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Undertaken at


Submitted in partial fulfillment for


Programme of


( Batch 2008-10 )

Submitted by :- Submitted to:-

KOMAL GOYAL Mrs. Manju Nair

MBA II yr. Principal

Enrollment No.-MB/08/1525 ISIM




To whomsoever it may concern

This is to certify that Ms. Komal goyal of ISIM, Jaipur had undergone
three week project training in Finance department of our organisation.

During her training she was given project of “Equity Valuation”.

She is found to be very diligent during the project and the work done by
her is creditworthy and deserves appreciation in all regards.

She bears a good moral character .we wish her good luck for her future

Anuj shukla

Branch manager

First Floor Plot No. 181-A, Ramgali No. 2, Panchwati Circle, Raja Park, Jaipur, - 302004,
Rajasthan.Ph(0141) Online - 4042602, 4042601.


The stock market in India has been a kind of mysterious place for many people who
think that the persons investing their money in the market are sort of gambling on
their money. There is usual misconception in the minds of the common man that
because of the volatility of the market, their hard earned money is not safe in the
stock market.

However, this fear can be checked by proper research on a share someone is

interested to invest on. The market doesn’t behave in an arbitrate manner but certain
trends are repeated over the time again and again. It is quite responsive towards the
economic activities taking place in India as well as around the whole world.

The broad objective of the project is to understand the behavioural pattern of the
shares of IndiaBulls Financial Services Ltd. over the past one year and a half so that
one can understand the movement of the share on a particular trading session as
well as the impact of news coming from different quarters of the market.

The project will provide a tool in the hands of the investors to take the decisions
regarding their investment in the shares of IBFSL that is, when to buy or when to sell
the shares. It will also give them the answer that whether it is right time to invest in
this share or not, and what could be the best time to invest in this share.


I express my sincere thanks to my project guide, Mr. Anuj Shukla. ,Branch Manager.,
for guiding me right from the inception till the successful completion of the project.

I sincerely acknowledge him for extending their valuable guidance, support for
literature, critical reviews of project and the report and above all the moral support he
had provided to me with all stages of this project.

I would also like to thank the supporting staff of finance Department, for their help
and cooperation throughout our project.



During the course of my internship at India Bulls Securities Pvt. Ltd, I have very well
realized the fact that practical learning is far better than classroom teaching. For the
last one year, I have been studying so many financial terms but their practical
implication was understood only when I started doing my project in the company.

My project ‘Equity valuation of IndiaBulls Financial Services Ltd’ involves a complete

research on IndiaBulls Financial Services Ltd. and understands the movement of
company’s shares listed in BSE and NSE. The company is a subsidiary of IndiaBulls
group which is one of India’s top Business houses with businesses spread over Real
Estate, Infrastructure, Financial Services, Securities, Retail, Multiplex and Power

The project is broadly divided into two analyses: fundamental and technical analysis.
In Fundamental analysis, the performance of the company in the last year is
considered. The performance of the company is a crucial factor behind taking the
decision of investment in that particular company on a long term basis. Every
investor wants to get the maximum return on his/her investment and that’s why it is
always good to see the growth prospects of the company in the future.The
fundamental analysis gives vital information about the valuation of the company,
whether the company is undervalued or overvalued.

But still there is very decent chance of gaining a good return on the share if
someone invests in the share for the period of at least 3-6 months. This is because of
the fact that the last quarter of the previous financial year was not good at all for the
company as the profit was in the negative territory for the company. The sales were
down and the cost of borrowing was high and therefore the company had to incur
much higher cost as compared to previous quarters.

The technical analysis on the other hand, answers the question like when to buy and
when to sell. A good technical analysis helps to gain in either movement of the price
of the share. The main basis of technical analysis is the historical charts that show
the past trends of a particular share. The technical analysis is carried out mainly on
the belief that the trends repeat themselves.

















Since the early 1990s, India has gradually opened up its markets through economic
reforms by reducing government controls on foreign trade and investment. The Stock
Exchanges have become a prominent player in this economic reform and has now
become a key driver of India’s Economy. With this, Indian stock broking firms are on
an expansion drive. One Such firm is Indiabulls Securities Ltd.

India bulls Securities Pvt. Ltd. is a company registered under the Companies Act,
1956 .It is a professionally managed group headed by the directors, having vast
experience in the stock market.

Indiabulls Financial Services Limited was incorporated on January 10, 2000 as M/s
Orbis Infotech Private Limited at New Delhi under the Companies Act, 1956 with
Registration No. 55 - 103183. The name of Company was changed to M/s. Indiabulls
Financial Services Private Limited on March 16, 2001 due to change in the main
objects of the Company from Infotech business to Investment & Financial Services
business. It became a Public Limited Company on February 27, 2004 and the name
of Company was changed to M/s. Indiabulls Financial Services Limited.

And Now this company has achieved milestone by voted as -- The Youngest
Company of the year in ET500

IndiaBulls Financial Services Ltd. is a public company and listed on the National
Stock Exchange, Bombay Stock Exchange, Luxembourg Stock Exchange and
London Stock Exchange. The market capitalization of Indiabulls is approx US $ 800
million, and the consolidated net worth of the company is approx US $ 400 million.
Indiabulls and its group companies have attracted US $ 300 million of equity capital
in Foreign Direct Investment (FDI) since March 2000.

Indiabulls ranks at 82 and position in the list of most valuable companies in India.
Indiabulls is promoted by three engineers from the Indian Institute of Technology (IIT)
Delhi. Foreign Institutional Investors (FIIs) and foreign funds hold over 60 percent
shareholding of Indiabulls. Some of the large shareholders of Indiabulls are the
largest financial institutions of the world such as Fidelity Funds, Capital International,
Goldman Sachs, Merrill Lynch, Lloyd George and Farallon Capital. There are
approximately over 40,000 shareholders of the company.

Indiabulls Financial Services is a retail financial services company providing a
diverse array of financial products and services, through its nationwide network of
over 300. Indiabulls offices, and services over 2,50,000 clients spread across 110
cities in India. Indiabulls, along with its subsidiary companies, offer consumer loans,
brokerage and depository services, personal loans, home loans and other financial
products and services to the retail markets.

Indiabulls, which has a workforce of over 10,000 full time employees, reported US $
60 million in Profit Before Tax and US $ 45 million in Net Profit for the first nine
months of the current financial year.

Philosophy: -

Indiabulls has created a unique organization that is designed for you – the
Smart Investor –. it passionately believe in the Smart Investor who wants to make his
own educated investment choices and demands world class access to a full range of
services and products ranging from Equities to Insurance, combined with the highest
level of integrity, service and professionalism. Indiabulls is a full service investment
firm offering clients access to a tremendous range of financial services from 135
locations across 95 cities. We have a strong team of over 1000 Client Relationship
Managers focussed on serving customers unique needs. Our world class
infrastructure, built with tens of crores of investment, provides our clients with real-
time service, multi-channel & 24/7 access to all information and products. As we've
expanded and developed to serve the needs of all kinds of investors, we've been
guided by one underlying philosophy:

You come first.

We are proud to introduce to you Indiabulls Professional Network TM that offers real-
time prices, equity analysis, detailed data and news, intelligent analytics, and
electronic trading capabilities, right at your finger-tips. This powerful technology is
complemented by our knowledgeable and customer focussed Relationship Managers
who are available to help with your financial planning and investment needs.

About Founders: -

The fast paced growth, diversification and consolidation of the Group has
been possible due to the vision and leadership of the co-founders of Indiabulls.

Sameer Gehlaut is the Chairman, CEO and Whole Time Director of Indiabulls.
Sameer is an engineer from IIT, Delhi (1995) and has worked internationally with
Halliburton in its international services business in 1995. He has utilized his
experience with the international best practices and professional work culture at
Halliburton to lead Indiabulls successfully.

Rajiv Rattan is the President, CFO and Whole Time Director of Indiabulls. Rajiv is
an engineer from IIT, Delhi (1994)and has rich experience in the oil industry, having
worked extensively across the globe in highly responsible assignments with
Schlumberger. Rajiv has managed remote exploration projects providing evaluation
services for different clients in India as well as abroad.

Saurabh Mittal is a Director at Indiabulls. Declared the best graduating student in

IIT, Delhi in (1995), Saurabh was also one of the engineers selected by
Schlumberger to work for its international services business in 1995 and gained
experience of working in various global locations. He graduated as a Baker Scholar
with an MBA from the Harvard Business School. He has also developed in-depth
understanding of international financial markets.


• Insurance

• Personal Loan

• Home Loan

• Real Estate

• Resources Ltd.

Insurance: -

“When you hear the word Insurance, the words boring and mundane probably
enter your mind.”

When it comes to business, you are right up there. Taking all those split
second decisions, avoiding pitfalls and making sure your money works hard for you.
But don't you think the business of life requires just as much attention and probably
even more. That's we are proud to bring to you an offer exclusively for you. As a part
of our endeavor to provide you with world-class products and services, Indiabulls
gives you the opportunity to avail of the whole range of Birla Sunlife Insurance
Products through the Indiabulls network of 1000 Relationship Managers over 135
locations nationwide. Which means you can take care of life, while taking care of
business. As always, we put your needs first.

Loans: -

Personal Loan:

No questions. Only Loans.” No matter where you work, or how much you
earn, we offer you the shortest route to a loan with minimum paperwork and
procedures. With

Indiabulls Fast Loans

you can avail of easy loans for a minimum of Rs.10,000 to a maximum amount of

•Flexible loan tenor of up to 4 years (i.e. 1 month to 48 months).

•Loans available from a minimum of Rs.10, 000 up to a maximum of


•Easy monthly repayment through equated monthly installments (EMI). Easy

documentation and quick disbursal

Home Loan: -

Indiabulls has commenced lending of Mortgage Loans to prospective customers

under the flagship of Indiabulls Housing Finance Ltd. Here we enable home-seekers
to access finance to buy, build, rent or improve their homes. We also provide plot
loans, Loan against Residential, Commercial and Rental Property, thereby enabling
the borrower to leverage the property owned to fund any legitimate needs be it
Business Expansion, Child's Education, Child's Marriage or for holiday abroad.

Real Estate: -

Through its group companies, Indiabulls is also engaged in real estate development.
The group companies recently made winning bids for the Jupiter and Elphinstone
Mills in Mumbai in an auction carried out by the National Textiles Corporation (NTC),
a Government of India undertaking. The company will now develop modern
commercial complexes in the heart of Mumbai - the financial capital of India.
Indiabulls' foreign partner, Farallon Capital made the first real estate related FDI
investment in Indiabulls Properties Pvt. Ltd to buy Jupiter Mills immediately after the
new FDI guidelines were introduced by the Government of India for real estate
development in March 2005.

