Rose Anns Biji

1622084
5 BBA F&A (A)

INVESTMENT ANALYSIS AND PORTFOLIO MANAGEMENT

CIA 3

INTRODUCTION
There are many sectors that are driving the growth of the Indian economy. Among them,
the two main sectors of the Indian Economy are the Banking sector and the Information
Technology sector. Therefore, I have decided to choose one stock from each of these
sectors (from the Bombay Stock Exchange of India (BSE)) in order to perform my
analysis. The chosen stocks would be among one of the major companies in their
particular sectors and thus I have decided to choose the stocks of Tata Consultancy
Services (IT Sector) and State Bank of India (Banking Sector) for this report.

Tata Consultancy Services

Tata Consultancy Services Limited is an Indian multinational information technology

service, consulting company headquartered in Mumbai, Maharashtra. It is part of the Tata
Group and operates in 46 countries. TCS is one of the largest Indian companies by
market capitalization. TCS alone generates 70% dividends of its parent company Tata
Sons. In April 2018, TCS became the first Indian IT company to breach $100 billion
market capitalization after its market capitalization stood at Rs 6,79,332.81 crore ($102.6
billion) in Bombay Stock Exchange. On 12 January 2017, N.Chandrashekaran was
elevated as the chairman for Tata Sons,

State Bank of India

State Bank of India (SBI) is an Indian multinational, public sector banking and financial
services company. It is a government-owned corporation headquartered in Mumbai,
Maharashtra. It is the largest bank in India with a 23% market share in assets, besides a
share of one-fourth of the total loan and deposits market. SBI provides a range of banking
products through its network of branches in India and overseas, including products aimed
at non-resident Indians (NRIs). As on 31 March 2017, Government of India held around
61.23% equity shares in SBI. The Life Insurance Corporation of India, itself state-owned,
is the largest non-promoter shareholder in the company with 8.82% shareholding.

FUNDAMENTAL ANALYSIS

ECONOMIC ANALYSIS
Since Tata Consultancy Services and State Bank of India are operating in the Indian
economy itself, their economic analysis would remain relatively the same

India has emerged as one of the fast growing major economy in the world as per the
Central Statistics Organisation (CSO) and International Monetary Fund (IMF) and it is
expected to be one of the top three economic powers of the world over the next 10-15
years, backed by its strong democracy and partnerships. India’s GDP is estimated to have
increased 6.6 per cent in 2017-18 and is expected to grow 7.3 per cent in 2018-19. India's
gross domestic product (GDP) at constant prices grew by 7.2 per cent in September-
December 2017 quarter as per the Central Statistics Organisation (CSO). Corporate
earnings in India are expected to grow by 15-20 per cent in FY 2018-19 supported by
recovery in capital expenditure, according to JM Financial. The tax collection figures
between April 2017 and February 2018 show an increase in net direct taxes by 19.5 per
cent year-on-year and an increase in net direct taxes by 22.2 per cent year-on-year.

Reforms are gradually paying off, as confirmed by the recovery in industrial production
and investment after several weak years. With capacity utilisation rising, corporate
earnings recovering and the recapitalisation of public banks, investment has revived.
Private consumption has suffered from the confidence and employment shocks associated
with demonetization.

Therefore, in short, growth is expected to increase and accelerate. Investment and

exports, supported by the smoother implementation of the new goods and services tax
(GST), are becoming major growth engines. Inflation will hover within the target band,
with upside risks reflecting rising oil prices and an increase in housing allowance for
public employees. The current account deficit will increase. Job creation in the formal
sector will remain sluggish, leaving the vast majority of workers in low-productivity,
low-paid activities. Fiscal and monetary policies are projected to remain broadly neutral.
The economy is rebounding after the transitory negative impacts of demonetisation and
GST.
INDUSTRY ANALYSIS

IT Industry – Tata Consultancy Services

India is the world's largest sourcing destination, accounting for approximately 55 per cent
of the US$ 185-190 billion market in 2017-18. The country's cost competitiveness in
providing Information Technology (IT) services, which is approximately 3-4 times
cheaper than the US, continues to be its Unique Selling Proposition (USP) in the global
sourcing market. The sector ranks second in India’s total Foreign Direct Investment
(FDI) share and has received US$ 30.82 billion of FDI inflows between April 2000 and
March 2018. India’s highly qualified talent pool of technical graduates is one of the
largest in the world and has a low-cost advantage by being 5-6 times inexpensive than
US.

