1.4 RESEARCH METHODOLOGY & DESIGN
TYPE OF STUDY
The research has been based on secondary data analysis. The study has been exploratory
as it aims at examining the secondary data for analyzing the previous researches that have
been done in the area of technical and fundamental analysis of stocks. The knowledge
thus gained from this preliminary study forms the basis for the further detailed
Descriptive research. In the exploratory study, the various technical indicators that are
important for analyzing stock were actually identified and important ones short listed.
SAMPLE DESIGN
The sample of the stocks for the purpose of collecting secondary data has been selected
on the basis of Random Sampling. The stocks are chosen in an unbiased manner and each
stock is chosen independent of the other stocks chosen.
SAMPLE SIZE
The sample size for the number of stocks is taken as 10 for technical analysis and 4 for
fundamental analysis of stocks as fundamental analysis is very exhaustive and requires
detailed study.
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CHAPTER- 2
TECHNICAL ANALYSIS
A CONCEPTUAL OVERVIEW
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TECHNICAL ANALYSIS:
Technical analysis can be conditionally divided into some main parts such as:
Types of charts
Graphical methods
Analytical methods
Technical indicators
Technical analysis is concerned with predicting future price trends from historical price
and volume data. The underlying axiom of technical analysis is that all fundamentals
(including expectations) are factored into the market and are reflected in exchange rates.
A technical analysis is based on three axioms:
Movement of the market considers everything

Movement of prices is purposeful
History repeats itself
SUPPORT AND RESISTANCE

Support is a level at which bulls (i.e., buyers) take control over the prices and prevent
them from falling lower.
Resistance, on the other hand, is the point at which sellers (bears) take control of prices
and prevent them from rising higher. The price at which a trade takes place is the price at
which a bull and bear agree to do business. It represents the consensus of their
expectations.
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Support levels indicate the price where the most of investors believe that prices will move
higher. Resistance levels indicate the price at which the most of investors feel prices will
move lower.
Role Reversal
When a resistance level is successfully broken through, that level becomes a support
level. Similarly, when a support level is successfully broken through, that level becomes a
resistance level.
3.1 DOW THEORY TRENDS:

The ideas of Charles Dow, the first editor of the Wall Street Journal, form the basis of
technical analysis. The Dow theory is a method of interpreting and signaling changes in
the stock market direction based on the monitoring of the Dow Jones Industrial and
Transportation Averages. Dow created the Industrial Average, of top blue chip stocks, and
a second average of top railroad stocks (now the Transport Average). He believed that the
behavior of the averages reflected the hopes and fears of the entire market. The behavior
patterns that he observed apply to markets throughout the world.
Three Movements
Markets fluctuate in more than one time frame at the same time:
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Nothing is more certain than that the market has three well defined movements which fit
into each other.
The first is the daily variation due to local causes and the balance of buying and
selling at that particular time.
The secondary movement covers a period ranging from ten days to sixty days,
averaging probably between thirty and forty days.
The third move is the great swing covering from four to six years.
Bull markets are broad upward movements of the market that may last several
years, interrupted by secondary reactions. Bear markets are long declines
interrupted by secondary rallies. These movements are referred to as the primary
trend.
Secondary movements normally retrace from one third to two thirds of the
primary trend since the previous secondary movement.
Daily fluctuations are important for short-term trading, but are unimportant in
analysis of broad market movements.
Various cycles have subsequently been identified within these broad categories.
Primary Movements have Three Phases
The general conditions in the market:
Bull markets
Bull markets commence with reviving confidence as business conditions improve.
Prices rise as the market responds to improved earnings
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Rampant speculation dominates the market and price advances are based on hopes and
expectations rather than actual results.
Bear markets
Bear markets start with abandonment of the hopes and expectations that sustained
inflated prices.
Prices decline in response to disappointing earnings.
Distress selling follows as speculators attempt to close out their positions and
securities are sold without regard to their true value.
Ranging Markets
A secondary reaction may take the form of a line which may endure for several weeks.
Price fluctuates within a narrow range of about five per cent.
Breakouts from a range can occur in either direction.
Advances above the upper limit of the line signal accumulation and higher prices;
Declines below the lower limit indicate distribution and lower prices;
Volume is used to confirm price breakouts.
Trends
Bull Trends
A bull trend is identified by a series of rallies where each rally exceeds the highest point
of the previous rally. The decline, between rallies, ends above the lowest point of the
previous decline.
Successive higher highs and higher lows.
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The start of an up trend is signaled when price makes a higher low (trough), followed by
a rally above the previous high (peak):
Start = higher Low + break above previous High.
The end is signaled by a lower high (peak), followed by a decline below the previous low
(trough):
End = lower High + break below previous Low.
A bear trend starts at the end of a bull trend: when a rally ends with a lower peak and then
retreats below the previous low. The end of a bear trend is identical to the start of a bull
trend.
Large Corrections
A large correction occurs when price falls below the previous low (during a bull trend) or
where price rises above the previous high (in a bear trend).
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A bull trend starts when price rallies above the previous high,
A bull trend ends when price declines below the previous low,
A bear trend starts at the end of a bull trend (and vice versa).
3.2 ELLIOT WAVES THEORY BASICS
TRENDLINES
Breaking through support or resistance levels results in a change of traders expectations

(which causes supply/demand lines to shift).
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An Uptrend is defined by successively higher low-prices. A rising trend can be thought of

as a rising support level: the bulls are in control and are pushing prices higher. A
Downtrend is defined by successively lower high-prices. A falling trend can be thought of
as a falling resistance level: the bears are in control and are pushing prices lower.
3.3 MOVING AVERAGES

Moving averages are one of the oldest and most popular technical analysis tools. A
moving average is the average price of a financial instrument over a given time.
The moving average represents the consensus of investors expectations over the
indicated period of time.
The classic interpretation of a moving average is to use it in observing changes in prices.

Investors typically buy when the price of an instrument rises above its moving average
and sell when the it falls below its moving average.
TECHNICAL INDICATORS
There is a vast number of elaborated technical indicators:
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MOVING AVERAGE MA
RELATIVE STRENGTH INDEX RSI :The Relative Strength Index Technical
Indicator (RSI) is a price-following oscillator that ranges between 0 and 100. When
Wilder introduced the Relative Strength Index, he recommended using a 14-day RSI..
Since then, the 9-day and 25-day Relative Strength Index indicators have also gained
popularity.
ADVANCE/DECLINE LINE: The advance/decline line shows, for some

period, the cumulative difference between advancing and declining issues.
CLOSING TICK: Closing tick is the difference between the number of shares
that closed on an uptick and those that closed on a downtick.
CLOSING ARMS: Closing arms or trin (trading index) is the ratio of average
trading volume in declining issues to average trading volume in advancing issues.
Z-BLOCK TRADES: zBlock trades are trades in excess of 10,000 shares.
HI-LO-CLOSE CHART: A hi-lo-close chart is a bar chart showing, for each day,
the high price, low price, and closing price.
CANDLESTICK CHART: A candlestick chart is an extended version of the hi-lo-

close chart. It plots the high, low, open, and closing prices, and also shows whether the
closing price was above or below the opening price.
POINT AND FIGURE CHARTS: Point-and-figure charts are a way of showing

only major price moves and their direction. A major up move is marked with an X,
while a major down move is marked with an O. A new column starts every time
there is a change in direction
HEAD AND SHOULDERS FORMATION: Once a chart is drawn, analysts

examine it for various formations or pattern types in an attempt to predict stock price or
market direction in the case of head-and-shoulders formation. When the stock price
pierces the neckline after the right shoulder is finished, its time to sell.
ODD-LOT: The odd-lot indicator looks at whether odd-lot purchases are up or

down. HEMLINE: Followers of the hemline indicator claim that hemlines tend to
rise in good times.
SUPER BOWL: The Super Bowl indicator forecasts the direction of the market
based on whether the National Football Conference or the American Football
Conference wins. A win by the National Football Conference is bullish.
BETA: Beta is a risk measure comparing the volatility of a stock's price

movement to the general market.
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MOMENTUM: Momentum measures the speed of price change and provides a

leading indicator of changes in trend.
UPSIDE/DOWNSIDE: Measures of Upside/Downside separate the volumes for

rising markets from those in falling markets. Since volume is independent of price, it
makes a valuable tool for measuring the quality of a price trend.
CHAPTER- 3
FUNDAMENTAL ANALYSIS
A CONCEPTUAL OVERVIEW
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Fundamental analysis refers to the study of the core underlying elements that influence
the economy of a particular entity. It is a method of study that attempts to predict price
action and market trends by analyzing economic indicators, government policy and
societal factors (to name just a few elements) within a business cycle framework.
I. ECONOMIC ANALYSIS:
POLITICO-ECONOMIC ANALYSIS:
No industry or company can exist in isolation. It may have splendid managers and a
tremendous product. However, its sales and its costs are affected by factors, some of
which are beyond its control - the world economy, price inflation, taxes and a host of
others. It is important, therefore, to have an appreciation of the politico-economic factors
that affect an industry and a company.
The political equation