Indiabulls Resources Ltd:

Indiabulls Resources Ltd, a 100 per cent subsidiary of Indiabulls Financial Services
Ltd., has been established with the objective of evolving as an independent oil
company over time. Our immediate short-term goal is to partner with oil companies
who are willing to come to India and bid in the current NELP-6 round. We are ready
to invest along with such companies for exploration blocks of mutual interest.

Indiabulls has grown its business by over 100% CAGR since inception. The growth
of Indiabulls in a highly competitive market is a testimony of its quality services.

The company is serving a diverse customer base of institutional and retail investors
The Company has a balanced mix of revenues from emerging markets and is well
positioned to leverage the growth potential offered by these markets.

GBS provides investors a robust platform to trade in Equities in NSE and BSE,
and derivatives in NSE. The company has a worldwide vision and it along with its

associates is currently providing state of the art stock broking services through all the
major stock exchanges, trading through NSE & BSE, depository services through
CDSL and all the services are available under the one roof. With its ability to evolve
with the changing environment the Company has been able to put itself to the
forefront of stock broking activities. With its network spreading across various parts
of India, it has made a distinct mark among the stock broking houses and high net
worth corporate as well as individuals.

The company offers financial information, analysis, investment guidance,

news & views, which are designed to meet the requirements of everyone from a
beginner to a savvy and well-informed trader.

“Our vision is to grow our business and make our presence across the world.”
“Our mission is to create and introduce the new definition of investments around the

Management Team

Name Designation
Mr. Vivek Rana Chairman / Managing Director

Mr Rajiv Balhara Director

Mr. Kuldeep Sharma Director

Mr. Yajur Chaudhary Director

Mr. Rajneesh Aggarwal Director

Mr. Vipin Kumar Director

Mr. Gajraj Singh Director

Mr. Anil Kaushik Director



Equity is generally defined as ownership interest in a corporation in the form of

common stock or preferred stock. As a unit of ownership, common stock typically
carries voting rights that can be exercised in corporate decisions. Preferred
stock differs from common stock in that it typically does not carry voting rights but is
legally entitled to receive a certain level of dividend payments before any dividends
can be issued to other shareholders.

What is Equity Valuation?

In recent times, the market has become volatile like never before and the investors
are at risk of losing money if they won’t invest carefully with proper research and
analysis. The market is not a place to gamble and the investors who look it that way
definitely lose money in the market.

Therefore, it is well advised for the investors to go into the details before investing
his/her hard earned money in the stocks of a particular. She/he should see whether
the company is worth investing or not and if it is, then what should be the duration of
investment so that the return on investment is maximum.

The equity valuation is a method by which a particular company is analysed on

different parameters and the decision on investment as well as the duration of it, is
taken on that basis to maximise the return on the investment. Equity valuation mainly
consists of two types of analysis:

1. Fundamental Analysis

2. Technical Analysis

Fundamental Analysis:

Fundamental Analysis is a method of evaluating a security by attempting to

measure its intrinsic value by examining related economic, financial and other
qualitative and quantitative factors. Fundamental analysis of a business involves
analyzing its financial statements and health, its management and competitive
advantages, and its competitors and markets.

Fundamental analysis is performed on historical and present data, but with the goal
of making financial forecasts. There are several possible objectives:

• To conduct a company stock valuation and predict its probable price evolution,

• To make a projection on its business performance,

• To evaluate its management and make internal business decisions

• To calculate its credit risk

Fundamental analysis maintains that markets may misprice a security in the short
run but that the "correct" price will eventually be reached. Profit scan be made by
trading the mispriced security and then waiting for the market to recognize its
"mistake" and re-price the security.

The end goal of performing fundamental analysis is to produce a value that an

investor can compare with the security's current price in hopes of figuring out
what sort of position to take with that security (underpriced = buy, overpriced
= sell or short).

In fundamental analysis, one can use either a top-down or bottom-up approach:

• The top-down investor starts his analysis with global economics, including
both international and national economic indicators, such as GDP growth,
inflation, interest rates, exchange rates, productivity, and energy prices. He or
she narrows his search down to regional/industry analysis of total sales, price
levels, the effects of competing products, foreign competition, and entry or exit
from the industry. Only then does he narrow his search to the best business in
that area. This is basically known as EIC analysis.

• The bottom-up investor starts with specific businesses, regardless of their


Technical Analysis:

Technical Analysis is a method of evaluating securities by analyzing statistics

generated by market activity, such as past prices and volume.

In its purest form, technical analysis considers only the actual price and volume
behavior of the market or instrument. Technical analysts may employ models and
trading rules based on price and volume transformations, such as the relative
strength index, moving averages, regressions, inter-market and intra-market price
correlations, cycles or, classically, through recognition of chart patterns. Technical
analysts do not attempt to measure a security's intrinsic value, but instead use charts
and other tools to identify patterns that can suggest future activity. Technical analysts
believe that the historical performance of stocks and markets are indications of future

Technical analysis is widely used among traders and financial professionals, and is
very often used by active day traders, market makers, and pit traders.

Though the two methods are completely different in nature, analysis of both is
essential to take the best decision regarding the investment of money in a particular

In our valuation, we are starting with Fundamental analysis based on Top-Down

approach and therefore, our research starts with the EIC analysis.


There was hardly any need of collection of primary data neither there was any scope
for it.

The data collected for the purpose of the study was secondary data. The secondary
data was collected mainly through:

• Websites like yahoo finance, Rediff money, Google finance etc.

• Newspapers like Economic Times, The Business Standard, Business Line

• Magazines like Dalal Street, Business World and Business Today

The main sources of data collection were different financial websites and the
government websites like websites of RBI, Ministry of Finance, and Ministry of
Planning Commission etc. The data collected through these sites then utilised for the
detailed analysis.

Mode of Analysis:

For fundamental analysis, the main focus was on going through the past details and
the signal that a change in a particular data over a particular period was giving. The
comparison of data over the past few years was very important.

For technical analysis, the main tools that were used were Bollinger Band, MACD,
and Relative Strength Index. The explanations of these tools are given with the
analysis later in the project report. These tools were of great help for predicting the
future movement in the price of the share.

The study of these tools was done with the help of the websites of BSE, Yahoo
Finance and Wikipedia.


Since my project deals with the research on a listed company, the limitations were
very few because of the availability of sufficient data for the technical analysis. But
for the fundamental analysis the current data for many key analyses were not

The major limitations of the project can be grouped as follow:

• The Balance sheet of the company for the FY 2008-09 was not available.
This was a big limitation for the ratio analysis. Also, the Balance sheet of
the competitors was not published yet.

• The company does not provide a detailed analysis of its product portfolio
and this was a big limiting factor while analysing the growth of the
company over the last year in different sector of financing viz. Housing
Finance, Vehicle Finance etc.

• The economic survey for this year has not been done yet and because of
that the key statistics like the expenditure on infrastructure, education and
social sector was not available which was vital for the economic analysis.

• Sometimes, the availability of too many data also poses a great problem
and this happened during the project work as well. The different websites
use to show different figures over the same period of time and this
ambiguity in data was quite problematic.

Despite these limitations, the project was completed in a smooth manner and the
interesting nature of the project made all these limitations too small to think of.


EIC Analysis:

Global Economy:

The global economy is largely governed by the economic giant USA, which is the
largest economy in the world. The happenings in USA have a major impact on most
of the economies in the world because we are living in the era of Globalisation in
which no country in the world is isolated.

According to the estimates of CIA World Fact Book, World GDP (Purchasing Power
Parity), also known as world gross domestic product or GWP - gross world product,
calculated on a nominal basis, was at $67.2 trillion in 2007. The estimated figure for
the year 2008 is $69.49 trillion. This shows that the world GDP was doing well and
the growth was led by the economies like China, India and Russia. But the financial
tsunami that started from USA took every country in the world into its waves and
created a scenario never seen before.

The Wall Street crumbled and the concept of investment banking almost vanished
from the USA. Suddenly, everything starts looking gloomy and fear of yet another
depression caught the world. With all the major economies of the Europe and the
USA were in recession, the economist world over were looking optimistically towards
Asian Giants China and India.

The severity of the recession can be understood by the fact that the business giants
that stood the testing times of Depression and the World Wars, fell prey to this
financial earthquake that had its epicentre in USA. The governments, world over
started taking steps to revive their economies and the stimulus package were
announced. The US government announced a stimulus package of $787 Billion to
pull out its economy from the financial crisis because of which about 3.6 million jobs
were lost till the package was announced on 17th February, 2009(source: cbc news).

Germany, Europe’s largest economy launched a new recovery plan in January to

bring its economy out of recession. Same was the case with Britain which had to
unveil a fresh package for its banking sector. The EU leaders agreed on a €200
Billion stimulus plan to snap the European economy out of recession. But the
measures taken by the countries didn’t go in vain. The world economies started

showing signs of recovery and this was evident from the fact that recently IMF
revised its earlier estimates for the growth of world economy from -2.2% in
November 2008 (source: Economic Times, Nov 7, 2008) to -1.3%, according to the
official site of IMF. On the similar lines, IMF upgraded the quantum of contraction that
the world economies would be facing in the coming financial year.The projected
growth by IMF for Japan, Russia, Germany, UK, USA and Brazil was -6.2%, -6%,
-5.6%, -4%, -2.8% and -1.3% respectively. However, these figures were upwardly
revised by IMF in the last few monyhs.

Let’s take a look at the performance of the key economies in the recent months of FY

US Economy:

The economy of the United States is the largest national economy in the
world. Its gross domestic product (GDP) was estimated as $13.8 trillion in 2009. But
the economic situation of the country deteriorated heavily because of the recession
that started in December 2007. According to the National Economic Accounts, BEA
the US economy contracted by 5.1% in the last quarter of this financial year 2008-09
which was more severe than 1% contraction in the Q3 of FY 2008-09.

Economy of Japan:

The economy of Japan is the second largest economy in the world, after the United
States at around US$4.5 trillion in terms of nominal GDP and third after the United
States and China when adjusted for purchasing power parity. According to country-
data.com, for three decades, Japan's overall real economic growth had been
spectacular: a 10% average in the 1960s, a 5% average in the 1970s, and a 4%
average in the 1980s. However, this trend changed dramatically when the recession
pulled its economy in red. According to the Bloomberg.com, in the first quarter of FY
2008, the economy of Japan contracted by 3.3% as recessions in the U.S. and
Europe triggered a record drop in exports.