The internet industry in India is likely to double to reach US$ 250 billion by 2020,
growing to 7.5 per cent of gross domestic product (GDP). The number of internet users in
India is expected to reach 730 million by 2020, supported by fast adoption of digital
technology, according to a report by National Association of Software and Services
Companies. Indian IT exports increased to US$ 126 billion in FY18 while domestic
revenues (including hardware) advanced to US$ 41 billion. Indian IT and BPM industry
is expected to grow to US$ 350 billion by 2025 and BPM is expected to account for US$
50-55 billion out of the total revenue.

India’s IT industry is increasingly focusing on digital opportunities as digital is poised to

be a major segment in the next few years. It is also currently the fastest growing segment,
growing over 30 per cent annually. Export revenue from digital segment already forms
about 20 per cent of the industry’s total export revenue as exports have grown at a CAGR
of 50.76 per cent to an estimated US$ 25 billion in FY18. Revenue from digital is
expected to comprise 38 per cent of the forecasted US$ 350 billion industry revenue by
2025.

Indian IT's core competencies and strengths have attracted significant investments from
major countries. The computer software and hardware sector in India attracted
cumulative Foreign Direct Investment (FDI) inflows US$ 29.825 billion from April 2000
to December 2017, according to data released by the Department of Industrial Policy and
Promotion (DIPP). Leading Indian IT firms like TCS, Infosys, Wipro and Tech
Mahindra, are diversifying their offerings and showcasing leading ideas in blockchain,
artificial intelligence to clients using innovation hubs, research and development centres,
in order to create differentiated offerings.
Banking sector – State Bank of India

Research expects bank credit (year-end) to surge to 8.0-9.0% in fiscal 2018, from 3.7% in
fiscal 2017, because of improving working capital demand; marginal pick-up in private
investments; higher government spending on infrastructure sector; improvement in
commodity prices, and better capital adequacy level due to the government's
recapitalisation plan. However, further growth will be arrested by poor asset quality, low
capital adequacy level of banks (especially for the public sector banks) and limitation on
the lending operations of a few public sector banks (PSBs) because of prompt corrective
action (PCA) framework.

Asset-quality pressures are likely to be intense throughout fiscal 2018, due to inadequate
recognition in the past, lower asset sales to asset reconstruction companies (ARCs)
during the year, and high slippage into NPAs, mainly from restructured standard
accounts.

Gross NPA (GNPA) of SCBs is expected to cross 10% in fiscal 2018, with PSBs' GNPA
at 14-14.5% and private banks GNPA at 3.7-4.2%. Though asset-quality concerns will
continue until fiscal 2019, GNPA might improve marginally, by 20-40 bps, because of
lower slippage from previous years and revised NPA resolution framework by the RBI to
support the deteriorating asset quality of banks.

CRISIL expects fiscal 2018 to be another year of weak profitability, due to higher NPAs,
continued high level of provisioning, and continuous interest rate cuts over the past few
quarters, which has impacted yields. Provisions will remain high, because of high
slippage and fresh provisioning. As a result, of the 21 PSBs, CRISIL expects some of
them to post losses or very low profits. Return on assets (RoAs) will remain in the
negative territory for PSBs, due to expected net losses by many PSBs. Their RoA is
expected to turn positive in fiscal 2019.