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

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

This is a real risk and one must be cognizant of the effect of a revaluation or devaluation
of the currency either in the home country or in the country the company deals in.
Restrictive Practices
Restrictive practices or cartels imposed by countries can affect companies and industries.
crystallizing the exposure.
Foreign Debt and the Balance of Trade
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Foreign debt, especially if it is very large, can be a tremendous burden on an economy.

India pays around $ 5 billion a year in principal repayments and interest payments.
Inflation
Inflation has an enormous effect in the economy. Within the country it erodes purchasing
power. As a consequence, demand falls. If the rate of inflation in the country from which
a company imports is high then the cost of production in that country will automatically
go up.
The Threat of Nationalization

The threat of nationalization is a real threat in many countries the fear that a company
may become nationalized.
Interest Rates
A low interest rate stimulates investment and industry. Conversely, high interest rates
result in higher cost of production and lower consumption.
Taxation
The level of taxation in a country has a direct effect on the economy. If tax rates are low,
people have more disposable income.
Government Policy
Government policy has a direct impact on the economy. A government that is perceived
to be proindustry will attract investment.
THE ECONOMIC CYCLE:

It affects investment decisions, employment, demand and the profitability of companies.
The four stages of an economic cycle are:
Depression
Recovery
Boom
Recession
Depression
At the time of depression, demand is low and falling. Inflation is high and so are interest
rates. Companies, crippled by high borrowing and falling sales, are forced to curtail
production, close down plants built at times of higher demand, and let workers go.
Recovery
During this phase, the economy begins to recover. Investment begins anew and the
demand grows. Companies begin to post profits. Conspicuous spending begins once
again.
Boom
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In the boom phase, demand reaches an all time high. Investment is also high. Interest
rates are low. Gradually as time goes on, supply begins to exceed the demand. Prices that
had been rising begin to stabilize and even fall. There is an increase in demand. Then as
the boom period matures prices begin to rise again.
Recession
The economy slowly begins to downturn. Demand starts falling.. Interest rates and
inflation are high. Companies start finding it difficult to sell their goods. The economy
slowly begins to downturn.
II. INDUSTRY ANALYSIS

The importance of industry analysis is now dawning on the Indian investor as never
before.
Cycle
The first step in industry is to determine the cycle it is in, or the stage of maturity of the
industry. All industries evolve through the following stages:
1. Entrepreneurial, sunrise or nascent stage
2. Expansion or growth stage
3. Stabilization, stagnation or maturity stage, and
4. Decline or sunset stage to properly establish itself. In the early days, it may actually
make losses.
The Entrepreneurial or Nascent Stage
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At the first stage, the industry is new and it can take some time for it to properly establish
itself.
The Expansion or Growth Stage

Once the industry has established itself it enters a growth stage. As the industry grows,
many new companies enter the industry.
The Stabilization or Maturity Stage

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

Finally, the industry declines. This occurs when its products are no longer popular. This
may be on account of several factors such as a change in social habits The film and video
industries.
1. BARRIER TO ENTRY
New entrants increase the capacity in an industry and the inflow of funds. The question
that arises is how easy is it to enter an industry ?
There are some barriers to entry:
a) Economies of scale
b) Product differentiation
c) Capital requirement
d) Switching costs
e) Access to distribution channels
f) Cost disadvantages independent of scale
g) Government policy
h) Expected retaliation
j) International cartels
2. THE THREAT OF SUBSTITUTION

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

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

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

Rivalry among competitors can cause an industry great harm. This occurs mainly by price
cuts, heavy advertising, additional high cost services or offers, and the like. This rivalry
occurs mainly when:
a) There are many competitors and supply exceeds demand. Companies resort to price
cuts and advertise heavily in order to attract customers for their goods.
b) The industry growth is slow and companies are competing with each other for a greater
market share.
c) The economy is in a recession and companies cut the price of their products and offer
better service to stimulate demand.
d) There is lack of differentiation between the product of one company and that of
another. In such cases, the buyer makes his choice on the basis of price or service.
e) In some industries economies of scale will necessitate large additions to existing
capacities in a company. The increase in production could result in over capacity & price
cutting.
f) Competitors may have very different strategies in selling their goods and in competing
they may be continuously trying to stay ahead
III. COMPANY ANALYSIS:
At the final stage of fundamental analysis, the investor analyzes the company. This
analysis has two thrusts:
How has the company performed vis--vis other similar companies and
How has the company performed in comparison to earlier years
It is imperative that one completes the politico economic analysis and the industry
analysis before a company is analyzed because the company's performance at a period of
time is to an extent a reflection of the economy, the political situation and the industry.
What does one look at when analyzing a company?
The different issues regarding a company that should be examined are:
The Management
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The Company
The Annual Report
Ratios
Cash flow
THE MANAGEMENT:
The single most important factor one should consider when investing in a company and
one often never considered is its management.
In India management can be broadly
divided in two types:
Family Management
Professional Management
THE COMPANY:
An aspect not necessarily examined during an analysis of fundamentals is the company. A

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

One of the key factors to ascertain is how a company is perceived by its competitors. It is
held in high regard. Its management may be known for its maturity, vision, competence
and aggressiveness. The investor must ascertain the reason and then determine whether
the reason will continue into the foreseeable future.
2. Whether the company is the market leader in its products or in its segment
Another aspect that should be ascertained is whether the company is the market leader in
its products or in its segment. When you invest in market leaders, the risk is less. The
shares of market leaders do not fall as quickly as those of other companies. There is a
magic to their name that would make individuals prefer to buy their products as opposed
to others.
3. Company Policies
The policy a company follows is also important. What is its plans for growth? What is its
vision? Every company has a life. If it is allowed to live a normal life it will grow upto a
point and then begin to level out and eventually die. It is at the point of leveling out that it
must be given new life. This can give it renewed vigour and a new lease of life.
4. Labour Relations
Labour relations are extremely important. A company that has motivated, industrious
work force has high productivity and practically no disruption of work. On the other
hand, a company that has bad industrial relations will lose several hundred mandays as a
consequence of strikes and go slows.
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5. Where the company is located and where its factories are?

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

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

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

Balance Sheet as at the end of the accounting period detailing the financing condition of
the company at that date, and the Profit and Loss Account or Income Statement
summarizing the activities of the company for the accounting period.
BALANCE SHEET
The Balance Sheet details the financial position of a company on a particular date; of the
company's assets (that which the company owns), and liabilities (that which the company
owes), grouped logically under specific heads. It must however, be noted that the Balance
Sheet details the financial position on a particular day and that the position can be
materially different on the next day or the day after.
SOURCES OF FUNDS
SHAREHOLDERS FUNDS
SHARE CAPITAL
(i) Private Placement
(ii) Public Issue
iii) Rights issues
RESERVES
i) Capital Reserves
ii) Revenue Reserves
LOAN FUNDS
i) Secured loans:
ii) Unsecured loans
FIXED ASSETS
INVESTMENTS
STOCK OR INVENTORIES
i) Raw materials
ii) Work in progress
iii) Finished goods
CASH AND BANK BALANCES
LOANS AND ADVANCES
PROFIT AND LOSS ACCOUNT

The Profit and Loss account summarizes the activities of a company during an
accounting period which may be a month, a quarter, six months, a year or longer, and the
result achieved by the company. It details the income earned by the company, its cost and
the resulting profit or loss. It is, in effect, the performance appraisal not only of the
company but also of its management- its competence, foresight and ability to lead.
RATIOS:
Ratios express mathematically the relationship between performance figures and/or
assets/liabilities in a form that can be easily understood and interpreted.
No single ratio tells the complete story
Ratios can be broken down into four broad categories:
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(A) Profit and Loss Ratios

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

These deal with the relationship in the balance sheet such as :
1. Shareholders equity to borrowed funds.
2. Current assets to current liabilities.
3. Liabilities to net worth.
4. Debt to assets and
5. Liabilities to assets.
(C) Balance Sheet and Profit and Loss Account Ratios.