Economy of China:

The economy of the People's Republic of China is the second largest in the world
after that of the United States with a GDP of$7.8 trillion (2008) when measured on

a purchasing power parity (PPP) basis. It is the third largest in the world after the US
and Japan with a nominal GDP of US$4.4 trillion (2008) when measured
in exchange-rate terms. China has been the fastest-growing major nation for the past
quarter of a century with an average annual GDP growth rate above 10%. But the
impact of recession was also evident as the economy grew by 6.8% and 6.1% in the
last two quarters of FY 2008, according to chinadaily.com.

Economy of Germany:

Germany has the world's fourth largest economy in USD exchange-rate terms and
the largest economy in Europe. The German economy is heavily export-oriented; as
of 2008, Germany is the world's leading exporter of merchandise, and exports
account for more than one-third of national output. As a result, exports traditionally
have been a key element in German macroeconomic expansion. This is the reason
why Germany was one of the worst affected economies because of the sharp fall in
the consumption in the US and other markets all over the world during the recession.
GDP growth in 2006 was 2.9% and in 2007 was 2.5%. However in 2008 GDP slowed
down to a growth of 1.3%.

Economy of Russia:

Russia is a unique emerging market, in the sense that being the nucleus of a former
superpower shows more anomalies. On one hand, its exports are primarily resource
based, and on the other, it has a pool of technical talent in aerospace, nuclear
engineering, and basic sciences. According to IMF, Russia has the world’s sixth
largest economy by purchasing power parity. The Russian economy contracted by
9.5% YoY in the first three months of 2009, after a 1.2% GDP YoY growth in the last
quarter of 2008, according to Tradingeconomics.com, Bloomberg.

Economy of United Kingdom:

The United Kingdom is a major developed capitalist economy. It is the world's sixth
largest by nominal GDP and the seventh largest by purchasing power parity. It is the
third largest economy in Europe after Germany's and France's in nominal terms, and
the third largest after Germany's and Russia's in terms of purchasing power parity.
According to the National Statistics department of UK, the economy contracted by
1.9% in the fourth quarter of FY 2008.

Economy of Brazil:

Brazil has a moderate free market and export-oriented economy. Measured

nominally, its gross domestic product surpasses a trillion dollars, the tenth in the
world and the second in the Americas; measured by purchasing power parity, $1.9
trillion, making it the eighth largest economy in the world and the second largest in
the Americas, after the United States. According to an article posted on The Wall
Street Journal, dated 9th June, 2009, Brazil posted growth of 5.1% in 2008. However,
it saw a 3.6% contraction of the economy in the fourth quarter of the year under the
impact of an international credit crisis and a slowdown of the global economy.

As we go through the GDP growth trend of one of the key economies in the world in
the recent months, the impact of the recession becomes clear. However, the global
economy has started showing signs of recovery with several macroeconomic
indicators are turning green in the past two months. Now, we will take a detailed look
at the Indian economy.

The Indian Economy:

Indian Economy has covered a long ground since it was liberalized in 1991.Today,
The Indian economy is the twelfth largest in the world by market exchange rates and
the fourth largest in the world by GDP measured on a purchasing power parity (PPP)
basis behind only the USA, China, and Japan, according to the CIA, The World Fact
Book. It is slated to overtake Japan and become the third major economic power in
the next ten years. India is also one of the few markets in the world which offers high
prospects for growth and earning potential in practically all areas of business. Indian
economic growth has been among the fastest in the world in the recent years,
growing 9.2% in 2007 and 9.6% in 2006. However, like most of the countries all over
the world Indian economy is also facing tough times because of the recession. But,
Indian economy is largely driven by the domestic demand and this is the reason why
Indian managed a GDP growth rate of 6.7% in the FY 2008, which is a commendable
figure considering the fact that most of the economies were in the red during this
financial year. Only China managed a higher growth rate than India in the year 2008-

The rapid growth seen in the recent year can largely be contributed to the
liberalisation of the Indian economy in 1991. India was a highly protected, semi-
socialist autarkic economy till 1991. There were numerous structural and
bureaucratic impediments in setting up a new business and foreign investment was
not welcomed. The opening up of the Indian economy in 1991, unleashed the latent
entrepreneurial talent of the Indian and in less than two decades India has
established itself as the next economic superpower of the world. The Indian economy
was also able to attract the foreign invest that is quite necessary to bridge the saving-
investment gap and put the economy on the right track.

Despite robust economic growth, India continues to face several major problems.
The recent economic development has widened the economic inequality across the
country. Despite sustained high economic growth rate, approximately 80% of its
population lives on less than $2 a day (PPP), more than double the same poverty
rate in China, according to Human Development Report, UN published in 2007/08.

Gross Domestic Product:

The gross domestic product (GDP) or gross domestic income (GDI), a basic
measure of an economy's economic performance, is the market value of all final
goods and services made within the borders of a nation in a year. it is equal to the
sum of the value added at every stage of production (the intermediate stages) by all
the industries within a country, plus taxes less subsidies on products, in the period.
GDP is commonly used as an indicator of the economic health of a country, as well
as to gauge a country's standard of living.

According to the CIA, The World Fact Book, the estimated figure of GDP of India was
$1.209 trillion. The nominal per capita income was calculated to be $1016 per
annum. Traditionally, Indian economy is considered to be agriculture based economy
and despite a steady decline of its share in the GDP, is still the largest economic
sector and plays a significant role in the overall socio-economic development of
India. Industry accounts for 29.1% of the GDP and employ 17% of the total
workforce. However, about one-third of the industrial labour force is engaged in
simple household manufacturing only. In absolute terms, India is 16th in the world in
terms of nominal factory output. The chart below shows the contribution of different
sectors to the GDP. The service sector is growing rapidly in the past few years. It

provides employment to 23% of work force, and it is growing fast, growth rate 7.5%
in 1991–2000 up from 4.5% in 1951–80. It has the largest share in the GDP,
accounting for 53.7% in 2007 up from 15% in 1950.

Source: CIA, World Fact

The dynamics of Indian economy is changing and one of the landmark structural
changes achieved by Indian economy is that today services sector contributes more
than 50% of India's GDP, which is a general characteristic of any developed

The recent trends in GDP growth:

The Indian economy has been on high growth trajectory for the past five years. The
usual Hindu growth rate of 4-5% is a thing of past now with the economy registering
about 9% growth for three consecutive year 2006-08. The recent development in the
world economy pulled the growth substantially in the FY 2009 but still India is the
second fastest growing major economy in the world. The march of the elephant is
expected to continue as the steps taken by the government is showing the results
and the world economy is on the path of recovery.

The graph below shows the growth trend in the past five years.


During the ninth five year plan (1997-02), the GDP growth was modest at 5.5%
(source: indiabudget.nic.in) but the economic activities picked up in the tenth plan
and the growth rate surged to 7.8%, the highest so far for any plan period which is
only marginally short of the target figure of 8% and if we overlook the dismal
performance during the year 2002-03, the figure could be even higher.
A notable feature of growth during the Tenth Five Year Plan was the resurgence of
manufacturing. There was a sharp acceleration in the growth of manufacturing from
3.3% during the Ninth Five Year Plan to 8.6 per cent during the Tenth Five Year
Plan. The average growth of manufacturing during the five years ending 2007-08 is
expected to be about 9.1 per cent. The contribution of manufacturing to overall
growth increased from about 9.6% during the Ninth Five Year Plan to about 17.7%
during the Tenth Five Year Plan. The target growth rate of 9% in the eleventh five
year plan might be revised because of the recent slump in the growth but still the
revision should not be too much on the downside.
The following table gives a comprehensive detail of the performance of the various
sectors of Indian economy in the past five years.



Technically speaking, inflation is the persistent rice in the price of commodities. A

moderate amount of inflation is important for the proper growth of an economy like
India because it attracts more private investment. The RBI has followed a policy of
keeping the inflation in the range of 4-5% over the past decade.

There are several methods to measure inflation. In India, the inflation is measured
generally on the basis of wholesale price index (WPI) and the data released by the
RBI every Thursday on inflation is based on the WPI only. However, there are other
methods like Consumer Price Index is also there which gives more accurate picture
of the amount of impact the rise in inflation has on the common people. In India, all
the commodities are broadly categorised into three groups namely Primary Articles
(which include food products), Fuel Products and the Manufactured Products (such
as steel, cement etc). The Weightage given to these groups are 22.02, 14.23, and
63.75 respectively on a scale of 100.

The inflation has been more or less under control over the past decade but rise in the
prices of fuel and the food articles last year pushed the inflation rate to an
unprecedented high level of 12.91% for the week ended 02 nd August, 2008. The
average inflation rate for the year 2008 was seen at 9.11% (the average of 52-week
inflation rate) and was even higher if we consider the period Jun-Oct last year when
the average was 12.09% with the figure of inflation for the entire period was in
double-digit. This was the time when the price of crude oil reached to a peak of $145
per barrel and the government had no other price but to hike the price of fuel for the
Indian consumers also as India imports about 70% of its annual fuel demand. This
further pushed the price of other commodities and the inflation reached to 16 year
high level of almost 13%.

The trend of inflation for the past 17 months is quite evident in the following graph:

Source: Office of Economic

The rise in the price, however, could not sustain over long period of time as the
contraction in demand the world over pulled down the prices of commodities with the
price of crude oil fell down to as low as $30 per barrel. Also, the close monitoring of
prices and appropriate policy interventions initiated in the last year and a half by RBI
helped in maintaining price stability and reducing the impact of increase in global
prices on domestic consumers. The inflation rate for the week ended 04th April, 2009
was 0.18% and after that there has been a moderate upward movement in the WPI.

Index of Industrial Production:

Index of Industrial Production (IIP) is an abstract number, the magnitude of which

represents the status of production in the industrial sector for a given period of time
as compared to a reference period of time. In simplest terms, it is an index which
details out the growth of various sectors in an economy. The index seeks to reflect
the growth in the country’s industrial activity and excludes all kinds of services. Also
base year needs to be decided on the basis of which all the index figures would be
arrived at. In case of India the base year has been fixed at 1993-94 hence the same
would be equivalent to 100 Points.

There is visible link between trends in IIP and the growth in revenues of the CNX-500
companies over the past six years. According to an article published in Business
Line, dated April 6, 2008 the two parameters were said to be positively correlated
with a correlation co-efficient of close to 0.79. The correlation indicates that if the IIP
numbers point to a possible slowdown, then corporate earnings numbers may well
be headed the same way, unless higher agricultural growth or a far superior
performance from the services sector offsets such a slowdown. Over the period of
analysis, IIP and revenue growth have moved mostly in tandem, with only a few
quarters of divergence. From a period of slow growth in early 2001, both the
parameters have made a sharp comeback, accelerating sharply since 2005; the
latest numbers once again bring the hint of a slowdown in the economy. Macro-
economic factors such as inflation and interest rates also appear to have influenced
the growth in both these variables.

