SUMMER INTERNSHIP PROJECT REPORT

ON

“Fundamental & Technical Analysis

of
Hotel Sector”

SUBMITTED BY
GANESH MHADESHWAR
ROLL NO: 153

IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR

MMS - 2016-18

UNDER THE GUIDANCE OF

1
 Mr. Pradip Mitra & Mr. Nikesh Ruparel

VIVEKANAND EDUCATION SOCIETY’S INSTITUTE OF

MANAGEMENT STUDIES AND RESEARCH, MUMBAI

DECLARATION
I, Ganesh Mhadeshwar, student of Vivekanand Institute of Management Studies
and Research (VESIM) hereby declare that this project report titled
“Fundamental & Technical Analysis of Hotel Sector ” at Aditya Birla
Financial Services Group, carried out under the guidance of Mr. Nikesh Ruparel
at Aditya Birla Financial Services Group, is the record of authentic word
th th
carried out by me during the period from 4 April 2017 to 4 of July 2017.

Sign

Ganesh Mhadeshwar
MMS - FINANCE
Roll no: 153

2
 Batch 2016-18

CERTIFICATE

This is to certify that Mr. Ganesh Mhadeshwar has successfully completed

the project work titled
“Fundamental and Technical analysis of Hotel sector” in partial
fulfillment of requirement for the completion of Post-Graduation Course
as prescribed by the College of Management.

This project report is the record of authentic work carried out by him
during the period from
April th
4 rd
, 2017 to 4 July, 2017. He has worked under my guidance.

3
 Mr. Nikesh Ruparel Mr.Pradip Mitra
Senior Business Mentor Assistant Professor
Aditya Birla Financial Service Vivekanand Education Society’s
Institute of
Group,Mumbai Management Studies &
Research,Mumbai

Acknowledgement
I would like to express profound gratitude to my mentor Mr. Nikesh Ruparel,
Senior Business Mentor in Birla Sun Life Insurance, for his invaluable support,
encouragement, supervision and useful insights throughout this project. His
moral support and continuous guidance enabled me to complete my work
successfully.

I also take this opportunity to express a deep sense of gratitude for my mentor
Mr. Pradip Mitra for his exemplary guidance, monitoring and constant
encouragement throughout the course of this program. His constant support &
guidance helped me leverage the concepts learnt in class into practical
applications.

A special thanks to all those who supported and helped me to stay focused on
this Project & provided me with the constant motivation & encouragement for
perseverance. Successful Completion of this Project wouldn’t have been
possible without support of each one.

4
Certi

5
 INDEX PAGE

Sr. Content
Page No.
No.
1 COMPANY PROFILE 8

6
2 INTRODUCTION TO EQUITY 14
INTRODUCTION TO HOTEL
3
SECTOR

BASICS OF FUNDAMENTAL
4
ANALYSIS
5 VALUATION OF STOCKS
6 TECHNICAL ANALYSIS

LONG TERM TECHNICAL

7
ANALYSIS
SHORT TERM TECHNICAL
8
ANALYSIS
9 CONCLUSION
10 BIBLIOGRAPHY & REFERENCE

7
 Executive Summary

 This project is on ‘Equity research report of Hotel sector in India’ using

relative valuation approach. It gives you a global perspective on Hotel
industry followed by investment analysis of Hotel sector i.e both
Fundamental and Technical analysis.

 This report helps investors invest intelligently in various Hotel companies

in India. It aids you with appropriate selection of stocks based on
economic, financial and other qualitative and quantitative factors
affecting the respective companies. \

 For the valuation of stocks and determining their long term target prices
we have considered Large cap Hotel companies of 2016-2017FY with
market cap of more than 5000cr INR.

ï By successfully completing this project report, I have better

understanding of everything that can affect the stock’s value, including
macroeconomic factors (like the overall economy and industry
conditions) and company-specific factors (like financial condition and
management)

8
 COMPANY PROFILE

1.1Company Logo

1.2Mission And Vision

To consistently pursue investor's wealth optimization by:

 Achieving superior and consistent investment results.
 Creating a conducive environment to hone and retain talent.
 Providing customer delight.
 Institutionalizing system-approach in all aspects of functioning.
 Upholding highest standards of ethical values at all times.

Vision
To be leader and role model in a broad based and integrated financial services business.

1.3History Of Company
9
Established in 2000, Birla Sun Life Insurance Company Limited (BSLI) is a joint venture
between Aditya Birla Group, a well-known and trusted name globally amongst Indian
conglomerates and Sun Life Financial Inc. leading international financial services organization
from Canada. The local knowledge of the Aditya Birla Group combined with the domain
expertise of Sun Life Financial Inc. offers a formidable protection for its customer’s future.

With an experience of over 10 years, BSLI has contributed significantly to the growth and
development of the Life Insurance industry and currently ranks amongst the top 7 private Life
Insurance Company in the country.