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

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

(i) Market value
(ii) Price- earnings ratio
(iii) Market-to-book ratio
(iv) Earnings
(v) Earning per share
(vi) Dividend per share
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(vii) Dividend payout ratio

(viii) Leverage ratios
(ix) Return on investments/total assets
CASH FLOW:
A statement of sources and uses begins with the profit for the year to which are added the
increases in liability accounts (sources) and from which are reduced the increases in
asset accounts (uses). The net result shows whether there has been an excess or deficit of
funds and how this was financed. Investors must examine a company's cash flow as it
reveals exactly where the money came from how it was utilized. Investors must be
concerned if a company is financing either its inventories or paying dividends from
borrowings without real growth as that shows deterioration.
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CHAPTER-4
ANALYSIS
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I FUNDAMENTAL ANALYSIS OF STOCKS
Basically fundamental analysis is covered in 3 parts :
1. Market/ economy analysis
2. Industry Analysis
3. Company Analysis
1) TATA MOTORS
I Market/ Economy Analysis
It covers the macro economy analysis and the various macro economic factors on the
national level like GDP, Monetary policies of India, Fiscal Policies and Inflation and
money supply etc.
GDP
Real GDP growth accelerated from 7.5 per cent during 2004-05 to 8.4 per cent during
2005-06 on the back of buoyant manufacturing and services activity supported by a
recovery in the agricultural sector. Real GDP growth has, thus, averaged over eight per
cent during the last three years and over seven per cent in the first four years (2002-03 to
2005-06) of the Tenth Five Year Plan.
Strengths of India today are:
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A well diversified industrial base which profits from self-reliance in all core industries .A
large & sophisticated financial architecture - The robust capital Markets today have over
9000 listed companies and boast of a massive Market capitalization.
A healthy GDP composition with agriculture contributing 22%, Industry 22% and
services, which have gone strength to strength, accounting. For 56% of the GDP an
acknowledged strength in knowledge driven industries like Information technology,
biotechnology, entertainment Software etc
India has Over 3 million scientific & technical manpower, Over 0.6 million S&T post
graduates, Over 0.7 million graduate engineers, Over 3500 doctorates in sciences every
year.
Assuming trend growth in agriculture under normal monsoon conditions and barring
domestic or external shocks, the Reserve Bank in its Annual Policy Statement for 2007-
08 (April 2007) placed real GDP growth, for policy purposes, in the range of 7.5-8.0 per
cent during 2007-08. Growth prospects are, however, subject to a number of downside
risks. The risks emanating from the global economy are: potential escalation and
volatility in international crude oil prices, firming up of overall inflationary pressures and
expectations, and a hardening of international interest rates along with the withdrawal of
monetary accommodation.
Indias demographic advantage In contrast to developed Countries, India will have a
younger population for the next 50 years. Hence India would be the hub for R&D.
Inflation
Inflation was contained to 6.3 per cent by end-March 2007 within the indicative
trajectory of 5.0-5.5 per cent during 2007-08. The actual inflation was considerably lower
than the indicative trajectory and this could be mainly attributed to the deferred pass-
through of even the cognisable permanent component of international crude oil prices.
Money Supply
30
Monetary and liquidity conditions remained largely comfortable during 2006-07reflecting

proactive liquidity management operations by the Reserve Bank under the liquidity
adjustment facility, flexible management of issuances under the market stabilisation
scheme, and some private placement of Government securities
In short, the Indian economy is exhibiting strong fundamentals and displaying

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

directed industrial auto policies
(a) Restrictions on domestic and foreign investment.
(b) Domestic content requirements
(c) High tariff walls
(d) Auto export requirements
(e) National production to sales ratios
(f) Distribution controls
(g) Quotas and licensing requirements that significantly restrict imports
(h) Government approval for product related decisions, including vehicle make,
body type, engine size, etc.
(i) Special government categories for auto taxes
II INDUSTRY ANALYSIS
Since, 1991 opening of the economy has changed the face of auto industry. Today, it is
amongst the main drivers of growth of Indian economy with an output multiplier of
2.24(for every Re.1 invested, auto sector gives back Rs.2.24 to the economy). In recent
31
years we have seen increasing number of global players entering Indian market by way of
Joint ventures, collaborations or wholly owned subsidiary
The automobile industry is torn between trying to reduce costs on the one hand and, on
the other, dealing with the high price of performance-enhancing technology and
environmental compliance. Key drivers in the automotive industry are:
Reducing air pollution
Reduction of weight
Recyclability
Safety
Better performance and engine efficiency
Aesthetics
Longer service Life
INDUSTRY LIFE CYCLE:

The automobile market is at the maturity stage of the life cycle, locally and globally, due
to an increased number of competitors from domestic and foreign markets. The
automobile market is characterized by a low potential for market growth, but high sales
and profit potential as the products have still not saturated the market as a whole.
MAJOR COMPETITORS OF TATA MOTORS ARE
Maruti Udyog Ltd.
32
General Motors India

Ford India Ltd.
Eicher Motors
Bajaj Auto
Hero Motors
Hindustan Motors
Hyundai Motor India Ltd.
Royal Enfield Motors
Telco
TVS Motors
FINANCIALS
1 Day Long- Net

Div. Price to Price to
Price Market ROE Term Profit
Description P/E Yield Book Free Cash
Change Cap % Debt to Margin
% Value Flow (mrq)
% Equity % (mrq)
Sector: Consumer Goods 0.11 2517.8B 24.88 17.07 2.22 1.17 10.76 7.06 408.42
Industry: Auto Manufacturers - Major (More Info) 0.61 331.0B 30.00 7.50 1.71 1.81 1.55 1.60 -4.40
Companies
Daimlerchrysler AG (DCX) 0.21 53.9B 10.72 11.19 3.50 2.17 1.16 4.69 -3.54
Ford Motor Co. (F) 1.21 15.7B NA -9.51 2.40 11.07 1.15 -0.60 -82.05
-
General Motors Corporation (GM) -0.24 16.5B NA 3.40 3.90 1.42 -6.21 0.14
62.85
Honda Motor Co. Ltd. (HMC) 0.83 62.2B 11.52 16.54 1.00 0.83 1.73 5.52 207.48
Tata Motors Ltd. (TTM) -0.38 7.1B 18.64 NA 1.50 NA 5.35 5.64 NA
Toyota Motor Corp. (TM) 0.73 175.6B 13.94 15.05 1.20 1.03 1.97 6.59 NA
Opportunities and Threats
a) Opportunities
Road Development: The ongoing road development program would improve

connectivity to ports, cities and villages through a network of highways and
interconnecting roads by 2010-11. Improved road network would help in faster
33
movement of goods between various cities and towns. The Company launched TATA
Novus range of vehicles in the heavy segment and TATA ACE for last mile distribution.
Car penetration in India: Car penetration in India is 7 cars per 1,000 persons.
International: In FY 2006-07, the Company increased share of its overseas vehicle sales
from 7.6% last year to record high of 11.1% (as % of its total sales) and has planned
further increase in this year.
b) Threats
Global Competition: India is increasingly attracting global players to set up

manufacturing facility for producing cars, especially small cars. Global automobile
manufacturers are also entering India in commercial vehicle segment to leverage Indias
low cost production advantage to their favor.
Fuel Prices: The continuing fuel price increase in the domestic market could
significantly impact demand of commercial and passenger vehicles.
Input costs: Commodity items particularly steel, non-ferrous metals, rubber and
engineering plastics have witnessed huge price increases in the past. These prices are
expected to increase further affecting the Companys profitability.
Interest rate hardening and other inflationary trends: With interest rates hardening and
liquidity crunch in the system, growth in sales may be adversely impacted.
Government Regulations: Stringent emission and safety requirements could bring new
complexities for automotive and component manufacturers impacting the Companys
business.
Risks and Concerns:

Interest Rates: FY 2007-08 started with increasing interest rate regime and tightening
liquidity position in the economy. Increasing interest rates could further affect vehicle
demand which could have an adverse impact on the Companys revenues and profits.
Exchange rates: The Company exports vehicles to many countries and exchange rate
fluctuations in the order execution period could impact the Companys business.
34
Freight rates: In FY 2006-07, freight rates in road transport sector moved up mainly
due to surge in construction activity, ongoing road development projects and severe
restriction on over-loading. Demand for commercial vehicles could be impacted by
further change in freight rates and change in fuel prices.
Domestic market: The Company plans to reduce the impact of this cyclicality on its
business, by strengthening its less cyclical businesses like buses, light trucks, small
commercial vehicles.
Overseas market: In overseas markets, the Company competes with global players
which have multiple vehicle platforms, large financial capability and global branding.
Manufacturing: The Company manufactures vehicles at multiple locations and given
the geographical dispersion of its suppliers it faces Logistics Problems.
New Competition: Competitive activity is expected to increase in commercial vehicle
and passenger vehicle domestic market in coming years.
New projects: The Company currently is in midst of executing many new projects
ranging from launch of new car platforms to development of new Truck models.
III Company Analysis

Key Highlights
Symbol: TTL
Sector: Consumer Goods
Industry: Auto Manufacturers Major
Market Cap: Rs.29232 crores
Data Since: 1945
Last close: Rs. 742.90
Brief Summary of the company
35
Tata Motors is one of the largest companies in the Tata Group with a total income of US$
2.35 billion*. More than 3 million Tata vehicles ply on Indian roads making Tata a
dominant force in the Indian automobile industry.
Joint Venture with Fiat and Hitachi
Tata Motors has decided to enter into a 50-50 JV with Fiat, at Pune, for manufacturing
passenger vehicles, engines and transmissions for both, domestic and international
markets.. The Company has also entered into a JV with Hitachi, to set up a new plant in
Kharagpur
Product Mix
Tata Motors is India's only fully integrated automobile manufacturer with a portfolio that
covers trucks, buses, utility vehicles and passenger cars. It would be no exaggeration to
say that Tata Motors provides the wheels for India's growth.
Segmental Overview
Commercial Vehicle Segment
The Company registered 69.6% volume growth in the domestic CV segment during
4QFY06, from 37,228 units in Q3FY05 to 63,082 units in Q3FY06. The market share in
this segment was 65.8% in Q4FY06, as compared to 55.2% in Q1FY06. The M/HCV
goods-carrier segment registered a 54.4% growth YoY, with sale of 33,515 units and a
market share of 64.5%, up by around 410 bps, driven by infrastructure development and
increase in international trade.
Passenger Vehicle Segment
The Company reported a growth of 21.2% YoY, to 49,907 vehicles, in the domestic
passenger vehicle segment and a market share of 16.2% in the quarter. The passenger
vehicle industry registered a volume growth of 20.4% during Q4FY06
36
Plants
Tata Motors owes its leading position in the Indian automobile industry to its strong focus
on indigenisation. Their manufacturing plants are situated at Jamshedpur in the East,
Pune in the West and Lucknow in the North.
Charts showing Key Statistics of tata motors.
37
38
Share holding pattern as on 31-Mar
Financial highlights
39
40
RATIO ANALYSIS
Ratios 2006 2005 2004
Debt/equity 0.56 0.49 0.44
Current ratio 1.08 0.87 0.76
Operating profit margin % 12.11 11.51 12.38
Gross profit margin 10.87 10.43 11.04
ROCE % 31.25 32.76 33.77
total assets turnover ratio 3.15 3.53 3.43
ROE % 27.61 30.09 22.57
Dividend-equity 497.94 453.73 282.11
Retention Ratio 67.43 63.32 65.19
DPS (Rs.) 13.01 12.5 7.99
EPS (Rs.) 25 34 41
Dividend Payout Ratio 0.39 0.42 0.37
CAGR of EPS 0.177
CAGR of Dividend Payout Ratio -0.017
Average ROE 25.74
41
average retention 63.54
Growth % (g = Avg. RR Avg. ROE ) 16.36
Market return 14.54%
P/E ratio (on the basis of historical analysis) = 18.12
Therefore, the Weighted P/E ratio =(18.12+24.24)/2 = 21.181
Projected EPS = EPS OF 2006 + CAGR of EPS*EPS OF 2006
= Rs.48.271
Value of Share at the end of financial year 06-07
= Projected EPS * Weighted P/E Ratio
= Rs.1022
2) HPCL
Globalization and the Indian Petroleum Industry
42
Indian petroleum industry in the post independent period (1947-2001) it may be divided
into three distinct phases
(i) early phase (1947 to 1969)- when the government consolidated its control over
the industry with Soviet assistance;
(ii) development phase (1970 to 1989)- in this period the US companies played
dominant role replacing the Soviets and
(iii) the economic liberalisation phase of 1990s.
PORTERS MODEL
SWOT ANALYSIS
STRENGHS
Favourable production sale mix.
43
Entry on petrochemicals and gas sector will reduce dependence on R&M sector.
Second largest refining capacity and pipeline infrastructure in the industry.
Good presence in high demand regions of west and north India.
WEAKNESSES
Dependence on refining function high.
Moderate share in high profitable retail segment.
Diversifications in petrochemicals could trouble the company.
High burden of subsidy loss on cooking gas and kerosene.
OPPORTUNITIES
Per capita energy consumption low in country.
Deficiency of coal will benefit oil and gas sector.
Growing domestic market for gas.
Overseas presence in upstream and downstream will determine growth.
THREATS
Rising oil prices could dampen demand.
High regulatory risk.
Loss of market share to private players.
Entrance of private players in pipelines will take away monopoly of company in
north India.
COMPANY ANALYSIS
The Annual Report is broken down into the following specific parts:
A) The Director's Report,

B) The Auditor's Report,
C) The Financial Statements, and
D) The Schedules and Notes to the Accounts.
.
44
A.THE DIRECTORS REPORT

The Directors Report is a report submitted by the directors of a company to its
shareholders, advising them of the performance of the company under their stewardship.
Fundamental Analysis
B. THE AUDITOR'S REPORT
The auditor represents the shareholders and it is his duty to report to the shareholders and
the general public on the stewardship of the company by its directors
C. FINANCIAL STATEMENTS
It comprises of Balance Sheet, Profit and Loss account, Cash Flows. Its analysis would
be discussed later.
D.SCHEDULES
The schedules detail pertinent information about the items of Balance Sheet and Profit &
Loss Account. It also details information about sales, manufacturing costs, administration
costs, interest, and other income and expenses
1. THE MANAGEMENT
HPCL is a public sector undertaking. Thus it is a professionally managed company.
There are some parameters of management on which a company is analysed :
a. integrity of management
b. past record of management
c. how highly is the management rated by its peers in the same industry
d. how the management fares in adversity
e. the depth of the knowledge of management
f. open and innovative management
on all these parameters HPCL scores good.
2. COMPANY
Many times a company has made losses in the previous years but that does not mean
that the company is bad to invest. Thus many factors are studied while studying a
company.
a) perception of competitors
45
HPCL is the second largest petroleum company after IOCL. Thus it is a competitor of
IOCL and it is trying hard to compete with IOCL on every front. That is why now it
has decided to diversify itself in the oil exploration sector
b) company policies
As this is a PSU thus the policies are made by the government. The oil sector is one
which is highly regulated by government. Thus from time to time it is required to
watch out the various policies changed.
3. ANNUAL REPORT
The most primary and most important source of information about a company is its
Annual Report. This is prepared every year and distributed to its shareholders.
46
Ratio Analysis
Evaluation of Intrinsic Value of the Security
stdev mkt 0.011934

stdev sec 0.03831 Average
Retention
Ratio 0.60504
correlation 0.485958 ROE 0.19842
Beta 1.56765 g 0.120052
Risk Free
Rate 6.50%
Mkt Rate 14%
k 18.26%
Hence we see that here our g is less than k .Thus we see that as per Dividend
Discount Model our Intrinsic value is div=22(1+.012)=24/.0626= 387
Price= Projected EPS + Weighted P/E ratio