In 2001-02, both IIP and corporate revenue growth remained modest, with India Inc’s
growth just about matching the IIP readings. A high base and a spike in inflation
numbers the preceding year appear to have contributed to this challenging period. By
2002-03 however, both industrial production and corporate India’s sales were firmly
on the recovery path.

Over the next couple of years, sales growth for corporate India began to accelerate
and comfortably outpace the growth in IIP. By June 2004, the CNX 500 revenue
growth was almost four times the IIP growth number. The increasing role of service
industries such as construction, engineering services and IT, not captured in the IIP,
could have aided corporate earnings in this period. The economy’s boom phase,
starting 2005, was reflected in all the key indicators. By the quarter ended September
2006 GDP grew by 10.1 per cent over the previous year, IIP jumped to a 12 per cent
growth and revenues of CNX 500 companies surged by 33 per cent for this quarter.

The above trends clearly suggest that boom phases in the IIP have corresponded
with those in corporate earnings, while slow phases have been reflected in a sales
slowdown. In this context, the recent slowdown in IIP is a cause for concern on the
pace of growth likely in India Inc.

Source: The Business Line, April 6, 2008

Now, we take a look at the IIP data released by the Central Statistical Organisation of
the Ministry of Statistics and Programme Implementation on May 12, 2009. The data
gives a detailed picture of IIP for the Fiscal year 2008-09.


The recent trend in IIP is quite dismal as far as the performance of India Inc. is
concerned. The IIP data in the latter half of the financial year shows the declining

trend in the Indian economy. Index of Industrial Production (IIP) for March 09 draws
its worst performance since January 1993. The number has come at -2.3% against
economists projection of a contraction in the range of 0.5% to 0.7%. As we look at
the table, the cumulative growth for the FY 2008 was 2.4% which is way below than
the cumulative growth figure of 8.5% in FY 2007.

The number for the month of March this year was negative even as the six core
industries which constitute 26.7% of the industrial output data grew at 2.9% in March,
same as a year ago, raising hopes about a better factory output data for this month.
This was the highest sequential core sector growth rate since September last year
when it grew at 3.9%.
During the Full year, April-March 2008-09, the six core sector industries registered a
growth of 2.7% as against 5.9% during the corresponding period of the previous
year. India's industrial production in March was squeezed down due to a sharp
decline in the Capital Goods, Manufacturing and consumer durables even as
Electricity and Mining components reported decent growth.

The following figure shows a comparative performance of different sectors of industry

with the last year.

Source: RBI Bulletin June,


According to International Labour Organization, Unemployment is a state when a

person is available to work and seeking work but currently without work. It is one of
the most pressing problems of any economy especially the underdeveloped ones.

This has macroeconomic implications too such as reduction in the output, reduction
in tax revenue, and rise in the government expenditure.

Unemployment was recognised as a problem in India as early as 1950s but faster

economic growth, with special emphasis on employment intensive sectors like the
small scale industry, was considered adequate to tackle it. But it was only during the
seventh five year plan (1985-90) that the government started taking concrete steps to
tackle the unemployment. The decades of 1980s showed a relatively higher GDP
growth but the growth in unemployment outpaced it. Therefore, the government
undertook a detailed assessment of employment and unemployment trends in 1990s
and on the basis of the findings of this study, a new strategy to overcome the
problem of rising unemployment rate in India. The subsequent five year plans saw an
increased emphasis on the reduction of unemployment rate if not the complete
abolishment. Therefore, government of India took a new initiative and came up with
National Rural Employment Guarantee Act in 2005 to provide more employment
opportunities to the rural people.
The unemployment trends on a yearly basis are shown in the graph given in the next

Source: CIA, World Fact


Clearly, the unemployment rate has been declining in the recent years but there is a
lot to be done as the rate of increase in the labour force may outpace the growth rate
in employment generation in the coming years.

Balance of Payment:

According to IMF, "Balance of Payments is a statistical statement that summarizes

transactions between residents and non-residents during a period." The balance of
payments (or BOP) measures the payments that flow between any
individual country and all other countries. It reflects all payments and liabilities to
foreigners (debits) and all payments and obligations received from foreigners
(credits). Balance of payments is one of the major indicators of a country's status in
international trade, with net capital outflow.

The Indian economy is facing tough times because of the recession. The Global
financial crisis has been affecting India’s foreign trade since end-2008. It has been
affecting investment flows too.

India’s Trade deficit on a balance of payments (BoP) basis has widened significantly
by 52.04 percent to $ 105.33 26 billion in the nine months (April-December) of fiscal
year*2008-09 from $ 68.28 billion in the comparable period in previous fiscal. The
widening trade deficit is attributed to significant growth in imports. During the nine-
month period (April-December, 2008) imports were up 30.60 percent to $ 238.86
billion from $ 182.89 percent in the comparable period in fiscal 2007-08.

The key features of India’s BoP that emerged at the end of Q3 of fiscal 2008-09
were: the key features of India’s BoP that emerged in April-December 2008 were: (i)
widening of trade deficit led by high growth in imports and slowdown in exports, (ii)
increase in invisibles surplus, led by remittances from overseas Indians and software
services exports, which financed about 65 per cent of trade deficit, (iii) higher current
account deficit due to large trade deficit, (iv) lower net capital flows mainly led by
large net outflows under portfolio investment and large repayments under short-term
trade credit, and (v) sharp decline in reserves.

Some of the major highlights of BoP for the Q3 2008 can be stated as follow:

(i) Export growth turned negative during Q3 of 2008-09 for the first time after
2001-02 due to global economic slowdown.
(ii) Import growth on BoP basis decelerated to a single digit during Q3 of 2008-09
after a gap of almost 6 years mainly led by lower crude oil prices and non-
oil imports.

(iii) The current account deficit at US$ 14.6 billion during Q3 of 2008-09 was the
highest quarterly deficit since 1990.
(iv) For the first time since Q1 of 1998-99, the capital account balance turned
negative during Q3 of 2008-09 mainly due to net outflows under portfolio
investment, banking capital and short term trade credit.
(v) The foreign exchange reserves on BoP basis (i.e., excluding valuation)
declined due to widening of current account deficit combined with net
outflows under the capital account. The largest decline in reserves during
any one quarter in earlier years at US$ 4.7 billion was last observed in Q3
of 2005-06.
(vi) On a BoP basis India’s Merchandise exports recorded a decline of
10.4% in the Q3 of 2008-09 as against an increase of 33% in the same
quarter of 2007-08.
(vii) Import payments, on a BoP basis, registered a lower growth rate of 8.9%
in the Q3 of 2008-09 as compared to a high growth of 41.9% in the same
quarter of the previous financial year. The slowdown in import growth is
mainly attributed to oil import payment due to sharp fall in the prices of
crude oil during this quarter.
(viii) Capital account balance turned negative showing outflows of US$ 3.7
billion during the Q3 of 2008-09 (net inflows at US$ 31.0 billion during Q3
of 2007- 08) for the first time since Q1 of 1998-99 mainly due to net
outflows under portfolio investment, banking capital and short-term trade
(ix) The gross capital inflows to India during Q3 of 2008-09 amounted to
US$ 70.0 billion (US$ 127.3 billion in Q3 of 2007-08) as against gross
outflows from India at US$ 73.6 billion (US$ 96.3 billion inQ3 of 2007-08).
Other components of the capital account which recorded a fall during the
quarter were inflows and outflows under foreign direct investment and
external commercial borrowings, while inflows under short term trade credit
also declined during the quarter.
(x) Net FDI flows (net inward FDI minus net outward FDI) amounted to US$
0.8 billion in Q3 of 2008-09 (US$ 2.0 billion in Q3 of 2007-08). Net inward
FDI stood at US$ 6.7 billion during Q3 of 2008-09 (US$ 7.9 billion in Q3 of

2007-08). Net outward FDI remained buoyant at US$ 5.9 billion in Q3 of
2008-09 (US$ 5.8 billion in Q3 of 2007-08).

Exchange Rate:

The foreign trade in India is done in terms of US Dollar and therefore the US Dollar is
considered to be hot currency in India. The Indian rupee is not a prominent one in the
world. But it is a currency used by the people of a dynamic economy. Over the years
the Indian government has maintained the exchange rate of Indian Rupee vis-a-vis
US Dollar in the range of Rs. 40-47/US $ and this policy was adopted mainly to
support export and improve trade balance. But last year rupee appreciated to a level
of Rs. 37/US $ and then because of the impact of recession it depreciated to an
unprecedented low of almost Rs. 52/US $. After then it gained some lost ground and
appreciated to reach to a level which can be called a satisfactory level.

The table below gives the trend of exchange rate of Indian Rupee in terms of Dollar
for the last one year.

The rupee was exchanged at the level of below Rs. 40/US $ for the first three months
and for most part of the fourth month of last year. Then there was a sharp
depreciation in Indian Rupee in terms of US $ and it reached to a level of Rs. 49.76
on October 24th, 2008. Then INR gained some ground in November to reach to a
level of Rs. 47.5/US $ on 7th November, 2008. But the depreciation continued after

that as INR reached a new low of Rs. 51.68/US $ on 6 th March, 2009 and after that a
gradual appreciation is seen over the past few months this year. The situation is
likely to remain the same and the rupee might see a level of Rs. 46-47/US $ for the
rest of this year.

Foreign Trade:

The export took a great hit during the last financial year because of the recession
that gripped the world economy. The first six months of the last financial year was
quite good as the export showed a steady growth but in October last year the export
turned negative for the first time in a decade and since then it has not turned positive.
The export target of $200 Bn for this financial year was not achieved. The imports
were also down to single digit from January this year because of the fall in the prices
of crude oil but the overall trade balance was not favourable as it grew more in
negative territory.

The following table gives details of India’s foreign trade in the last Financial Year.

Foreign Trade (Annual and Monthly)

Month US dollar million
Export Import Balance
April 15,961 24,823 -8,862
May 15,550 26,684 -11,134
June 16,522 25,734 -9,213
July 17,072 29,054 -11,982
August 15,900 29,040 -13,140
September 14,131 26,417 -12,285
October 12,814 22,724 -9,910
November 10,206 22,405 -12,198
December 12,151 18,419 -6,267
January 11,422 16,415 -4,993
February 11,913 16,823 -4,910
March 11,516 15,561 -4,045
Source: DGCI & S and Ministry of Commerce & Industry.

Monetary Policy:

Monetary policy is the process by which the government, central bank, or monetary
authority of a country controls (i) the supply of money, (ii) availability of money, and
(iii) cost of money or rate of interest, in order to attain a set of objectives oriented
towards the growth and stability of the economy.