Known from its innovation and creating industry benchmark, BSLI has several first to its credits.
It was the first Indian Insurance company to introduce “Free Look Period” and the same was
made mandatory by IRDA for all other Life Insurance Companies. Additionally, BSLI pioneered
the launch of Unit Linked Life Insurance plans amongst the private players in India. To establish
creditability and further transparency, BSLI also enjoys the prestige to be the originator of
practice to disclose the portfolio on monthly basis. These category development initiatives have
helped BSLI be closer to its policy holder expectations, which gets further accentuated by the
complete bouquet of Insurance products (viz. pure term plan, life stage products, health plan and
retirement plan ) that the company offers.

1.4Description Of The Insurance Sector.

10
Insurance in its current form has its history dating back until 1818, when Oriental
Life Insurance Company] was started by Anita Bhavsar in Kolkata to cater to the
needs of European community. The pre-independence era in India saw
discrimination between the lives of foreigners (English) and Indians with higher
premiums being charged for the latter. In 1870, Bombay Mutual Life Assurance
Society became the first Indian insurer.

At the dawn of the twentieth century, many insurance companies were founded. In
the year 1912, the Life Insurance Companies Act and the Provident Fund Act were
passed to regulate the insurance business. The Life Insurance Companies Act, 1912
made it necessary that the premium-rate tables and periodical valuations of
companies should be certified by an actuary. However, the disparity still existed as
discrimination between Indian and foreign companies. The oldest existing
insurance company in India is the National Insurance Company , which was
founded in 1906, and is still in business.

The Government of India issued an Ordinance on 19 January 1956 nationalizing

the Life Insurance sector and Life Insurance Corporation came into existence in the
same year. The Life Insurance Corporation (LIC) absorbed 154 Indian, 16 non-
Indian insurers as also 75 provident societies—245 Indian and foreign insurers in
all. In 1972 with the General Insurance Business (Nationalization) Act was passed
by the Indian Parliament, and consequently, General Insurance business was
nationalized with effect from 1 January 1973. 107 insurers were amalgamated and
grouped into four companies, namely National Insurance Company Ltd., the New
India Assurance Company Ltd., the Oriental Insurance Company Ltd and the
United India Insurance Company Ltd. The General Insurance Corporation of India
was incorporated as a company in 1971 and it commence business on 1 January
1973.
11
The LIC had monopoly till the late 90s when the Insurance sector was reopened to
the private sector. Before that, the industry consisted of only two state insurers:
Life Insurers (Life Insurance Corporation of India, LIC) and General Insurers
(General Insurance Corporation of India, GIC). GIC had four subsidiary
companies. With effect from December 2000, these subsidiaries have been de-
linked from the parent company and were set up as independent insurance

companies: Oriental Insurance Company Limited, New India Assurance Company

Limited, National Insurance Company Limited and United India Insurance
Company Limited.

1.5Different Location Operations Of The Company

 Registered Office:
One India bulls Centre Tower1,
16th Floor, Jupiter Mill Compound,
841, SenapatiBapatMarg,
Elphinstone Road,
Mumbai – 400013
 Head Office:
G Corp Tech Park,
5th & 6th Floor,
KasarWadavali, Ghodbunder Road,
Thane West – 400601
 Zonal Office:
15th Floor,
at R-Tech Park,
Off Western Express Highway,
Goregaon (East),
Mumbai – 400063

1.6Range Of Company Product

Sr. Product About the Product

12
No
1 Protection Solution
2 Health and Wellnes
Solution
3 Children’s future solution
4 Retirement Solution
5 Wealth With Protection
Solution
It helps in securing the family’s future in this
increasingly uncertain world and don’t leave their
dreams fate.
 BSLI Protector Plus Plan
 BSLI Future Guard Plan
 BSLI Easy Protect Plan
 BSLI Protect@Ease
Paln and ensure that you spend time with your loved
ones when they need the most rather that worrying
about medical expensis.
 BSLI Hospital Plus Plan
Give your child the freedom to pursue his/her real
passion by ensuring that you give him/her the right
financial support.
 BSLI Vision Star Plan
Plan your retirement well to build a good corpus
because during retired life, income stop but expenses
don’t.
 BSLI Empower Pension Plan
 BSLI Immidiate Annuity Plan
 BSLI Empower Pension-SP Plan
Secure your family’s dreams and live through life’s
highs and lows with confidence while you reach your
financial milestones as planned.
 BSLI Wealth Max Plan
 BSLI Wealth Secure Plan
 BSLI Wealth Assure Plan
13

6 Savings with protection
solution
2.Introduction to Equity
 BSLI Fortune ElitePlan
 BSLI Wealth Aspire Plan
Strike the right balance between living comfortably
today and staying financialy secure in the future with
small disciplined savings at regular interval.
 BSLI vision money back plus plan
 BSLI vision life income plan
 BSLI vision endowment plan
 BSLI savings plan
 BSLI vision life secure plan
 BSLI income assured plan
 BSLI vision regular returns plan
 BSLI vision endowment plus plan
 BSLI guaranteed future plan
 BSLI secure plus plan
14
What is equity?
In accounting and finance, equity is the residual claim or interest of the most junior
class of investor in assets after all liabilities are paid.