Using CAGR EPS = 43.468
Weighted P/E Ratio = 7.5+665/2=336.25
Price = 43.468+336.25 = 381
3) HDFC BANK
The Indian banking industry: sector overview
With the economic growth picking up pace and the investment cycle on the way to
recovery, the banking sector has witnessed a transformation in its vital role of
intermediating between the demand and supply of funds
Public sector banks have been very proactive in their restructuring initiatives be it in
technology implementation or pruning their loss assets. Windfall treasury gains made in
the falling interest rate regime were used for writing off the doubtful and loss assets.
47
Retail lending (especially mortgage financing) formed a significant portion of the

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

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

i. The Banking Regulation Act prescribes the minimum capital
requirements for a bank Moreover, banks have to maintain a
capital adequacy ratio of 9% under the Basel I norms.
ii. Government has declared that the foreign banks will be permitted
to establish their presence in India by way of setting up a wholly
owned banking subsidiary (WOS) with a minimum capital of
Rs.300 crore.
c. Access to distribution channels: Since banks have to set up their own

distribution channels, all the cost has to be directly born by them.
d. Cost advantage independent of size: Existing banks have huge databases

of customers which they use when they want to sell a new product
launched by them.
e. Legislation or Government action: Banks are governed by Banking

Regulation Act, 1949 which specifies the rules and regulations applicable
to banks. RBI is the governing body of banks in India.
2) BARGAINING POWER OF BUYERS:
Due to increased competition, the services offered by banks to customers have

improved considerably.
3) BARGAINING POWER OF THE SUPPLIERS:
48
Suppliers to banks can be both - the customers and RBI.

a. Customers of banks provide money to banks in the form of deposits and in
return earn some interest on that.
b. RBI acts as a supplier to banks by selling govt. securities, treasury bills,
govt. bonds, etc.
c. Call money market: Banks sometimes have to borrow from other banks to
meet CRR and SLR requirements, or other capital requirements as
provided by RBI.
4) THREAT OF SUBSTITUTES:
a. Product-for-product substitution:
i. Banks provide interest on deposits made by people. Similar
services are offered by post offices which may act as substitutes to
the deposit schemes of banks.
ii. Some banks offer locker services to customers for yearly rates.
Similar services are provided by many post offices.
b. Generic substitution: People who deposit their savings in banks can

invest their money in other sources like mutual funds, shares and other
securities and life insurance schemes.
5) COMPETITIVE RIVALRY:
a. Extent of competitor balance:

b. Market growth rates:.
c. High Exit Barriers
PEST Analysis for Banking Industry.
1. Political factors-: The major factors affecting the banking sector are the
following.
Banking sector reforms As per the RBI roadmap for reforms in the first stage
from 2005 to 2009 foreign banks will be allowed to set up wholly owned
subsidiaries as well as get greater freedom to set up new branches.
Fulfilling the minimum priority sector credit -The government mandation of
fulfilling the minimum priority sector credit (of which 18 per cent is food credit)
has forced the domestic banks to cater to this segment despite the low profitability
and vulnerability of asset quality.
Banks have also been allowed to set up Offshore Banking Units in SEZs
49
2. Economic factors-:
Basell II norms for the risk management in banking sector - The new Basel
Accord has its foundation on three mutually reinforcing pillars. The first pillar is
compatible with the credit risk, market risk and operational risk. The second pillar
gives the bank responsibility to exercise the best ways to manage the risk specific
to that bank.
Concurrently, it also casts responsibility on the supervisors to review and validate
banks risk measurement models. .
Consolidation and merger and acquisitions in the banking sector-. HDFC

bank also acquired TIMES BANK in 2001 which increased its customer base by 3
lakh customers.
Universal Banking has been introduced. ICICI Bank ,HDFCs closest

competitor is already into Universal Banking so HDFC is also getting into it as
now it is providing retail banking and also depository facilities in the form of
demat account.
3. Social factors-
Big and growing middle class in India -: This has been a major factor in the
growth of the retail loans like consumer loans in the form of home loans, car loans,
education loans, auto loans etc. Retail loans have grown from 19% in FY99 to 51%
FY06.Consumer credit accounts for a meager 28.6 per cent of the country's GDP
and the buoyancy in the economy offers sufficient scope for it to grow.
Geographical and Cultural diversity- This is leading to a greater demand for

financial products and customization by the customers.
4. Technical factors-
The Indian Financial Network (INFINET) was inaugurated in June 1999. It is based
on satellite communication using VSAT technology and would enable faster
connectivity within the financial sector.
Banks (All): No of players = 40
Sector statistics:
We see the sector aggregates and make a financial comparison for the major banks
50
Top Players
FY2006
Based on Total Income Based on OPBDT
Total
Income Change OPBDT Change
(Rs Mn) (%) (Rs Mn) (%)
ICICI BANK 63161.9 54.50 SBI 76352.8 -1.29
PUNJAB
NATIONAL B 29218 14.91 ICICI BANK 37174 19.36
PUNJAB
CAN BANK 27709.5 23.78 NATIONAL B 22205.2 39.36
BANK OF INDIA
23317 25.43 CAN BANK 16882.5 19.53
H D F C BANK 18550.8 60.24 H D F C BANK 14324 27.48
% change - indicates the change between current and corresponding quarter.
TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP
Company Symbol Price Change Market Cap P/E

Banco Bilbao Vizcaya Argentaria BBV 22.40 0.09% 75.96B 14.83
Lloyds TSB Group plc LYG 39.59 0.13% 55.45B 21.52
ABN AMRO Holding NV ABN 27.72 1.65% 52.45B 12.89
SanPaolo IMI SpA IMI 40.95 2.38% 32.40B N/A
Banco Bradesco S.A. BBD 31.22 1.51% 30.50B 10.10
HDFC Bank Ltd. HDB 55.58 0.79% 5.83B 30.04
Quarterly Aggregates No: of Players - 29

Previous Quarter Latest Quarter
Total Income (Rs Mn) 317927 305290
OPBDT (Rs Mn) 74296.8 81622.6
PAT (Rs Mn) 30481.7 32705.4
Equity Capital (Rs Mn) 126435 77730.1
HDFC Vs Industry Leaders
51
Statistic Industry Leader HDB HDB Rank
Market Capitalization BBV 75.96B 5.83B 13 / 24

P/E Ratio (ttm) BMA 84.36 30.04 2 / 24
PEG Ratio (ttm, 5 yr expected) BCA 3.22 0.64 16 / 24
Revenue Growth (Qtrly YoY) BFR 29.70% 45.60% 4 / 24
EPS Growth (Qtrly YoY) IRE 154.00% 33.90% 6 / 24
Long-Term Growth Rate (5 yr) KB 44.5% 30.0% 2 / 24
Return on Equity (ttm) BFR 91.21% N/A N/A
Long-Term Debt/Equity (mrq) N/A
Dividend Yield (annual) LYG 6.20% 0.70% 18 / 24
Company Analysis : HDFC Bank (HDB)
Key Highlights
Symbol: HDB
Sector: Financial
Industry: Foreign Regional Banks
Market Cap: 43882 Cr
Data Since: 2002-01-02
Last close: 1710
Full time employees: 9030
The Housing Development Finance Corporation Limited (HDFC) was

amongst the first to receive an in principle approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector, as part of the
RBIs liberalization of the Indian Banking Industry. It was incorporated in
August 1994 in the name of HDFC Bank Limited, with its registered
office in Mumbai. HDFC began operations as a Scheduled Commercial
Bank in January 1995.
52
2002-03 2003-04 2004-05