Overall, RoA of the banking industry is also expected to decline 5-10 bps during the
current fiscal from 0.3% in fiscal 2017. Hence, CRISIL expects the overall RoA of the
banking industry to be ~0.2% by the end of fiscal 2018; however, it will improve by 10-
15 bps in fiscal 2019 to 0.3-0.4%. The marginal improvement in the industry's RoA in
fiscal 2019 will be majorly because of PSBs' improved profitability during the next fiscal.
COMPANY ANALYSIS

Tata Consultancy Services

On analysis of the annual report for the year ended March 2018, one can gather the
following data. In its Q4 Result 2018, Tata Consultancy Services reported 5.7 per cent
jump in net profit at Rs 6904 crore in the March quarter of financial year 2018, above
street expectations. The company had posted a net profit of Rs 6,531 crore in the
December quarter of the FY18.

The company's current liabilities during FY18 stood at Rs 178 billion as compared to Rs
145 billion in FY17, thereby witnessing an increase of 22.9%. Long-term debt down at
Rs 540 million as compared to Rs 710 million during FY17, a fall of 23.9%. Current
assets rose 1% and stood at Rs 812 billion, while fixed assets rose 0% and stood at Rs
133 billion in FY18. Overall, the total assets and liabilities for FY18 stood at Rs 1,063
billion as against Rs 1,033 billion during FY17, thereby witnessing a growth of 3%.

TCS's cash flow from operating activities (CFO) during FY18 stood at Rs 251 billion on
a YoY basis. Cash flow from investing activities (CFI) during FY18 stood at Rs 29
billion on a YoY basis. Cash flow from financial activities (CFF) during FY18 stood at
Rs -269 billion on a YoY basis. Overall, net cash flows for the company during FY18
stood at Rs 13 billion from the Rs -27 billion net cash flows seen during FY17.

The trailing twelve-month earnings per share (EPS) of the company stands at Rs 135.2,
an improvement from the EPS of Rs 133.8 recorded last year. The price to earnings (P/E)
ratio, at the current price of Rs 1,975.0, stands at 13.9 times its trailing twelve months
earnings. The price to book value (P/BV) ratio at current price levels stands at 6.2 times,
while the price to sales ratio stands at 4.3 times. The company's price to cash flow (P/CF)
ratio stood at 13.6 times its end-of-year operating cash flow earnings.

Tata Consultancy Services Board of Directors recommended bonus issue of equity shares
in the ratio of 1 (one) Equity Share of Rs 1 each for every 1 (one) equity share of Rs 1
each held by the shareholders of the Company. Tata Consultancy Services Board of
Directors recommended a final dividend of 29 per equity share of Rs 1 each of the
Company which shall be paid/dispatched on the fifth day from the conclusion of the
Annual General Meeting subject to approval of the shareholders of the Company, TCS
informed in a filing to BSE.
State Bank Of India

India's largest bank by assets and third-largest by market capitalisation State Bank of
India (SBI) reported a standalone net loss of Rs 7,718.17 crore for the quarter ended 31
March 2018 as bad loan provisions doubled as compared to same quarter last year.

This was the biggest-ever quarterly loss reported by State Bank of India so far in the
history. On a sequential basis, SBI’s standalone net loss rose over three-fold to Rs
7,718.17 crore as against a standalone net loss of Rs 2,416.37 crore in the October-
December period of the financial year 2017-2018. State Bank of India has posted a
standalone net profit of Rs 2,814.82 crore in the comparable quarter of the financial year
2016-2017.

SBI reported a rise of 18.57% in the consolidated income to Rs 68,436.06 crore for the
January-March quarter of the financial year 2017-2018 versus a standalone income of Rs
57,720.07 crore in the corresponding quarter a year earlier. For the financial year ended
2017-2018, SBI’s standalone income grew by 23.08% to Rs 2,59,663.83 crore versus Rs
2,10,979.17 crore while on the consolidated basis SBI income saw a marginal growth of
0.95% to Rs 3,01,491.31 crore vs Rs 2,98,640.26 crore as for the FY17.