What is equity shares?

Equity share is the type of share which is hold by equity shareholders. Equity
shareholders are the owners of the company. They are the real risk bearers. They
may get dividend or they may not get dividend. They enjoy maximum voting
rights.

What is equity investment?

Equity investment generally refers to the holding and buying of shares on the stock
market by individuals and firms in anticipation of gains from dividend as the value
of stock rises.

How to invest in equity shares?

Investors can buy the equity shares from the primary and secondary market.
Purchase of shares from security market is primary purchase. And purchase of
shares from (IPO) is purchase from secondary market.

Why should one invest in equity?

If the person invests in equity then it provides maximum returns to the investor as
compared to other avenues of investment.
But while making an investment in equity, investor has to study them carefully.
And this can be done through analyzing of equity.
Equity shares can be analyzed through:
1. Fundamental analysis
2. Technical analysis

3. Introduction to Hotel
Industry

15
The travel and hospitality industry continues to be the sector, which
has largely profited from the fast growing economy of India. Though
FY09 had been through year with tourist inflow declining by 4%
YoY on account of economic slowdown and terror attack, it has
growth at CAGR of 13% in the past 5 years. Higher GDP growth,
rising income, demand supply mismatch and strong government
focus would continue to aid the industry.

India occupies 64th position among the 60 tourist destination in the

world. A flourishing economy helped boost demand for the industry.
To encourage the tourist sector, the government is planning to
propose a conditional 10 year tax holiday for all tourism projects in
the country. Companies will enjoy full tax exemption up to 50% of
profits, but will qualify for tax benefits for the remaining amount
only if they re invest it in tourism projects. The centre and states are
also working out a PPP model to increase hotel capacity. Efforts to
diversity tourist attraction by offering new product such as wellness
tourism, medical tourism and golf tourism are expected to have a
positive effect on both foreign tourist arrivals and domestic tourism.

The five star hotel segment has grown the fastest during the last five
year clocking a CAGR of 12% . Further this segment can be divided
into 3 sub segment namely Luxury, Business and Leisure . The
growth in this segment indicates the type of traveler coming into the
country.

16
 3.1 Key Points of Hotel Sector

Supply : Supply is catching pace. Metros will witness an oversupply situation after four
to five years.

Demand : Largely depends on business travellers but tourist traffic is also on the rise.
Demand normally spurt in the peak season between November and March.

Barriers to entry : High capital costs, poor infrastructure and scarcity of land especially in
the metros.

Bargaining power of suppliers. : Limited due to higher competition, especially in the

metros.

Bargaining power of customers : Higher in metro cities due to increasing room

supply.

Competition : Intense in metro cities , slowly picking up in secondary cities. Competition

has picked up due to the entry of foreign hotel chains.

17
 4.Basics of Fundamental Analysis

4.1 Introduction to Fundamental Analysis

It is a method used to evaluate a security that entails attempting to measure its

intrinsic value by examining related economic, financial and other qualitative and
quantitative factors.

Fundamental analysis is about using real data to evaluate a security's value.

Although most analysts use fundamental analysis to value stocks, this method of
valuation can be used for just about any type of security. It assumes that over the
long term, a stock price will reflect the company's intrinsic value.

The Fundamental analyst attempt‟s to study everything that can affect the
security's value, including macroeconomic factors (like the overall economy and
industry conditions) and company-specific factors (like financial condition and
management).

An investor, for instance can perform fundamental analysis on a bond's value by

looking at economic factors, such as interest rates and the overall state of the
economy, and information about the bond issuer, such as potential changes in
credit ratings. For assessing stocks, this method uses revenues, earnings, future
growth, return on equity, profit margins and other data to determine a company's
underlying value and potential for future growth.

It is critical for an investor to separate the daily short term noise in the stock prices
and concentrate on the underlying business performance. Over the long term, the
stock prices of a fundamentally strong company tend to appreciate, thereby
creating wealth for its investors. The end goal of performing fundamental analysis
is to produce a value that an investor can compare with the security's current price,
18
with the aim of figuring out what sort of position to take with that security
(Undervalued = buy, Overvalued = sell).

Growth is also considered as an important factor in the fundamental analysis

because if the security does not grow or if there is a negative growth (loss making
company) then irrespective of whether it is an overvalued or undervalued security,
there is no point in analyzing it further for fundamental analysis.