Interest Income 2,013,61 2,548,93 3,093,49
Interest Expense 1,191,96 1,211,05 1,315,56
Net Interest Income 821,65 1,337,88 1,777,93
Other Income 465,55 480,03 651,34
Net Revenues 1,287,20 1,817,91 2,429,27
Operating costs 577,05 810,00 1,085,40
Operating Result 710,15 1,007,91 1,343,87
Provisions and Contingencies 139,30 288,95 364,93
Profit before tax 570,85 718,96 978,94
Provision for taxation 18325 20946 31338
Profit after tax 38760 50950 66556
Funds :
Deposits 2237607 3040886 3635425
Subordinated debt - - 20000 60000 50000
Stockholders Equity 224483 269188 451985
Working Funds 3042408 4230699 5142900
Loans 1175486 1774451 2556630
Investments 1338808 1925679 1934981
Key Ratios :
Earnings per share (Rs) 13.75 17.95 22.92
Return on Average Networth 18.10% 20.14% 20.44%
Tier 1 Capital Ratio 9.49% 8.03% 9.60%
Total Capital Ratio 11.12% 11.66% 12.16%
Dividend per share (Rs) - 3 3.5 4.5
Dividend payout ratio - 24.72% 22.15% 24.00%
Book value per share as at March 31 (Rs) 79.6 94.52 145.86
Market price per share as at March 31 (Rs) 234.55 378.75 573.64
Price to Earnings Ratio 17.06 21.1 25.03
53
FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS
(Source: HDFC bank Annual Report 2006-07)
54
4) JET AIRWAYS
MARKET
Currently the market scenario is as shown :
1) ACC LIMITED
55
AIRLINE CURRENT ACQUISITION INVESTMENTS

FLEET PLANS US $Bn
Jet Airways 53 30 by 2012 2
Air Deccan 29 79 by 2010 2.7
Kingfisher 11 100 by 2012 4.5
Spice Jet 6 38 by 2010 1.9
GoAir 4 33 by 2008 2.4
STATE OF THE INDUSTRY
High growth potential due to economic boom and highly under penetration in the
market
0.02 trips per capita per annum
Long-term GDP growth at 8% annually
It is forecasted that India would be the second fastest growing travel and tourism
economy in the world
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the
highest in the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in

the industry
The government is proactively looking to address the bottlenecks
MACRO ENVIRONMENT
Refers to the factors which influence an industry but are beyond its control.Main factors
are:
P OLITICAL
E CONOMIC
S OCIO-CULTURAL
T ECHNOLOGICAL
Other Factors
DEMOGRAPHIC
NATURAL ENVIRONMENT
56
POLITICAL
OPEN SKY POLICY

DEREGULATIONS IN DIFFERENT SPHERES
LESS ENTRY BARRIERS
REDUCTION IN FDI LIMIT: 49% for airlines
100% for airport
SOCIO-CULTURAL
Growing Middle Class

1993 to 1999 : 39.5 million to 56.7m households
2005 : 300 million
2010 : 400 million estimates
Increase in leisure travel by tourists by 15% in 2004
57
3.2 million foreign tourists visited India last year ; tourism industry grew 8.8 per
cent over 2003, the highest growth rate in the world.
SOCIAL
TECHNOLOGICAL
MODERNISATION OF AIRPORTS
ILS-INSTRUMENT LANDING SYSTEMS
DEMOGRAPHIC
CHANGING STRUCTURE OF CONSUMERS

HIGHEST % PEOPLE IN 20-50 AGE GROUP
EDUCATIONAL GROUPS
58
SHIFT TOWARDS NUCLEAR FAMILIES

(Source NCAER)
MIDDLE CLASS INCOME OVER RS. 90,000 P.A.
NATURAL ENVIRONMENT
HIGH ENERGY COSTS
The cost of aviation turbine fuel ATF in india for domestic airlines is almost
double for international market.
Govt. increased prices by 7.5%. From 32.56 to 35/litre.
ATF price in feb soared by 3.5% to the price in jan 06.
PORTERS FIVE FORCE ANALYSIS
THREAT OF NEW ENTRANTS

Easy entry but execution doubtful
The capital requirement-a min of 30cr capitalization before takeoff
Network & time slots of existing players
Expected retaliation
Legislation or government action: equity capital for floating an airline
Differentiation
Exit barriers
Inadequate airport infrastructure, shortage of pilots, high fuel costs
Compulsion to operate on uneconomical routes, no subsidy
POWER OF BUYERS
Large number of buyers: Business travelers sector intensified by GDP
growth, leisure customer market too a huge growth opportunity
Alternative source- large number of options available
Cost of switching- Minimal
No differentiation among the players in the same segment
POWER OF SUPPLIERS
ATF AIRCRAFT MFG PILOT
Switching costs- options of switching is very limited
Brand value- high
Forward integration- no history in past but possible
Shortage of pilots
High fuel costs
AVAILABILITY OF SUBSTITUTE
Product for product substitution- consumers can choose between the
various options such as road and rail.
Substitution for need- with technology the need to travel has reduced but it
is not possible to totally do away with it. It is marginally possible.
59
COMPETITIVE RIVALRY
Increased competitive pressures due to new entrants
Growth rates- high projected to be 22%
High fixed costs
Extra capacity
Acquisition of weaker companies
High exit barriers
Differentiation
S.W.O.T of The Industry
Key Attractions:
Low entry barrier.
Attraction of foreign shores.
Foreign equity allowed.
Rising income levels and demographic profile.
Key Problems:
Crippling Oil Shock .
Absence to Institutionalized Funding.
Acute shortage of trained Pilots, severely limiting growth prospects.
Unplanned location of Airports.
Key Developments that may Influence the future:

Average growth of about 25%-30%
Air Freight segment is growing faster than the Passengers segment.
Duties slashed on ATF and IATT.
Pilot license applications have tripled.
Expecting investments - US $30 billion by 2012 and about US $50 billion by
2015.
Expected Market Size is projected to be about 50 million by 2010.
4) JET AIRWAYS
Market Share: 35%
#Strengths
Virtual monopoly on Corporate Accounts
Membership of IATA
One of the Youngest Fleets in the World
60
Debt-Equity Ratio of almost one is to one
#Weaknesses
Required 1000 pilots in next two years.
Concentrates only most profitable routes.
Failed attempts at Merger.
#Opportunities
Hugh untapped international sectors
Increase in domestic flight density
Expanding operations into Air Freight business
Integrate more long haul aircrafts
#Threats
Stiff competition in the Economy class from Low Cost Carriers.
Competition in the Business Class form newcomers like KingFisher
Hugh investments locked in future fleet expansion plans
Single source of revenue
Growth Forecast
World Passenger traffic grew to 52.12 million in the last fiscal, from 43.47 million
in 2004-05, to register a growth of 19.9 percent.
In the last fiscal, the Indian aviation industry logged a robust growth of 24 percent
and experts say the sector will expand by at least 16 percent annually for the next
five years, riding on the overall economic growth of eight percent.
The Positive Steps

Greenfield airports Bangalore/Hyderabad
J/Vs for Ground Handling and MRO facilities

Highly advanced GPS aided Geo augmented
navigation (GAGAN) system operational this year.
61
AAI set up more radar stations to bring entire