In India, the main objective of the monetary policy has been to control the inflation
and ensure availability of credit to the common people. The monetary measures are
taken by RBI from time to time to ensure the smooth functioning of Indian Economy.
This was quite evident in the last year when the prices of commodities were rising to
an unsustainable level; RBI gradually tightened the monetary measures and hiked
the key rates like CRR, Repo Rate to suck the excess liquidity out of the system to
ensure that it doesn’t reach to an unmanageable level. The Repo Rate and the CRR
were hiked to 9% in August last year. This was the first time since October 2000 that
repo has touched 9 per cent while CRR touched 9 per cent for the first time since late
November 1999.

After September last year, the scenario changed a bit and the market world over
faced the credit crunch and there was contraction in demand because of which crude
oil prices touched a new low of $ 32 per Barrel. The RBI responded to this new
situation by reversing its stance taken on the monetary policy for the country and
eased the liquidity flow by reducing the key rates like CRR and Repo rate in s
gradual manner.

From a level of 9% last August, the CRR was reduced to 5% this January and the
total amount of liquidity released in the market because of this reduction was Rs.
1,60,000 crore. The SLR was also reduced, for the first time since 1997, to 24% from
earlier level of 25% in November last year. The expansionary monetary policy
approach, however, is yet to show concrete results as the credit growth has not
picked up yet.

Fiscal Policy:

The Indian economy is driven ahead by strong fundamentals and despite the global
slowdown the economic growth was second highest in the world.

The fiscal policy for the year 2009-10 will continue to be guided by the objectives of
keeping the economy on the higher growth trajectory amidst global slowdown by
creating demand through increased public expenditure in identical sectors.

The growth trends for the last four years indicate a continuous upswing in the
economy. Increasing productivity, growth of service sector and buoyancy in tax
receipts associated with the growth and to some extent, improvement in tax
compliance and enforcement as a result of a more rational, liberal and efficient tax
system, have contributed toward achieving quantitative goals set under the FRBM
Act. Reduction of fiscal deficit has been achieved from 4.5 per cent of GDP in 2003-
04 to 3.1 per cent of GDP in RE 2007-08. During the same period, revenue deficit
has declined from 3.6 per cent of GDP to 1.4 per cent. But because of the
expansionary fiscal policy adopted by the government in the latter half of last year
the fiscal deficit came to a level of 11% of the GDP for the FY 2008.
The Government announced two fiscal stimulus packages, first on 7 th December,
2008 of Rs. 3,00,000 core- including additional plan expenditure of Rs 20,000 crore
and a 4-percentage-point cut in excise duty and then on again 3rd January, 2009. The
government did not reveal the cost of second fiscal incentive, except to add that tax
cuts would involve revenue foregone of Rs 40,000 crore in the current fiscal.

Tax Collection:

Net direct tax collection during the fiscal 2008-09 stands at Rs.338,212 crore, up
from Rs.312,202 crore during 2007-08, registering a growth of 8.33 percent. Growth
in Corporate Taxes was 10.84% , while Personal Income Tax (including FBT, STT
and BCTT) grew at 9.09%. Despite economic slow-down and substantial relief to
non-corporate taxpayers, direct tax collections exceeded the previous year's
collection by about Rs.26,000 crore.

Net direct tax collections during first two months of the current fiscal (2009-10) stood
at Rs.24,158 crore, up from Rs.22,840 crore, registering a growth of 5.77%. Growth
in Corporate Taxes was 5.56% (Rs.8,578 crore as against Rs.8,126 crore), while
Personal Income Tax (including FBT, STT and BCTT) grew at 5.92% (Rs.15,559
crore as against Rs.14,690 crore). Overall refund outgo during the period increased
by 26.19% (Rs.11,375 crore as against Rs.9,014 crore) while refunds to non-

corporate taxpayers grew by 61.7% (Rs.2,149 crore against Rs.1,329 crore), spurred
by faster processing of returns on the new national computer network.

Source: IT Department, Govt. of India

Industry Analysis:

Target Industry: Financial Services Industry

The financial services refer to the services provided by the finance industry. The
finance industry encompasses a broad range of organizations that deals with money.
Among these organizations are Banks, credit card companies, consumer finance
companies, stock brokerages, investment funds and some government supported
and sponsored enterprises.

The Indian Financial services industry is very diversified in nature with every domain
of finance is covered by the industry. The main emphasis of our analysis will be on
Non Banking Financial Companies (NBFCs) and Insurance sector. IBFSL is basically
an NBFC which is also planning to offer insurance services apart from providing
finance to the people as well as private companies and partnership firms.

Industry of Non Banking Financial Companies:

A non-banking financial company (NBFC) is a company registered under the

Companies Act, 1956 and is engaged in the business of loans and advances,
acquisition of shares/ stock/ bonds/ debentures/ securities issued by government or
local authority or other securities of like marketable nature, leasing, hire-purchase,
insurance business, chit business, but does not include any institution whose
principal business is that of agriculture activity, industrial activity, sale/ purchase/
construction of immovable property.

A non-banking institution which is a company and which has its principal business of
receiving deposits under any scheme or arrangement or any other manner, or
lending in any manner is also a non-banking financial company (residuary non-
banking company).

NBFCs are doing functions akin to that of banks; however there are a few

• (i) An NBFC cannot accept demand deposits (demand deposits are funds
deposited at a depository institution that are payable on demand --
immediately or within a very short period -- like your current or savings
• (ii) It is not a part of the payment and settlement system and as such cannot
issue cheques to its customers; and
• (iii) Deposit insurance facility of DICGC is not available for NBFC depositors
unlike in case of banks.

Initially, the NBFCs that are registered with RBI are:

 Equipment leasing company;

 Hire-purchase company;
 Loan company;
 Investment Company.

With effect from December 6, 2006 the above NBFCs registered with RBI have been
reclassified as
 Asset Finance Company (AFC)
 Investment Company (IC)
 Loan Company (LC)

Overview of NBFC Sector in India:

The following diagram depicts a brief snap of the structure of Non-Banking sector in

Non-banking financial companies (NBFCs) have seen considerable business model

shift over last decade because of regulatory environment and market dynamics.

In the early 2000s, the NBFC sector in India was facing following problems:

1. High cost of funds

2. Slow industrial growth
3. Stiff competition with NBFCs as well as with banking sector
4. Small balance sheet size resulting in high cost of fund and low asset profile
5. Non-Performing Assets

Majority of NBFCs were not able to face the pressure created on and were wiped
out. However, since FY2001-2002, there has been significant improvement in the
business model of existing NBFCs with improvement in overall business
environment. NBFCs have been able to expand their resource profile by diversifying
the funding avenues. Further a strict control on asset quality and overheads, coupled
with use of innovative borrowing tools such as securitization has resulted in improved
profitability of NBFCs.But the recent developments in the world financial market have
posed a great challenge to the survival of NBFCs. The companies in this sector have
to formulate new strategies to survive in this rapidly changing market.

Apart from mergers, other options waiting for NBFCs are to change the tracks and
explore new areas. They have to extend their product portfolio to include asset
management companies, housing finance firms and to venture into newly opened
insurance sector for private participation. Examples of such initiatives are launch of
associate company of Sundaram Finance to disburse housing loans, which has been
the domain of HDFC and LIC Housing Finance. Entry of Kotak Mahindra Finance
Limited, Sundaram Finance and Lakshmi General Finance into the insurance
business is another example. In the medium term most NBFC's are looking at
developing niche areas and concentrating on fee based income to offset the loss in
fund based activities. Examples include the move of Ashok Leyland Finance to
launch a finance portal that would be used to sell products of other financial
intermediaries and to use its skill in collection to derive a pure service income. The
benefits of such horizontal integration would be a diversification of the company's
revenue stream which goes with the old saying of putting one's egg in different

In the market of retail finance and financial loans, in order to beat the competition,
NBFCs have to increase the quality of their service which is described as the
convenience offered to the customer in terms of speed, accuracy and product
features. Investors in future will also be looking for certain qualitative details like
reputation of the management and the financial track record of the NBFC before they
invest their monies. NBFCs stands a good chance to succeed as they have an
advantage of being lower in operating cost as compared with other financial
intermediaries because of their small size, efficient operation and fast decision
making. NBFC's aggressive collection mechanism and lower proportion of big
corporate loans gives them an edge in containing risk and also results in fewer
amounts of NPAs which is critical in the financial sector.

The role of NBFCs has become increasingly important from both the macroeconomic
perspective and the structure of the Indian financial system. Over a period of time,
one has to accept; that it is only those which are big enough and serious about being
in the finance business will and must grow, survive and constantly grows, NBFCs
have to focus on their core strengths while improving on weaknesses. They have to
constantly search for new products and services in order to remain competitive. The

coming years will be testing ground for the NBFCs and only those who will face the
challenge and prove themselves will survive in the long run.

Recent Developments:

Total number of NBFCs registered with the Reserve Bank, consisting of NBFCs-D
(deposit-taking NBFCs), RNBCs, and mutual benefit companies (MBCs),
miscellaneous non-banking companies (MNBCs) and Nidhi companies, declined
from 12,968 at end-June 2007 to 12,809 at end-June 2008. The number of NBFCs-D
declined from 401 at end-June 2007 to 364 at end-June 2008, mainly due to the exit
of many NBFCs from deposit taking activity. The number of RNBCs declined to two
at end-March 2008.

Of the 364 deposit-taking NBFCs, 335 NBFCs filed annual return for the year ended
March 2008 by the cut-off date of September 30, 2008. Even though the public
deposits declined by Rs.304 crore in 2007-08 over the previous year, partly reflecting
the decline in number of reporting NBFCs, total assets increased significantly by
Rs.23,019 crore (32.1 per cent), while net owned funds increased by Rs.3,974 crore
(48.0 per cent) during the same period (Table VI.14). The rise in total assets and net
owned funds reflected partly the restoration of IFCI Ltd. and TFCI Ltd. to the NBFC
category. The share of public deposits held by RNBCs in the total deposits of all
NBFCs remained constant at 91.6 per cent in 2007-08 as compared with 2006-07.
However, the share of RNBCs in total assets of NBFCs declined to 25.8 per cent at
end-March 2008 from 32.3 per cent at end-March 2007.

The ratio of deposits of reporting NBFCs to the aggregate deposits of scheduled

commercial banks dropped to 0.73 per cent at end-March 2008 from 0.92 per cent at
end- March 2007 mainly due to the decline in deposits of reporting NBFCs. The
share of NBFC deposits in broad liquidity aggregate also declined during the period.