In case of stocks, Undervalued stocks can be considered for further analysis only if
they grow Year On Year. The undervalued securities with positive Year On Year
growth are considered as Value Picks.
Overvalued stocks can be considered for further analysis only if their P/E growth
ratios (also known as PEG ratios) lie between 0 and 1 including those having P/E
growth ratio near or equal to 1. Such overvalued stocks are known as Growth
Picks.
Fundamental analysts focus on the underlying business of the company being
evaluated and specifically look at quantitative measures such as:
 Revenues
 Earnings
 Assets
 Debts

These financial measures are often combined to produce fundamental or financial

ratios that analysts can use to compare the company they are analyzing to:
 Other companies in the same industry
 The overall market
 Previous periods results for the same company.

Analysts use a variety of ratios to compare the two companies or the stocks of the
two companies like Net Income margin, ROE, Debt to Equity ratio, etc. The ratios
used for comparison vary from sector to sector.

19
I.1 Advantages of Fundamental Analysis
 It uses sound mathematical and statistical principles to produce ratios
so that there is no room for personal bias.

 The markets are usually driven by fundamental factors over the long
term. Fundamental analysis can look at long-term economic,
demographic, technologic or consumer trends.

 By determining an intrinsic value, fundamental analysts can determine

appropriate buy prices that represent 'good value'.

 Research into fundamentals provides the investor with a better

understanding of the company and its business.

I.2 Disadvantages of Fundamental Analysis

 Fundamental analysis can be hard work and be overly complicated.
Given the time and difficulty constraints, it may be difficult to get an
edge
 In the short term, markets will not always move in the same direction
as fundamental value meaning that often short term momentum will
override the fundamentals

 Six monthly issuing of financial information may mean a company's

fundamentals have significantly changed and means a time lag for
investment decisions. This applies especially to a lack of opportunity to
react quickly to exit stocks

20
  Fundamental analysis for future estimated value can only be based on
assumptions so a best and worst case valuation model may need to be
considered.
 No valuation model can take into account any unexpected negative
economic, political or legislative changes.

5. Valuation of Stocks
5.1 Relative valuation approach

• A relative valuation model is a business valuation method that compares

a firm's value to that of its competitors to determine the firm's financial
worth.

• Investors may use relative valuation ratios such as price to free cash flow,
return on equity, operating margin, price-to-sales (P/S) to determine
whether a company's stock is a good buy.

• One of the most popular relative valuation multiples is the price-to-

earnings (P/E) ratio. It is calculated by dividing current stock price by
earnings per share (EPS).

• A company with a higher P/E ratio than sectorial P/E is trading at a

higher price per rupee of earnings than its peers and is considered Over-
valued.

• Likewise, a company with a lower P/E ratio than sectorial P/E is trading
at a lower price per rupee of EPS and is considered Under-valued.

COMPANY NAME PRICE IN CRORE

INDIAN HOTELS 128.30

21
 EI H ASSOCIATIONS 135.65
INDIA TOURISM 603.70
DEVELOPMENT
MAHINDRA HOLIDAYS 582.20
TAJ GVK HOTELS 158.20
THE BYKE HOSPITALITY 189.60
ORIENTAL HOTELS 39.10
MAC CHARLES 494.00
20

5.2 Projection of LTPT

• For the projection of Long Term Price Target (LTPT) of stocks, we have
considered only large cap stocks from hotel sector (i.e. companies having
market capitalization more than 5000 crore INR) for investment purpose.

• Long term price target gives investor idea till which point he should hold
the share. Long term price target is product of sectorial P/E and EPS of
company. · Determining Under-valued /Over-valued stocks:

COMPANY PE RATIO EPS LTPT

NAME
INDIAN HOTELS 98.65 1.43 217.46

EI H 78.96 1.72 261.56

ASSOCIATIONS
INDIA TOURISM 434.29 1.39 211.38
DEVELOPMENT
MAHINDRA 40.56 14.38 2186.77
HOLIDAYS
TAJ GVK 95.82 1.65 250.91

22
HOTELS
THE BYKE 23.94 7.92 1204.39
HOSPITALITY
ORIENTAL 432.78 0.09 13.60
HOTELS
MAC CHARLES 20.58 2.4 3649.68

5.3 Value pick

• Under-valued stocks which show positive EPS growth with
respect to previous FY are considered to be Value-Pick stocks.

COMPANY NAME STATUS

INDIAN HOTELS UNDERVALUED

EI H ASSOCIATIONS UNDERVALUED
MAHINDRA HOLIDAYS UNDERVALUED
TAJ GVK HOTELS UNDERVALUED
THE BYKE HOSPITALITY UNDERVALUED
MAC CHARLES UNDERVALUED

5.4 Growth pick

• Rather than rejecting Over-valued stocks for your portfolio
completely, some Over-valued stocks have high EPS growth rate
with respect to P/E ratio.