With two continuous quarters of losses, SBI posted a standalone net loss of Rs 6,547.45
crore in the financial year 2017-2018 as compared to a standalone net profit of Rs
10,484.1 in the corresponding quarter last year. In the reporting quarter, SBI standalone
provisioning rose by 139% to Rs 28,096.07 crore as against a provisioining of Rs
11,740.09 crore made in the same quarter a year before.

On the assets front, SBI’s gross NPAs (non-performing assets) surged to 10.91% of the
total gross assets at the end of 31 March 2018 as against 10.35% as at 31 December 2017
and 6.9% as at the end of 31 March 2017 while, on the other hand, net NPAs escalated to
5.73% at the end of 31 March 2018 versus 5.61% as at 31 December 2017 and 3.71% as
at 31 March 2017. In absolute terms, SBI’s gross NPAs crossed Rs 2 lakh crore mark for
the first time. As at the end of 31 March 2018, SBI’s gross NPAs were Rs 2,23,427.46
crore as compared to Rs 1,99,141.34 crore as at 31 December 2017 and Rs 1,12,342.99
crore as at the end of 31 March 2017.

Conclusion

After an in depth fundamental analysis with regards to these 3 factors, it is evident that
TCS is a better stock to invest in with far robust growth potential.
TECHNICAL ANALYSIS
In the constraint of time and resources, I decided to perform the technical analysis just on
the basis of a single tool which is the Simple Moving Average.

A moving average helps cut down the amount of "noise" on a price chart. We can look at
the direction of the moving average to get a basic idea of which way the price is moving.
If it is angled up, the price is moving up overall and if angled down, the price is moving
down overall

A moving average can also act as support or resistance. In an uptrend, a 50-day, 100-day
or 200-day moving average may act as a support level. This is because the average acts
like a floor (support), so the price bounces up off of it. In a downtrend, a moving average
may act as resistance; like a ceiling, the price hits the level and then starts to drop again.

Tata Consultancy Services

This particular chart showcases the share price of TCS and a 200 day simple moving
average. It is quite apparent that the share prices are on a rise. Furthermore, the moving
average is acting as a support which means price will reach the moving average curve
and then bounce back up again.
This table shows the percentage increase or decrease in the share prices of TCS over the
past few time periods:

As is very evident from the above table, the share price of TCS is growing at a very rapid
speed. Despite the short term loss, over the last 30 days, the TCS share price is up by
3.14%. Its performance was stellar over the course of the year and over the last one year,
TCS share price is up by a massive 65.94%.

TCS last traded price was up 1.2% to Rs 2,068.2 on the BSE. The total volume of shares
traded was 3.8 m. Whereas overall, the broader S&P BSE IT Index was up by 0.0% and
the benchmark S&P BSE SENSEX was at 38,090.6 (up 1.0%).

State Bank of India

This chart shows the volatility of the share price of the SBI stock and the 200 day Simple
Moving Average. There is much volatility in the stock prices with it fluctuating up and
down the graph. Furthermore, there is no clear cut trend on the moving average trend line
either. In the year 2016 and 2018, the moving average line served as a ceiling whereas in
the year 2017, it served as a floor. But the most recent data does suggest a downward
trend in the share prices and a moving average acting as a ceiling which means that the
share prices would hit this line and then fall down again.

This table shows the percentage increase or decrease in the share prices of TCS over the
past few time periods:

The gain or loss experienced by the SBI shareholders has been very erratic in nature
increasing the risk associated with these stocks. Over the past 30 days, there has been a
reduction in value by -1.49% which further increased to -4.77% in the past 2 weeks. The
performance of the stock over the year also has been mediocre only providing a growth
of a mere 6%.

Conclusion

With consideration on the Technical analysis, it is safe to say that it is better to invest in
TCS rather than SBI.

CONCLUSION
In this scenario, both the fundamental and technical analysis has arrived at the same
result. Thus, it can be inferred that the TCS shares are a much better stock to invest in
both regarding the short term and the long term periods.