Entry Barriers:

The Reserve Bank of India on 2nd June 2008 asked non-deposit taking NBFCs to
raise the minimum Capital to Risk-weighted Assets Ratio (CRAR) from 10% now to
12% with immediate effect and further to 15% with effect from April 1, 2009.
NBFCs operate almost like banks, except for running a checking account, or
accounts, where money can be easily withdrawn by writing checks, or using a debit
card. Although the capital adequacy norm for NBFCs is higher than what is required
for a regular bank, they do not have any statutory liquidity ratio (SLR)—the amount of
money banks are required to invest in government bonds— and cash reserve ratio
(CRR)— the amount of money banks are required to keep with RBI—requirements.

The following guidelines are provided by RBI for a company venturing into NBFC

• A minimum net owned fund (NOF) of Rs. 2 crore

• A minimum investment grade Credit Rating from CRISIL, CARE, ICRA, Fitch

• Maximum rate of interest offered on deposit is 11%

• Minimum duration of deposit is 1 year while the maximum is 6 years.

Besides these regulations, there are several other regulations imposed by RBI on
NBFC like exposure norms, corporate governance requirement, NPA and
provisioning for bad debts, statutory audit as per RBI guidelines, transfer of certain
amount of profit to reserves and others.

Some of the important regulations relating to acceptance of deposits by NBFCs are

as under:

• The NBFCs are allowed to accept/renew public deposits for a minimum period
of 12 months and maximum period of 60 months. They cannot accept
deposits repayable on demand.

• NBFCs cannot offer interest rates higher than the ceiling rate prescribed by
RBI from time to time. The present ceiling is 11 per cent per annum. The
interest may be paid or compounded at rests not shorter than monthly rests.
• NBFCs cannot offer gifts/incentives or any other additional benefit to the
• NBFCs (except certain AFCs) should have minimum investment grade credit
• The deposits with NBFCs are not insured.
• The repayment of deposits by NBFCs is not guaranteed by RBI.
• There are certain mandatory disclosures about the company in the Application
Form issued by the company soliciting deposits.

Company Analysis:

Company Profile:

Indiabulls Group is one of the top business houses in the country with business
interests in Real Estate, Infrastructure, and Financial Services, Retail, Multiplex and
Power sectors. Indiabulls Group companies are listed in Indian and overseas
financial markets. The Networth of the Group exceeds USD 2 billion. Indiabulls has
been conferred the status of a “Business Superbrand” by The Brand Council
Superbrands India.

Indiabulls Financial Services is an integrated financial services powerhouse providing

Consumer Finance, Housing Finance, Commercial Loans, Life Insurance, Asset
Management and Advisory services. Indiabulls Financial Services Ltd is a registered
Non-Banking Financial Corporation. Indiabulls Financial Services Ltd is amongst 68
companies constituting MSCI - Morgan Stanley India Index. Indiabulls Financial is
also part of CLSA’s model portfolio of 30 Best Companies in Asia. Indiabulls
Financial Services signed a joint venture agreement with Sogecap, the insurance
arm of Societé Generale (SocGen) for its upcoming life insurance venture. Indiabulls
Financial Services in partnership with MMTC Limited, the largest commodity trading
company in India.

Today it enjoys a leading position in finance and real estate services in India.
Presently its expanse includes around 640 branches and over 4.5 Lacs

customers. Indiabulls Financial Services Ltd. has listings in National Stock Exchange
(NSE), Bombay Stock Exchange (BSE) and Luxembourg Stock Exchange. The net
worth of Indiabulls in the present financial year is 510 million US Dollars. Some of the
largest financial institutions like Fidelity Funds, Goldman Sachs, Merrill Lynch,
Morgan Stanley, and Farallon Capital are the majority shareholders.

Company History:

Indiabulls Financial Services Limited was incorporated on January 10, 2000 as M/s
Orbis InfoTech Private Limited at New Delhi under the Companies Act, 1956 with
Registration No. 55 - 103183. The name of Company was changed to M/s. Indiabulls
Financial Services Private Limited on March 16, 2001 due to change in the main
objects of the Company from InfoTech business to Investment & Financial Services
business. It became a Public Limited Company on February 27, 2004 and the name
of Company was changed to M/s. Indiabulls Financial Services Limited.

The Company was promoted by three engineers from IIT Delhi, and has attracted
more than Rs.700 million as investments from venture capital, private equity and
institutional investors such as LNM India Internet Ventures Ltd., Transatlantic
Corporation Ltd., Farallon Capital Partners, L.P., R R Capital Partners L.P., and
Infinity Technology Trustee Pvt. Ltd. and has developed significant relationships with
large commercial banks such as Citibank, HDFC Bank, Union Bank, ICICI Bank,
ABN Amro Bank, Standard Chartered Bank, Lord Krishna Bank and IL&FS.

The Company and its subsidiaries have facilities from the above mentioned banks
and financial institutions aggregating to Rs. 1760 million. The Company headquarters
are co-located in Mumbai and Delhi, allowing it to access the two most important
regions for Indian financial markets, the Western region including Mumbai, rest of
Maharashtra and Gujarat; and the Northern region, including the National Capital
Territory of Delhi, nearby cities, parts of Haryana, Uttar Pradesh and Punjab; and
access the highly skilled and educated workforce in these cities. The Marketing and
Sales efforts are headquartered out of Mumbai; with a regional headquarter in Delhi;
and its back office, risk management, internal finances etc. are headquartered out of
Delhi, allowing the company to scale these processes efficiently for the nationwide

IBFSL fixes an issue price of Rs. 19 per share for its IPO which was oversubscribed
18.5 times. The response was quite impressive from all categories of investors. The
book was finally subscribed 18.5 times with over 1.3 lakh bids. The institutional
portion was subscribed more than 12 times, the retail portion 25 times and the non-
institutional portion 24 times.

Source: Religare Technova

Listing Details - Indiabulls Financial Services

Key Dates
Year Ending Month Mar
AGM Date (Month) Sep
Book Closure Date (month) Aug/Sep


• Indiabulls Housing Finance Ltd

Indiabulls Housing Finance Limited provides home loans and loans against
property. The company also offers plot loans and loans against residential,
commercial, and rental property.

The company is headquartered in New Delhi, India. Mr. Gagan Banga is the
Director of the company.

• Indiabulls Credit Services Ltd

Indiabulls Credit Services, Ltd. operates as a financial services company in

India. It offers personal loans, and broking and financial services. The
company is based in New Delhi, India with additional offices in Chandigarh,
Ludhiana, Amritsar, and Ambala in India.

Mr. Amit Talgeri is the chief operating officer of the company.

• Indiabulls Commercial Credit Ltd

Indiabulls Commercial Credit Services Ltd offers commercial credit loans and
Business Loans for the customers. The company is based in New Delhi, India.

Products and Services Offered:

• Home Loan:

Home loans by Indiabulls can be availed for

 Purchasing a already constructed house/flat
 Purchasing a residential plot
 For re-financing existing loans taken from other banks or housing
finance companies.
The minimum amount that can be availed is Rs. 5 Lakhs. Loan against
property is provided against:
 Residential,
 Commercial and
 Rental properties
• Commercial Vehicle Loan:

Indiabulls Commercial Vehicle Loans offers commercial auto loans to a variety

of business owners. The Commercial Vehicle Finance provided by us helps
the small and medium operators to acquire vehicles with minimum hassle and
documentation. We provide customized financing options to suit your needs.

• Business Loans:

IBFSL also provides SME loans for the budding entrepreneurs as well as the
established partnership firms and pvt. Limited Companies.

The key features of Business Loans can be summed up as follow:

 Attractive interest rates

 Monthly repayment mode ranging from 12 to 48 months

 Borrow from Rs. 5 Lacs to Rs. 50 Lacs

 Speedy loan approvals.

Apart from the above mentioned services, the company also offer services like
loan against property, commercial credit loan, loan against shares, and
insurance distribution.

Top Competitors:

The financial services industry in India is very competitive with the presence of some
very good brand names in the domain. The competition is quite tough here.

The top competitors of the company are:

1. Reliance Capital Ltd.

2. Mahindra Financial Services Ltd.

3. Religare Enterprises Ltd.

4. Motilal Oswal Financial Services Ltd

5. India Infoline

Updates on New Business Ventures

Indiabulls Societe Generale Life Insurance Company Ltd

• Company expects Life Insurance Business to be a key growth driver over the next
few years and is looking at making substantial investments to scale up the business
soon after completing the regulatory process.
• Company will leverage on its strong capital base and large distribution strength to
rapidly gain market share.
• Licensing process is expected to be completed in CY2009. The global market
slowdown had caused uncertainty in the environment and resulted in delay in
regulatory approvals. The company now expects to complete the approval process
over the next 6 months.
• Appointment of Key Management Personnel has been completed.
• Set up of Project Management Office, key vendors and technology providers has
also been completed.

International Multi Commodity Exchange Ltd

• The national level multi commodity exchange being set up as a joint venture
between Indiabulls Financial Services Limited and MMTC will go live by end of July
• In line with the Government ownership guidelines, entire paid-up capital of Rs 100
crore has been subscribed by IBFSL (40%), MMTC (26%), Indian Potash Ltd (10%),
and Others (24%)
• Recognition of the exchange from Forward Markets Commission expected shortly.
• Technology platform for the exchange including network infrastructure is at
advanced stage of completion and membership campaign is underway.
• Exchange has identified about a dozen contracts in the first phase comprising
bullion, agro and base metals and energy with strong delivery support

Share Holding Pattern:

Promoters 29.72
Institutional Investors 27.32
Private Corporate Bodies 1.89
NRI's/OCB's/Foreign Others 16.19
General Public 6.98
Others 17.9

Dividend Policy of the company:

Source: Money.Rediff.com
Audited Consolidated Financial Results for the year ended March 31, 2009:

Source: indiabulls.com

These are the key highlights of the annual results shown above:

Year ended March 31, 2009 compared to Fiscal Year ended March 31, 2008

• Consolidated Total Revenues up 18.8% to Rs. 2,005.8 crore in FY 09 from Rs.