• Such stocks represent a good investment option for investors who

are ready to take risk for greater returns than value picks.

23
 • PEG ratio is calculated using the ratio of P/E ratio and EPS growth
(%) · Stocks with PEG <1 are considered to be Growth picks.

COMPANY NAME STATUS

INDIA TOURISM DEVELOPMENT OVERVALUED
ORIENTAL HOTELS OVERVALUED

5.5 FUND ALLOCATION

Stock Name Price No. of Share Total Pick

Indian 549.7 42158 23174252.6 VALUE

Tourism Dev.

Mahindra 594.05 17307 10281223.3 VALUE

Holiday

EIH 137.35 77169 10599162.15 VALUE

24
 23
5.6 PROJECTED FUNDS FOR SECTORS

SECTOR NAME FUND ALLOCATED

TYRES 12,28,07,790.55

NBFC 12,22,63,372.25

AUTOMOBILE 12,28,06,376.03

OIL & GAS 12,29,49,537.30

HOTELS 12,10,66,019.05

FMCG 12,50,41,708.85

PVT BANKS 12,10,09,523.65

25
IT 12,32,18,770.35

CASH IN HAND 495.00

TOTAL 98,11,63,593.03

5.7 NAV

Net asset value (NAV) is the value of an entity's assets minus the value of
its liabilities, often in relation to open-end or mutual funds, since shares of such
funds registered with the U.S. Securities and Exchange Commission are redeemed
at their net asset value. This may also be the same as the book value or
the equity value of a business. Net asset value may represent the value of the total
equity, or it may be divided by the number of shares outstanding held by investors,
thereby representing the net asset value per share.[1]

Net asset value and other accounting and recordkeeping activities are the result of
the process of fund accounting (also known as securities accounting, investment
accounting, and portfolio accounting). Fund accounting systems are sophisticated
computerized systems used to account for investor capital flows in and out of a
fund, purchases and sales of investments and related investment income, gains,
losses and operating expenses of the fund. The fund's investments and other assets
are valued regularly; daily, weekly, or monthly, depending on the fund and
associated regulatory or sponsor requirements. There is no universal method or
basis of valuing assets and liabilities for the purposes of calculating the net asset
value used throughout the world, and the criteria used for the valuation will depend
upon the circumstances, the purposes of the valuation and any regulatory and/or
accounting principles that may apply.

26
NAV= AUM/NO OF SHARES

DATE NAV
20-06-2017 10
21-06-2017 9.995299538
22-06-2017 9.921345899
23-06.2017 9.931462386
24-06-2017 9.81163593

6.Technical Analysis

6.1 Introduction

Technical analysis is the examination of past price movements to forecast future

price movements. Technical analysts are sometimes referred to as chartists because
they rely almost exclusively on charts for their analysis.

It is a method of evaluating securities by analyzing the statistics generated by

market activity, such as past prices and volume. 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 exclusively use of historical price and volume data is what
separates them from their fundamental counterparts. Unlike fundamental analysts,
technical analysts don't care whether a stock is undervalued - the only thing that
matters is a security's past trading data and what information this data can provide
about where the security might move in the future.

27
Technical analysis is applicable to stocks, indices, commodities, futures or any
tradable instrument where the price is influenced by the forces of supply and
demand.

Price refers to any combination of the open, high, low or close for a given security
over a specific timeframe. The time frame can be based on intraday (tick, 5-minute,
15-minute or hourly), daily, weekly or monthly price data and last a few hours or
many years. In addition, some technical analysts include volume or open interest
figures with their study of price action.

6.2 Terminologies related to Technical Analysis

1. Support: Areas of congestion or previous lows below the current price mark
support levels. A break below support would be considered bearish.

2. Resistance: Areas of congestion and previous highs above the current price mark
the resistance levels. A break above resistance would be considered bullish

6.3 Types of Technical Analysis

1. Long Term Technical Analysis

2. Short Term Technical Analysis

28
 7.Long Term Technical Analysis

7.1 Introduction
Long Term Technical Analysis is generally done for a period of minimum 5 years.
We generally look for patterns which will help us to understand present trend of
stock and as per trend we can take position buy or sell. Basically it gives us idea
about business cycle phase.

7.2 Types of Long Term Technical Analysis Patterns

7.2.1 Rounding Bottom

The rounding bottom is a long-term reversal pattern that is best suited for
weekly charts. It is also referred to as a saucer bottom, and represents a long
consolidation period that turns from a bearish bias to a bullish bias.

29
7.2.2 Cup with Handle

The Cup with Handle is a bullish continuation pattern that marks a consolidation
period followed by a breakout. It was developed by William O'Neil and introduced
in his 1988 book, How to Make Money in Stocks.