Indian airspace under radar monitoring.
Training more Pilots and Air Traffic Controllers.
Raising retirement age of pilots to 65 from 61.
New Entrants
The aviation sector is likely to see the launch of many new airlines, including:
Premier Airways
Star Air
East West Airlines
Indigo
Jagson
II TECHNICAL ANALYSIS OF STOCKS
1) ACC LIMITED
ANALYSIS: -
Trend:-
The stock after correcting to 50% of the long bull run [Bottom 676 Top 1197] prices
reversed back and are now in intermediary upward trend.
Moving Averages :-
62
The stock is currently trading above all the important trading moving averages. The
moving average rossover of 13 days & 40 days is observed on 22nd Dec. 2006 triggering
price trend reversal and buyat current levels.
13 days: = 1037.70 40 days: = 1060.84
30 days: = 1078.65 100 days: = 991.62
Moving Average Channels:-
The stock on giving a close above 1070 levels has given a breakout above the moving
averagechannel signaling buy at current levels.
Relative Strength Index (RSI):-
RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at
53.46 showing synchronization with price movement.
Pitchfork:-
The stock have broken the upper arms and moved out (at 1072) of the corrective trend
pitchfork signaling positive trend & buy at current levels.
The stock is now moving towards the median of the major pitchfork which is around
1160 levels.
Oscillators:-
Osc (10,70) trading favorably in positive zone indicating presence of long term traders.
Osc (5,35) are pulling back to zero from negative, indicating entry of short term
traders.
Volumes:-
The stock is trading with lack luster volumes. Volumes should ideally expand for the
advance togather steam.
27 Dec. 2006 28 Dec. 2006
On the basis of above analysis price movement can be projected as follows :-
63
Target : --- 1167

Stop Loss: --- 1040
Support: --- 1066 1063 1057 1046
Resistance: --- 1087 1093 1115 1122 1156
2) INFOSYS TECHNOLOGIES LIMITED
INFOSYS TECH
Date 12th February 2007
Close 2351.25
Trend Up
Support 2340
Resistance 2380
Stop loss 2317
The Trend refers to the daily trend of the stock and not intraday but one may trade
intraday based on it. If you are a slightly longer term investor, you may go on holding the
stock in long if trend is up or you may go on holding the stock in short position if trend is
down. If you are a short term trader you may use the below paragraph information and
play for small moves.
How to trade according to the data mentioned above
If an entry is made in front of support and the close is above the support, it means that
ne can buy the stock intraday during market hours at support and put an
appropriate stop loss mentioned below. Once you have bought the stock intraday,
put the Stop Loss accordingly mentioned and sell it before the market closes.
If an entry is made in front of resistance and the close is less then resistance, it means
that one can short the stock intraday during market hours at resistance and put an
appropriate stop loss mentioned below. At close one should cover if one is an
intraday trader.
If we do not find the stock giving clear signal for intraday trading, than we will leave
the support or resistance field empty.
3) CIPLA LIMITED
CIPLA
Close 248.35
Trend Not Clear
64
Support 220
Resistance 260
Stop loss 205
If an entry is made in front of support and the close is above the support, it means that
one can buy the stock intraday during market hours at support and put an
If an entry is made in front of resistance and the close is less then resistance, it means
that one can short the stock intraday during market hours at resistance and put an
appropriate stop loss mentioned below. At close one should cover if one is an
intraday trader.
If we do not find the stock giving clear signal for intraday trading, than we will leave
the support or resistance field empty.
If you are a slightly longer term investor, you may go on holding the stock in
long if trend is up or you may go on holding the stock in short position if trend
is down. If you are a short term trader you may use the below paragraph
information and play for small moves.
4) BHARAT PETROLEUM CORPORATION LIMITED
BPCL
Close 331.85
Trend Down
Support 355
Resistance 390
Stop loss 347
If an entry is made in front of support and the close is above the support, it means
that one can buy the stock intraday during market hours at support and put an
65
If an entry is made in front of resistance and the close is less then resistance, it
means that one can short the stock intraday during market hours at resistance and
put an appropriate stop loss mentioned below. At close one should cover if one is
an intraday trader.
If we do not find the stock giving clear signal for intraday trading, than we will
leave the support or resistance field empty.
5) RANBAXY LABORATORIES LIMITED
RANBAXY
Close 409.15
Trend Not Clear
Support 360
Resistance 420
Stop loss 350
an intraday trader.
6) TATA MOTORS LIMITED
TATAMOTORS
Close 875.05
Trend Down
Support 810
66
Resistance 895
Stop loss 795
an intraday trader.
7) RELIANCE INDUSTRIES LIMITED
RELIANCE
Close 1358.85
Trend Not Clear
Support 1290
Resistance 1370
Stop loss 1280
an intraday trader.
67
8) MAHINDRA & MAHINDRA LIMITED
M&M
Close 880.80
Trend Down
Support 930
Resistance 980
Stop loss 918
an intraday trader.
9) STATE BANK OF INDIA
SBIN
Close 1183.70
Trend Not Clear
Support 1120
Resistance 1170
Stop loss 1105
68
an intraday trader.
10) MARUTI UDYOG LIMITED
MARUTI
Close 912
Trend Down
Support 950
Resistance 990
Stop loss 940
an intraday trader.
69
CHAPTER-5
LIMITATIONS
70
LIMITATIONS
Like all studies based on samples, this study also suffers from some limitations.
1. As the study depends on human perceptions so there are chances of study getting
biased.
2 Error due to some oversight or misinterpretation.
3 The scope of study was limited due to some constraints.
4. Any other error which could have crept in the course of the Project.
71
CHAPTER-6
CONCLUSION
72
CONCLUSION
RECOMMENDATIONS:
1) ACC- At current price it is not advisable to buy the stock. Reasons for not
buying the stock:
The stock is currently trading above all the important trading moving averages.
The moving average crossover of 13 days & 40 days is observed on 22nd Dec.
2006 triggering price trend reversal and buy at current levels.
The stock is trading with lack luster volumes. Volumes should ideally expand for the
advance to gather steam.
2) INFOSYS TECHNOLOGIES- At current market price ,its advisable to buy the

share. Reasons:
The stock is currently trading below all the important moving averages.
The stock is trading with good volumes. Volumes are ideal and are set to gather further
steam.
3) TATA MOTORS- At current market price , we should buy the share because of the
following reasons:
Since, 1991 opening of the economy has changed the face of auto industry.
Today, it is amongst the main drivers of growth of Indian economy with an output
multiplier of 2.24(for every Re.1 invested, auto sector gives back Rs.2.24 to the
economy).
Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat,
73
at Pune, for manufacturing passenger vehicles, engines and transmissions for both,
domestic and international markets.. The Company has also entered into a JV with
Hitachi, to set up a new plant in Kharagpur
4) HPCL:
Strengths:
Favourable production sale mix
Entry on petrochemicals and gas sector will reduce dependence on R&M sector
Second largest refining capacity and pipeline infrastructure in the industry
Good presence in high demand regions of west and north India
Growth potential:
Per capita energy consumption low in country
Deficiency of coal will benefit oil and gas sector
Growing domestic market for gas
Overseas presence in upstream and downstream will determine growth
5) HDFC BANK: Growing stock and its advisable to invest in this stock for long term.
HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3
lakh customers.
Growth in net revenues of 42.2%. Net profit up by 32%. Total customer asset increased
by 44.9%
6) JET AIRWAYS: We should not invest in the stock because of the following reasons:
ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in
the world
Regulatory and infrastructure bottlenecks have prevented accelerated growth in the