1,688.8 crore in FY 08
• EBITDA before extraordinary items (i.e. excluding Profit / (Loss) on sale of
investment) up 34.9% to Rs. 1,445.9 crore FY 09 from Rs. 1,071.6 crore in FY 08
• Operating Profit down 41.1% to Rs. 430.49 crore in FY 09 from Rs. 731.3 crore in
FY 08
• Consolidated Profit After Tax down 81.8% to Rs. 105.9 crore in FY 09 from Rs
580.6 crore in FY 08
• Consolidated Net-worth of Rs 3,529.9 crore, as compared to Rs. 3,500.8 crore of
consolidated net worth on March 31, 2008.
• Total outstanding & serviced loans as on March 31, 2009 were Rs. 8,931.9
crore compared to total outstanding & serviced loans of Rs. 10,441.0 crore as
on March 31, 2008

• Average annualized yield on Rs. 8,931.9 crore outstanding and serviced portfolio is
• Gross NPAs of Rs 142.5 crore which represents 1.60% of the total loan portfolio.
The vast majority of Delinquency and Credit costs are driven by the small-ticket
personal loan business which is in run-off mode. Total outstanding small ticket
personal loans were Rs. 161.8 crores as on March 31, 2009 which constitutes about
1.8% of the current loan portfolio as compared to Rs. 383.5 crores as on March 31,
2008 which constituted 3.7% of the then portfolio

The following graph shows the Borrowing Profile of the company:

Source: indiabulls.com

Analysis of Key Ratios:

1. Earnings Per Share(EPS):

EPS means the portion of a company's profit allocated to each outstanding

share of common stock. Earnings per share serve as an indicator of a
company's profitability.

Calculated as:

EPS is generally considered to be the single most important variable in

determining a share's price. It is also a major component used to calculate the
price-to-earnings valuation ratio.
In case of the scrip IFSL, the EPS over the years has been quite healthy as
compared to other financial services companies.

The EPS for the company has been better than the rival like M&M Financial
services Ltd. but last year the income of the company saw a significant decline
with the last quarter of FY 2008 being the worst of the lot.

During this period the Basic EPS of the company saw a decline of more than
55% from the level of 15.08 to 6.78 as on March 31st 2009. The decline in EPS
can largely be contributed to more than 53% decline in sales of the company
in the last quarter of FY 2008 itself from Rs. 544.83 Cr to Rs.253.60 Cr.

This is a significant decline when we compare the performance of the

company with other financial services giants like M&M Financial Services and
Reliance Capital Ltd. both of which registered more than 250% growth in EPS
during the last quarter of FY 2008.

This happened mainly because of the fact that while the sales figure and
hence the operating profit of the two competitors went up, IBFSL registered a
negative growth in the sales while the operating profit was down by as high as

2. Dividend-Payout Ratio:

The Dividend-Payout ratio means The percentage of earnings paid to

shareholders in dividends.
It is calculated as:

The payout ratio provides an idea of how well earnings support the dividend
payments. More mature companies tend to have a higher payout ratio.

The Dividend-Payout Ratio, as per the company’s financial results published for the
period of 31st March, 2009 stood at 29.5%. This is a major decline from the earlier
figure of 56.36% in the FY 2007. There are mainly two reasons behind this decline in
the DPR.

The first reason obviously is decline in the dividend announced by the company. Last
year, the company had announced a dividend of 425% on the face value of the
share, that means a dividend of Rs. 8.5 per share but this year the dividend
proposed in the annual report is 100% on the face value of the share and that means
a dividend of Rs. 2 per share.

Secondly, the income has been affected because of the liquidity crunch faced by the
financial companies all over the world. The companies parked its surplus money in
fixed deposits and banks instead of going for mutual funds that could have yielded
high interests but were risky also. This brought down the income earned from the
interest significantly that was reflected on the Dividend-Payout ratio.

Despite this fact, the Dividend-Payout ratio of the company is higher than rival
companies in the market. While M&M Financial Services had a DPR of 28.8% last
year the DPR was a meagre 15.41% for Reliance Capital and the company score
over these two rivals in this aspect. This can be attributed to the fact that while last
year M&M Financial Services offered a dividend of 45% and Reliance Capital 55%,
IBFSL offered a dividend of 425% far greater than its competitors. This year too, the
company offered 100% dividend while M&M Financial Services offered 55% and
Reliance Capital 65% dividend.

3. P/E Ratio:

P/E ratio is a valuation ratio of a company's current share price compared to its per-
share earnings.
Calculated as:

EPS is usually from the last four quarters (trailing P/E), but sometimes it can be
taken from the estimates of earnings expected in the next four quarters (projected or
forward P/E).

In general, a high P/E suggests that investors are expecting higher

earnings growth in the future compared to companies with a lower P/E. However, the
P/E ratio doesn't tell us the whole story by itself. It's usually more useful to compare
the P/E ratios of one company to other companies in the same industry, to the
market in general or against the company's own historical P/E. The P/E is
sometimes referred to as the "multiple", because it shows how much investors are
willing to pay per dollar of earnings.

The P/E ratio of IBFSL for the last FY (2007-08), which means at the end of 31 st
March, 2008 was 18.08% while for the FY ended March 31st, 2009 it was 28.28%. It
is quite higher than its competitors like Reliance Capital Ltd, Motilal Oswal Finance,
and M&M Financial Services Ltd which have P/E ratios in the range of 10-12% for
the FY 2009 but the bigger cause of concern for the company is that while all the
three companies mentioned above have increased their EPS by increasing their Net
Income, the Net Income of IBFSL has dropped significantly. So, even the higher P/E
ratio does not improve the fundamental situation of the company until it returns to a
higher growth trajectory than its rivals. At this time, the P/E ratio should be even
better also because of the fact that the scrip has not been able to capitalise on the
current market rally as much as the rivals did.

4. PEG Ratio:

PEG ratio is used to determine a stock's value while taking into account earnings
growth. The calculation is as follows:

PEG is a widely used indicator of a stock's potential value. It is favoured by many

over the price/earnings ratio because it also accounts for growth. Similar to the
P/E ratio, a lower PEG means that the stock is more undervalued.

The PEG ratio for the company is not impressive because of the negative growth in
the EPS from last year. The annual (Basic) EPS growth is – 85.98% and that itself
tells the whole story. The PEG ratio for the company for this FY comes out to be –
32.89% and this represents a very grim picture of the company as most of its rivals
have registered some amount of positive growth in EPS.



Share Price Movement on Yearly Basis:

Support Level Resistance


Year High: Rs. 374.25, Date-17/06/2008 Resistance Level: Rs.120

Year Low: Rs. 85.05, Date- 06/03/2009 Support Level: Rs. 92

Though the scrip is trading above resistance level because of huge rise in the price
after the election results were announced, these levels indicates the trend for the
past months.

High Low Close

The scrip used to show a good amount of variations when the prices were in the
range of Rs. 300-400 but as the price dipped the intraday variations also went down,

making the share less volatile but not too good for the stock brokers who are
interested in generating brokerage. In recent times, the scrip also showed an unusual
trend. The share used to open at a level of 5% higher and the upper circuit was
applied for the rest of the day. The variations have come down significantly.

Historical Data Analysis of the scrip: Indiabulls Financial Services Ltd.

We are taking the figure for the last 20 months, that is, from October 2007, to May

For the sake of convenience we have divided the whole period into three major

Pre-Recession Period; when the economy was booming and there was an
unprecedented rise in the sensex as well as the share prices of almost all the stocks.

Recession Period; this was the time when market reached its peak and the FII
started pulling their money back from the system that resulted in tremendous
downfall in the market.

Finally, the post-recession era; when the Indian economy started showing signs of
recovery from global turmoil because of the various Monetary and Fiscal measures
taken by the government.

Pre-Recession Period:

This was the time when everything was going very smoothly in the share market.
Because of the high inflow of Foreign Investment (Both in terms of FII and FDI), the
economic activity was reaching to an unprecedented high. The experts had very high
opinion about the economy and their expectations were also very bright. We named
it pre-recession period because the impact of recession on the Indian economy was
not visible at that time.

On October 1st, the SENSEX closed at 17328.62 up by 37.52 points from the
previous close, a rise of 0.21%; and the share price of Indiabulls Financial Services
Ltd closed at Rs. 616, up by 17.4, a rise of 2.9%.

Now, let’s see the graph of the share prices of Indiabulls Financial Services Ltd
(IBFSL) for the period of October 2007 to December 2007.

The trend for this quarter is clear from the graph. The share price of the company
reached a new level of Rs. 1000 during this period thanks mainly to the huge
investment by FIIs, good liquidity and positive sentiment in the market. But the prices
were highly volatile during this period with the average range of the share price
movement (difference between intra-day high and intra-day low) was as high as
54.23 with the standard deviation of 24.45 during this quarter. The prime factor
behind this was that the market as well, was quite volatile during this period which
was mainly because of the uncertain nature of the foreign investors in the stock
market. The resistance and support level can be misleading because of the
unpredictability in the way the share behaved during that period. The net inflow of
foreign investment was positive in October and December, whereas it was negative
in the month of November.

Resistance Level: Rs. 830 Support level: Rs. 690


The above two graphs clearly shows the kind of influence the FIIs have on the Indian
Stock market. The market is primarily driven by the FIIs and they capitalize on this
fact. To get the more clear understanding of the behaviour of this stock, we will do
monthly analysis.

Charting for the month of October 2007:


In the first 10 days the share price didn’t show much movement because of relatively
stable market and continuous net inflow of foreign investment but the stock price
declined by more than 20% in just 3 trading session (16 Oct-18 Oct) because of
heavy outflow of cash from the market. This shows that the scrip is heavily correlated
with the activity of the institutional investors and the movement of foreign money in
the stock market as well as the speculation in the consumers’ mind determines the
stock price of this scrip. In the latter part of the month the share showed steadily
movement thanks to the positive sentiment and the overall good economic indicators

surfacing at that time. The month High figure was Rs. 717.15 on 30/10/2008 while
the month low figure was Rs. 498 on 18/10/2008. The support level for this period
was 588 whereas the resistance level was at 638.

Charting for the month of November 2007:

The scrip showed the same trend of being stable in the first 10-13 days of the month
with the average trading price remained at the level of sub 700. The stock suddenly
picked up and showed an upward movement of almost 21% from 14 Nov-19 Nov. It
also touched the 800 level during this rally and went to all time high of 836.9. Then
the price gradually came down again because of net negative outflow of the money
from the market. The month High figure was Rs. 836.9 on 19/11/2008 while the
month low figure was Rs. 682.8 on 01/11/2008. The support level was Rs. 693 and
the resistance level was Rs. 745 during this month.

Charting for the month of December 2007:

The share price touched a historical high of Rs. 1,000 on 27 th December and the
correction in the share was due. After the peak the share started showing signs of
correction. The support and the resistance level were Rs. 840 and Rs. 915

This concludes the analysis for the first part. Now, let’s analyse the market and the
corresponding performance of the scrip in the year of financial crisis that is; in 2008.

When we look at the overall figure for the whole quarter, the impact of buoyant Indian
Financial Market is quite evident. The share started the quarter at the level of Rs.
600 and at the end of the quarter the share price was at Rs. 976.05, an increase of
more than 62%. This is a mind-blowing figure especially because of the fact that the
share outperformed the market quite considerably as the growth in the market for the
same period was 14.58%. This was the most opportune time to invest in the market
and that’s why this was considered as the pre-recession period.