As its name implies, there are two parts to the pattern: the cup and the handle. The
cup forms after an advance and looks like a bowl or rounding bottom. As the cup is
completed, a trading range develops on the right hand side and the handle is
formed. A subsequent breakout from the handle's trading range signals a
continuation of the prior advance.

30
7.2.3 Bump and Run reversal
A Rising trendline is drawn which connects atleast 3 lows of a price series
(troughs) of 3 different periods respectively as shown in the below Figure
5.3. Then a Bump is seen which can be observed as a bullish pattern and
finally the point where the trendline is broken, the pattern enters into a Run
phase. This point is called as a sell point i.e. Investor is supposed to sell the
stock at this point.

31
7.2.4 Double Top
The double top is a major reversal pattern that forms after an extended
uptrend. As its name implies, the pattern is made up of two consecutive
peaks that are roughly equal, with a moderate trough in between as shown in
Figure 5.4. Atleast an intermediate change, if not long-term change, in trend
from bullish to bearish as soon as the support is broken. Many potential
double tops can form along the way up, but until key support is broken, a
reversal cannot be confirmed.

Key Points Regarding Double Bottom Chart Pattern:

i. Resistance break: Even after trading down to support, the double top and trend
reversal are still not complete. Breaking support from the lowest point between the
peaks completes the double top.

32
ii. Resistance turned support: Broken support becomes potential resistance and
there is sometimes a test of this newfound resistance level with a reaction rally.
Such a test can offer a second chance to exit a position or initiate a short.

iii. Price Target: The distance from support break to peak can be subtracted from
the support break for a price target. This would infer that the bigger the formation
is, the larger the potential decline

7.2.5 Double bottom

The double bottom is a major reversal pattern that forms after an extended
downtrend. As its name implies, the pattern is made up of two consecutive troughs
that are roughly equal, with a moderate peak in between.

Although there can be variations, the classic double bottom usually marks an
intermediate or long-term change in trend when the resistance is broken. Many
potential double bottoms can form along the way down, but until key resistance is
broken, a reversal cannot be confirmed.

Key Points Regarding Double Bottom Chart Pattern:

i. Resistance break: Even after trading up to resistance, the double top and trend
reversal are still not complete. Breaking resistance from the highest point between

33
the troughs completes the double bottom. This too should occur with an increase in
volume and/or an accelerated ascent.

ii. Resistance turned support: Broken resistance becomes potential support and
there is sometimes a test of this newfound support level with the first correction.
Such a test can offer a second chance to close a short position or initiate a long.

iii. Price Target: The distance from the resistance breakout to trough lows can be
added on top of the resistance break to estimate a target. This would imply that the
bigger the formation is, the larger the potential advance.

7.2.6 Head and Shoulders Top

A head and shoulders reversal pattern forms after an uptrend, and its completion
marks a trend reversal. The pattern contains three successive peaks with the middle
peak (head) being the highest and the two outside peaks (shoulders) being low and
roughly equal. The reaction lows of each peak can be connected to form support, or
a neckline.

As its name implies, the head and shoulders reversal pattern is made up of a
left shoulder, head, right shoulder and neckline. Other parts playing a role in
the pattern are volume, the breakout, price target and support turned
resistance.

34
Key Points Regarding Double Bottom Chart Pattern:

i. Neckline: The neckline forms by connecting low points 1 and 2. Low point 1
marks the end of the left shoulder and the beginning of the head. Low point 2
marks the end of the head and the beginning of the right shoulder. Depending on
the relationship between the two low points, the neckline can slope up, slope down
or be horizontal. The slope of the neckline will affect the pattern's degree of
bearishness: a downward slope is more bearish than an upward slope. Sometimes
more than one low point can be used to form the neckline.

ii. Neckline Break: The head and shoulders pattern is not complete and uptrend is
not reversed until neckline support is broken.

iii. Support turned resistance: Once support is broken, it is common for this
same support level to turn into resistance. Sometimes, but certainly not always, the
price will return to the support break and offer a second chance to sell.
iv. Price Target: After breaking neckline support, the projected price decline is
found by measuring the distance from the neckline to the top of the head. This
distance is then subtracted from the neckline to reach a price target.

7.2.7 Head & Shoulders Bottom

The head and shoulders bottom is sometimes referred to as an inverse head and
shoulders. The pattern shares many common characteristics with its comparable
partner, but relies more on volume patterns for confirmation.

As a major reversal pattern, the head and shoulders bottom forms after a
downtrend, and its completion marks a change in trend. The pattern contains three
successive troughs with the middle trough (head) being the deepest and the two
outside troughs (shoulders) being shallower. Ideally, the two shoulders would be
equal in height and width. The reaction highs in the middle of the pattern can be
connected to form resistance, or a neckline.