industry
74
6) RELIANCE INDUSTRIES: Good stock for any Portfolio.
Very high GRM thus it will continue to produce Positive Cash Flow.
Charts show good volume with positive uptrend.
8) STATE BANK OF INDIA: Should be Sold.
Due to tight monetary policies it will remain under pressure.
Very low volumes plus twenty day moving average both indicate that it should not be
held.
10)MARUTI UDYOG: Can be held.
Being market leader it has best chances but high input costs are putting pressure on
margins plus rising interest costs are going against the stock.
It has taken a sharp run in the last rally and now there is a dip in the volumes in the past.
11)RANBAXY PHARMACEUTICALS: Should be bought.
Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its
Diabetees molecule.
Its participation in the last rally was not very significant but this USFDA news it appears
is acting as a trigger.
Volumes are increasing so it appears there is a upside left to this stock.
12)MAHINDRA & MAHINDRA: Should be held.
In the auto pack it is one of the companies which can bear the rising input cost plus
higher interest rates.
Twenty day moving average plus it is around a very strong support so it seems that it can
show a rally.
75
CHAPTER-7
GLOSSARY
76
GLOSSARY
SECURITY ANALYSIS: stands for the proposition that a well-disciplined investor can
determine a rough value for a company from all of its financial statements, make
purchases when the market inevitably under-prices some of them, earn a satisfactory
return, and never be in real danger of permanent loss.
FUNDAMENTAL ANALYSIS: is the analysis of a stock on the basis of core financial and
economic analysis to predict the movement of stocks price.
TECHNICAL ANALYSIS: is the study of prices and volume, for forecasting of future stock
price or financial price movements.
DOW JONES THEORY: The Dow theory is a method of interpreting and signaling
changes in the stock market direction based on the monitoring of the Dow Jones
Industrial and Transportation Averages.
ELLIOT WAVES BASICS: Breaking through support or resistance levels results in a change
of traders expectations
SUPPORT: Support is a level at which bulls (i.e., buyers) take control over the prices and
prevent them from falling lower.
RESISTANCE: is the point at which sellers (bears) take control of prices and prevent
them from rising higher
ROLE REVERSAL: When a resistance level is successfully broken through, that level
becomes a support level. Similarly, when a support level is successfully broken
through, that level becomes a resistance level.
BULL TREND: The start of an up trend is signaled when price makes a higher low
(trough), followed by a rally above the previous high (peak)
BEAR TREND: when a rally ends with a lower peak and then retreats below the previous
low. The end of a bear trend is identical to the start of a bull trend.
LARGE CORRECTION: A large correction occurs when price falls below the previous
low (during a bull trend) or where price rises above the previous high (in a bear trend).
77
MOVING AVERAGE: A moving average is the average price of a financial instrument

over a given time.
RELATIVE STRENGTH INDEX: The Relative Strength Index Technical Indicator (RSI)
is a price-following oscillator that ranges between 0 and 100
ADVANCE/DECLINE LINE: The advance/decline line shows, for some period, the
cumulative difference between advancing and declining issues.
CLOSING TICK: Closing tick is the difference between the number of shares that
closed on an uptick and those that closed on a downtick.
CLOSING ARMS: Closing arms or trin (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues.
Z-BLOCK TRADES: zBlock trades are trades in excess of 10,000 shares.
HI-LO-CLOSE CHART: A hi-lo-close chart is a bar chart showing, for each day, the high
price, low price, and closing price.
CANDESTICK CHART: A candlestick chart is an extended version of the hi-lo-close

chart. It plots the high, low, open, and closing prices, and also shows whether the
closing price was above or below the opening price
POINT AND FIGURE CHARTS: Point-and-figure charts are a way of showing only
major price moves and their direction. A major up move is marked with an X,
while a major down move is marked with an O. A new column starts every time
there is a change in direction
HEAD AND SHOULDERS FORMATION: Once a chart is drawn, technical analysts

examine it for various formations or pattern types in an attempt to predict stock price or
market direction in the case of head-and-shoulders formation.
ODD-LOT: The odd-lot indicator looks at whether odd-lot purchases are up or down.
HEMLINE: Followers of the hemline indicator claim that hemlines tend to rise in good
times.
SUPER BOWL: The Super Bowl indicator forecasts the direction of the market based on
whether the National Football Conference or the American Football Conference wins.
BETA: Beta is a risk measure comparing the volatility of a stock's price movement to the
general market.
MOMENTUM: Momentum measures the speed of price change and provides a leading
indicator of changes in trend.
UPSIDE/DOWNSIDE: Measures of Upside/Downside separate the volumes for rising

markets from those in falling markets. Since volume is independent of price, it makes a
valuable tool for measuring the quality of a price trend.
78
SWING INDEX: Is a swing or wave system used to capitalize on breakout patterns. ASI
is commonly used to confirm trend line breakouts on price charts.
ARMS INDEX (TRIN): Short term breadth indicator showing whether volume is flowing
into advancing or declining issues.
CHAPTER-8
BIBLIOGRAPHY
79
BIBLIOGRAPHY
1) John L. Person, A Complete Guide to Technical Trading Tactics, Ninth Edition

(March 26, 2004)
2) Colby, Robert W. and Thomas A. Meyers, The Encyclopedia of Technical Market

Indicators (Tenth Edition 2000)
3) Nison, Steve, Beyond Candlesticks (John Wiley & Sons, 1994), Fourth Edition 1998
4) Edwards, Robert D., and John Magee, Technical Analysis of Stock Trends (John
Magee, 1997; first edition, 1948).
4) Geoffrey Poitras, Security Analysis and Investment Strategy (2001)
5) Benjamin Graham and David Dodd, Security Analysis (November, 1999)
6) Erich A. Helfert, D.B.A., Financial Analysis: Tools and Techniques (2000)
7) Peter J. Klien, Getting Started in Security Analysis (April, 2002)
8) Richard A. Brealey, Stewart C. Myers, Alan J. Marcus Fundamentals of Corporate

Finance Third Edition, McGraw-Hill, Section A
9) Sharekhan, Fundamental Analysis: Which Company? (October, 2004)
WEBSITES:
80
www.tradingday.com
www.marketscreen.com
www.icicidirect.com
www.nseindia.com
www.investopedia.com
www.indiainfoline.com
www.economictimes.com
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TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

END TERM PROJECT

TECHNICAL AND FUNDAMENTAL ANALYSIS

In partial fulfillment for the requirement of the MBA

Under the guidance of :

S.No. TITLE Pg.No.

1.3 Research Methodology 9

2. CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW 10

2.1 DOW THEORY 12

2.2 ELLIOT WAVES BASICS 16

2.3 MOVING AVERAGE 17

3. CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW 19

3.1 Economic Analysis 20

3.2 Industry Analysis 22

3.3 Company Analysis 24

3.3.1 The Management 24

3.3.2 The Company 25

3.3.3 The Annual Report 25

3.3.5 Cash Flow 28

8 References and Bibliography 80

Fundamental analysis is a method of forecasting the future price movements of a

Main differences between the two types of analysis:

Fundamental analysis Technical analysis

Focuses on what ought to Focuses on what actually

Factors involved in price Charts are based on market

1.2 RATIONALE FOR THE STUDY

1.3 OBJECTIVES OF THE STUDY

b) understand the movement and performance of stocks

1.4 RESEARCH METHODOLOGY & DESIGN

A technical analysis is based on three axioms:

Movement of the market considers everything

SUPPORT AND RESISTANCE

3.1 DOW THEORY TRENDS:

Primary Movements have Three Phases

The general conditions in the market:

Breakouts from a range can occur in either direction.

Successive higher highs and higher lows.

Start = higher Low + break above previous High.

End = lower High + break below previous Low.

3.2 ELLIOT WAVES THEORY BASICS

Breaking through support or resistance levels results in a change of traders expectations

An Uptrend is defined by successively higher low-prices. A rising trend can be thought of

3.3 MOVING AVERAGES

The classic interpretation of a moving average is to use it in observing changes in prices.

ADVANCE/DECLINE LINE: The advance/decline line shows, for some

Z-BLOCK TRADES: zBlock trades are trades in excess of 10,000 shares.

CANDLESTICK CHART: A candlestick chart is an extended version of the hi-lo-

POINT AND FIGURE CHARTS: Point-and-figure charts are a way of showing

HEAD AND SHOULDERS FORMATION: Once a chart is drawn, analysts

ODD-LOT: The odd-lot indicator looks at whether odd-lot purchases are up or

BETA: Beta is a risk measure comparing the volatility of a stock's price

MOMENTUM: Momentum measures the speed of price change and provides a

UPSIDE/DOWNSIDE: Measures of Upside/Downside separate the volumes for

The political equation

Foreign Exchange Reserves

Foreign Exchange Risk

Foreign Debt and the Balance of Trade

Foreign debt, especially if it is very large, can be a tremendous burden on an economy.

The Threat of Nationalization

THE ECONOMIC CYCLE:

II. INDUSTRY ANALYSIS

The Entrepreneurial or Nascent Stage

The Expansion or Growth Stage

The Stabilization or Maturity Stage