Performance of BSE and IBFSL in the Recession Period:

For the analysis, the 14 month-period from January, 2008 to February, 2009 has
been taken as Recession period because this was the time when the impact of
recession was most severe on the Indian economy and the period saw a huge
correction in the market as well as the price of many overvalued share. Though the
Indian economy has not recovered from the recession yet but the several economic
indicators have started showing positive signals in the last three months, which is

from March, 2009 with the sensex is on the road to recovery. The inflation (CPI) has
come down; IIP is showing signs of improvement in the industrial sector.

The year didn’t start too well for the scrip and though the market gained 341.69
points and continued its long rally, the scrip crashed by 260 points, more than 26% in
spite of the positive sentiment in the market at that time. The signs of global
slowdown were surfacing slowly but surely as the credit crunch in USA forced the
FIIs and other big players, who had invested a huge sum of money in the market;
started booking profit and drove their money back from the market. The SENSEX as
a result crashed from an all time high of 20873.33 on 8th January, 2008 to 8451.01 on
20th November, 2008. It was a tremendous decline of about 60% which was a result
of factors like Credit Crunch in the Global Market, Net sales by FIIs on a large scale
on a continuous basis throughout the year, high inflation rate at that time that
reduced the purchasing power of investors and the volatility in the market that made
the customers more and more apprehensive about the safety of their money. The
total outflow of the Foreign institutional investment was Rs.53,051.70 Crore (Source:
Moneycontrol.com) during this year and comparing this figure of net inflow of Rs.
70,940 Crore of FII in the previous year, one can easily see through the grave
situation. The share prices of many companies like ICICI Bank, DLF, Reliance
Communications Ltd. and others came down to a historic low. The fall of Wall Street
had a significant impact on the market and the economies world over felt the pinch.

The share price of IBFSL is very much positively correlated with the movement of the
market and it behaved in almost the same way as the market did during the whole
year. The scrip remained volatile so did the SENSEX. The share price of IBFSL
reached to Rs. 922 on 3rd January, 2008 and the successive fall in the market
brought the price back to Rs. 87 on 10th of October the same year, which was a fall of
more than 90% in a span of just 10 months. The price of the scrip started moving
upwards towards the end of the year thanks to the improvement in the consumer
demand and some signs of recovery in Indian Market.

Now, let’s take a close look at the movement of share prices of IBFSL in different
months of the year 2008.

Technical Analysis:
The main focus of our analysis will be the behaviour and movement of the share
price of IBFSL from March onwards. The current trends are the best tool to
understand the behaviour of the share in the short term. The following graph shows
the closing price of IBFSL from March to May 2009.


The share is recovering well for the last three months and is on a growth trajectory.
The announcement of election results on 16th May acted as a launching pad and the
scrip gained about 50% in a matter of just one week that followed. The coming
months will decide whether the bull phase in the scrip will contine or not.

Now, we use some technical tools to analyse the scrip for the last three months.

Bollinger Band Analysis:

Bollinger Bands are curves drawn in and around the price structure that define high
and low on a relative basis. The base of the bands is a simple moving average. A
measure of volatility, standard deviation, is used to set the width of the bands making
them fully adaptive to changing market conditions. The defaults are bands spread
above and below a 20-day simple moving average by two standard deviations.
Bollinger Bands are used in numerous ways. They can be used to aid chart pattern
recognition. They can be combined with other indicators to identify entry and exit

points. They can be used to identify areas of compression and to spot the ends of
extended moves.

The purpose of Bollinger Bands is to provide a relative definition of high and low. By
definition, prices are high at the upper band and low at the lower band. This definition
can aid in rigorous pattern recognition and is useful in comparing price action to the
action of indicators to arrive at systematic trading decisions.

The following graph shows the movement of share price of IBFSL from March 2nd to
June 19th, 2009 along with the Bollinger Band.

While analysing the historical price and volumes, a very interesting trend has been
seen in this scrip. The share has shown downward trends most of the times
whenever the volumes have been rising while the upward trend is led by relatively
less volume. This is quite critical as the volumes have been rising over the past few
days and the share has started showing downward movement already. Contrast this
to the fact that the volumes were quite low when the price of the share was moving
up the ladder. To put this into the numbers, when the price of the share rises to more
than 50% from a level of Rs. 145.8 to Rs. 220.45, the average volume for this 12
trading session was 2.47 Lakhs while when the rally stopped and the scrip lost about
8% in 6 trading session from 12th June; the average volume was 8.5 Lakhs.

This consequent rise in the volume, with the last two trading session registered
volume of more than 1.1 million, is indicating further downtrend in the prices. This
belief is further strengthened by the analysis of Bollinger Band over the past few
months. The Band is narrowing at the end of the month with the price of the scrip

touching the lower band. This gives an indication of movement out of the range of
Bollinger Band and probably the downward movement will be seen in the coming

Analyst’s Recommendation:

The price will come down for the week and the price will stabilise at the level of Rs.
158-160 for the week June 22nd – June 26th, 2009 and the surge in the prices will
be neutralised till the share reach to that level. But the share will quickly move
upwards after this. However, the Budget is going to be announced in two weeks that
is on 6th July, 2009 and the positive measures taken by the government might result
in significant improvement in the prices of the share.

MACD Analysis:

Moving Average Convergence Divergence (MACD) is a trend-following momentum

indicator that shows the relationship between two moving averages of prices. The
default MACD is represented as the difference between a 26-day and 12-day EMA of
the price. A 9-day EMA of the MACD, referred to as the signal (or trigger) line, is
plotted on top of the MACD to indicate buy/sell opportunities. Divergence, the
difference between the MACD and the signal, is also plotted as a histogram. The
MACD is most effective in wide-swinging trading markets.

The following graph shows the movement of share price of IBFSL from March
2nd to June 19th, 2009 along with the MACD.

Analyst’s Recommendation:

Over the last few days, the scrip is falling continuously and the MACD line is
justifying that trend as the line crossed down through the red line (signal line) on 4 th
June. The divergence between the lines has also not shown any signs of bottoming
out and the share might drop a bit before rising again in the week succeeding the
Budget. The correction would be to the level of Rs. 158-160 for the week June 22 nd to
June 26th, 2009 and then the price will pick up.

The government is considering to scrap the STT and that might push the positive
sentiment for the market as a whole and ultimately the share will benefit from that.
Therefore, the price of the share may see an upward revision in the budget week.

RSI Analysis:

The Relative Strength Index ("RSI") is a popular oscillator. It was first introduced by
Welles Wilder in an article in Commodities (now known as Futures) Magazine in
June; 1978.The Relative Strength Index (RSI) measures the price of a security
against its past performance in order to determine its internal strength (in an attempt
to quantify the security’s price momentum).

When Wilder introduced the Relative Strength Index, he recommended using a 14-
day Relative Strength Index. Since then, the 9-day and 25-day Relative Strength
Indexs have also gained popularity. The Relative Strength Index is a price-following
oscillator that ranges between 0 and 100. A popular method of analyzing the
Relative Strength Index is to look for a divergence in which the security is making a
new high, but the Relative Strength Index is failing to surpass its previous high. This
divergence is an indication of an impending reversal. When the Relative Strength
Index then turns down and falls below its most recent trough, it is said to have
completed a "failure swing." The failure swing is considered a confirmation of the
impending reversal.

Tops and Bottoms. The Relative Strength Index usually tops above 70 and bottoms
below 30. It usually forms these tops and bottoms before the underlying price chart.

Analyst’s Recommendation:

The RSI has reached to a level not seen since April 1, 2009 as the index has moved
up in the recent past from a much higher level but due to recent surge in the share
price since April could bring the index a bit down farther. Again, the tool is giving an
indication of slight correction before the upward movement of the share starts after
correcting to the level of Rs. 158-160.




The detailed study of the share of IndiaBulls Financial Services Ltd provided many
crucial things related to the behaviour of the share.

The Key Findings can be grouped as follow:

The scrip is positively correlated with the BSE sensex and the movement of the
sensex do affect the movement of the share.

Despite the positive correlation, the scrip could not keep up with the pace of sensex
in the recent times. This is because of the fact that there is circuit limit of 5% on the
scrip that restricts its sudden movement either side.

The scrip lost more than 75% of its value between mid August to mid October, 2008
and that was the worst phase for the share.

The investment in the share a year ago would have yielded a return of – 47.63%
which is quite lower than – 12.16% decline in the value of sensex.

Despite global slowdown that affected the Banking sector all over the world, the
Bankex is among the four sectoral indices that yielded a positive return of 7% on the
investment done a year ago. (1st June, 2008 – 29th May, 2009).

The BSE-PSU was the major gainer of 19.04% while the Realty index showed a
decline of 45.50%.

One of the major findings of the research was that despite the correlation of a
particular share with various indices, the share behaves in its own particular manner

and the correlation can lead to wrong calculations while investing or intra-day trading
in that particular share.

The news plays a very important role in deciding the movement of a share or the
sensex as a whole on a particular day.




The Indian stock market has recovered from the impact of recession and the
confidence of the investors and FIIs is restoring in the market again. The market has
seen the bottom phase and so did the share of IndiaBulls Financial Services Ltd.

The share will move upwards from here and there is strong possibility of it, crossing
Rs. 225 mark over the next three weeks. The overall positive sentiment in the market
could push the price of the share further. With the first quarter results for FY 2009
due to come in July that will definitely be better than the last quarter, the share of
IBFSL will definitely see an appreciation. The following action is recommended:

Current Price: Rs. 168.90 (24/06/2009)

Date: 26/06/2009:

Action: Buy

Target Price: Rs. 183

Stop Loss: Rs. 173

Week: 10th June – 10th August, 2009


Buy at the level of Rs. 180 and Sell at the level of Rs. 230



Portfolio Management : S. Kevin

Financial Management : I M Pandey

Financial Management : Dr. M Y Khan


• http://www.moneycontrol.com

• http://rbi.org.in

• http://nseindia.com

• http://bseindia.com

• http://www.indexmundi.com

• http://www.allbankingsolutions.com/Chronology-CRR-Rate-India.HTM

• http://www.economywatch.com/economy_2009/

• https://www.cia.gov/library/publications/the-world-factbook

• http://www.imf.org/external/pubs/ft/weo/2009

• http://www.country-data.com

• http://www.tradingeconomics.com/Economics/GDP-Growth.aspx?

• http://www.thehindubusinessline.com

• http://planningcommission.nic.in

• http://labour.nic.in

• http://indiabudget.nic.in

• http://indiabulls.com/