The price action forming both head and shoulders top and head and shoulders
bottom patterns remains roughly the same, but reversed

35
Key Points Regarding Double Bottom Chart Pattern:

i. Neckline: The neckline forms by connecting reaction highs 1 and 2. Reaction

high 1 marks the end of the left shoulder and the beginning of the head. Reaction
high 2 marks the end of the head and the beginning of the right shoulder.
Depending on the relationship between the two reaction highs, the neckline can
slope up, slope down or be horizontal. The slope of the neckline will affect the
pattern's degree of bullishness: an upward slope is more bullish than downward
slope.

ii. Neckline Break: The head and shoulders pattern is not complete and the
downtrend is not reversed until neckline resistance is broken.

iii. Resistance turned support: Once resistance is broken, it is common for this
same resistance level to turn into support. Often, the price will return to the
resistance break and offer a second chance to buy.

iv. Price Target: After breaking neckline resistance, the projected advance is
found by measuring the distance from the neckline to the bottom of the head. This
distance is then added to the neckline to reach a price target.

7.2.8 Triple Top

The triple top is a reversal pattern made up of three equal highs followed by
a break below support. In contrast to the triple bottom, triple tops usually
36
 form over a shorter time frame and typically range from 3 to 6 months.
Generally speaking, bottoms take longer to form than tops.

Key Points Regarding Triple Top Chart Pattern:

i. Support break: As with many other reversal patterns, the triple top is not
complete until a support break. The lowest point of the formation, which would be
the lowest of the intermittent lows, marks this key support level.

ii. Support turns resistance: Broken support becomes potential resistance, and
there is sometimes a test of this newfound resistance level with a subsequent
reaction rally.
iii. Price Target: The distance from the support break to highs can be measured
and subtracted from the support break for a price target.

7.2.9 Triple Bottom

37
The triple bottom is a reversal pattern made up of three equal lows followed by a
breakout above resistance. While this pattern can form over just a few months, it is
usually a long-term pattern that covers many months.

Key Points Regarding Triple Bottom Chart Pattern:

i. Resistance break: As with many other reversal patterns, the triple bottom is not
complete until a resistance breakout. The highest point of the formation, which
would be the highest of the intermittent highs, marks resistance.

ii. Resistance turns support: Broken resistance becomes potential support, and
there is sometimes a test of this newfound support level with the first correction.
Because the triple bottom is a long-term pattern, the test of newfound support may
occur many months later.

iii. Price Target: The distance from the resistance breakout to lows can be
measured and added to the resistance break for a price target.

8. Short Term Technical Analysis (Candlesticks)

8.1 Introduction to Candlesticks

38
 Originating in Japan over 300 years ago, candlestick charts have become
quite popular in recent years. For a candlestick chart, the open, high, low
and close are all required. A daily candlestick is based on the open price, the
intraday high and low, and the close.

White (green) candlesticks form when the close is higher than the open and
black (red) candlesticks form when the close is lower than the open. The
white and black portion formed from the open and close is called the body
(white body or black body). The lines above and below are called shadows
and represent the high and low.

8.2 Types of Candlesticks

39
Doji, Hammer, Hanging man, Inverted hammer and shooting star are five most
important candlesticks.

8.2.1 Doji

Doji are important candlesticks that provide information on their own and
also feature in a number of important patterns. Doji form when a security's
open and close are virtually equal. The length of the upper and lower
shadows can vary and the resulting candlestick looks like a cross, inverted
cross or plus sign. Alone, Doji are neutral patterns. Any bullish or bearish
bias is based on preceding price action and future confirmation. The word
"Doji" refers to both the singular and plural form.

Ideally, but not necessarily, the open and close should be equal. Doji convey
a sense of indecision or tug-of-war between buyers and sellers. Prices move
above and below the opening level during the session, but close at or near
the opening level. The result is a standoff. Neither bulls nor bears were able
to gain control and a turning point could be developing.

The relevance of a Doji depends on the preceding trend or preceding

candlesticks. After an advance, or long white candlestick, a Doji signals that
the buying pressure is starting to weaken. After a decline, or long black
candlestick, a Doji signals that selling pressure is starting to diminish. Doji
indicate that the forces of supply and demand are becoming more evenly
matched and a change in trend may be near. Doji alone are not enough to
mark a reversal and further confirmation may be warranted.

8.2.2 Hammer and Hanging Man

40
Hammer and Hanging Man, are identical with small bodies and long lower
shadows. Only preceding price action and further confirmation determine
the bullish or bearish nature of these candlesticks.

The hammer and hanging man look exactly alike, but have different
implications based on the preceding price action. Both have small real
bodies (black or white), long lower shadows and short or non-existent upper
shadows. As with most single and double candlestick formations, the
hammer and hanging man require confirmation before action.

41
The hammer is a bullish reversal pattern that forms after a decline. In addition to a
potential trend reversal, hammers can mark bottoms or support levels. After a
decline, hammers signal a bullish revival. The low of the long lower shadow
implies that sellers drove prices lower during the session. However, the strong
finish indicates that buyers regained their footing to end the session on a strong
note. While this may seem enough to act on, hammers require further bullish
confirmation. The low of the hammer shows that plenty of sellers remain. Further
buying pressure, and preferably on expanding volume, is needed before acting.
Such confirmation could come from a gap up or long white candlestick. Hammers
are similar to selling climaxes and heavy volume can serve to reinforce the validity
of the reversal.

The hanging man is a bearish reversal pattern that can also mark a top or resistance
level. Forming after an advance, a hanging man signals that selling pressure is
starting to increase. The low of the long lower shadow confirms that sellers pushed
prices lower during the session. Even though the bulls regained their footing and
drove prices higher by the finish, the appearance of selling pressure raises the
yellow flag. As with the hammer, a hanging man requires bearish confirmation
before action. Such confirmation can come as a gap down or long black
candlestick on heavy volume.

8.2.3 Inverted Hammer and Shooting Star

Shooting star and inverted hammer, are also identical with small bodies and long
upper shadows. Only preceding price action and further confirmation determine the
bullish or bearish nature of these candlesticks.

42
The inverted hammer and shooting star look exactly alike, but have different
implications based on previous price action. Both candlesticks have small real
bodies (black or white), long upper shadows and small or non-existent lower
shadows. These candlesticks mark potential trend reversals, but require
confirmation before action.

The shooting star is a bearish reversal pattern that forms after an advance and in
the star position, hence its name. A shooting star can mark a potential trend
reversal or resistance level. The candlestick forms when prices gap higher on the
open, advance during the session and close well off their highs. The resulting
candlestick has a long upper shadow and small black or white body. After a large

43
advance (the upper shadow), the ability of the bears to force prices down raises the
yellow flag. To indicate a substantial reversal, the upper shadow should relatively
long and at least 2 times the length of the body. Bearish confirmation is required
after the shooting star and can take the form of a gap down or long black
candlestick on heavy volume.

The inverted hammer looks exactly like a shooting star, but forms after a decline or
downtrend. Inverted hammers represent a potential trend reversal or support levels.
After a decline, the long upper shadow indicates buying pressure during the
session. However, the bulls were not able to sustain this buying pressure and prices
closed well off of their highs to create the long upper shadow. Because of this
failure, bullish confirmation is required before action. An inverted hammer
followed by a gap up or long white candlestick with heavy volume could act as
bullish confirmation.

8.3 Candlesticks Positioning

8.3.1 Star Position

A candlestick that gaps away from the previous candlestick is said to be in star
position. The first candlestick usually has a large real body, but not always, and the
second candlestick in star position has a small real body. Depending on the
previous candlestick, the star position candlestick gaps up or down and appears
isolated from previous price action. The two candlesticks can be any combination
of white and black. Doji, hammers, shooting stars and spinning tops have small
real bodies and can form in the star position. Later we will examine 2- and 3-
candlestick patterns that utilize the star position

44
6.3.2 Harami Position:

A candlestick that forms within the real body of the previous candlestick is in
Harami position. Harami means pregnant in Japanese and the second candlestick is
nestled inside the first. The first candlestick usually has a large real body and the
second a smaller real body than the first. The shadows (high/low) of the second
candlestick do not have to be contained within the first, though it's preferable if
they are. Doji has small real bodies and can form in the harami position as well.
Later we will examine candlestick patterns that utilize the harami position.

45
 9. Conclusion
Equity research plays a very crucial role in order to make wise investment
decisions. After having accessed your risk capacity and tolerance followed by
time horizon and intention of investment, the individual portfolio can fetch you
systematic returns.

Relative valuation model is one such method for value analysis. One can use
long term and short term technical analysis along with fundamental analysis to
determine a confirm trade signal. By calculating long term target price investor
one can achieve maximum profit and also get an idea for how much period they
should hold the stock.

46
10. Bibliography & References
I. Websites
• https://www.nseindia.com
• http://www.ibef.org/industry/indian-iT-and-iTeS-industry-analysis-
presentation
• https://www.equitymaster.com/research-it/sector-info/software/Software-
SectorAnalysis-Report.asp
• http://www.moneycontrol.com
• http://www.cea.nic.in
• http://indiabudget.nic.in
• www.topstockresearch.com

II. PDF
• Effects of Fluctuation in Dollars on IT Companies by Dr. Deepak
Jain
• Service Industries and Economic Performance by ESA analytics

III. Guiding Persons

I. Mr. Nikesh Ruparel – Senior Business Mentor (SBM)
II. Mr. Pradip Mitra – Finance Mentor

47