MohanKumar D R-0491-Fundamental Analysis of Securities

A STUDY ON FUNDAMENTAL ANALYSIS OF SECURITIES
RESEARCH PROJECT
On
“A STUDY ON FUNDAMENTAL ANALYSIS OF
SECURITIES”
Submitted in partial fulfillment of the requirement for MBA

Degree of Bangalore University
BY
MOHAN KUMAR. D. R
Registration Number
04XQCM6057
Under the guidance of
DR N S MALLAVALLI
M.P.Birla Institute of Management

Associate Bharatiya Vidya Bhavan
Bangalore-560001
2004-2006
M.P.BIRLA INSTITUTE OF MANAGEMENT

DECLARATION
I hereby declare that the research project titled “A STUDY ON

FUNDAMENTAL ANALYSIS OF SECURITIES” is prepared under the guidance
of Dr N S MALLAVALLI in partial fulfillment of MBA degree of Bangalore
University, and is my original work.
This project does not form a part of any report submitted for degree or diploma
under Bangalore University or any other university.
Place: Bangalore MOHAN KUMAR D R

PRINCIPAL’S CERTIFICATE
This is to certify that Mr.MOHAN KUMAR D R bearing Registration
No: 04XQCM6057 has done a research project on “A STUDY ON
FUNDAMENTAL ANALYSIS OF SECURITIES” under the guidance of DR N S
MALLAVALLI, M.P. Birla Institute of Management, Bangalore. This has not formed
a basis for the award of any degree/diploma for any other university.
Place: Bangalore Dr.N.S.MALLAVALLI
Date: PRINCIPAL
MPBIM, Bangalore

GUIDE’S CERTIFICATE
I hereby declare that the research work embodied in this dissertation entitled “A
STUDY ON FUNDAMENTAL ANALYSIS OF SECURITIES”has been undertaken and completed
by Mr. MOHAN KUMAR D R under my guidance and supervision.
I also certify that he has fulfilled all the requirements under the covenant governing
the submission of dissertation to the Bangalore University for the award of MBA Degree.
Place: Bangalore Dr N S MALLAVALLI
Date: Research Guide
MPBIM, Bangalore

ACKNOWLEDGEMENT
The successful accomplishment of any task is incomplete without acknowledging
the contributing personalities who both assisted and inspired and lead us to visualize
the things that turn them into successful stories for our successors.
First of all I thank the Almighty God for his grace bestowed on us throughout this
project.
My special thanks to my project Guide Dr N S MALLAVALLI, who guided me
with the timely advice and expertise and has helped remarkably to complete the
project.
Last, but not the least, I would like to thank my Parents and all my Friends for
their wholehearted direct and indirect support and encouragement.

INTRODUCTION
INVESTMENT SCENARIO
Investment is the employment of fund on assets with an aim of earning income

on capital appreciation.
Investment means the present consumption is sacrified to get return in future.

Investment is the good only for the purpose to get return from the selected or
choosing securities so; investors have to see the fundamental analysis. In fundamental
analysis, we can broadly classify into three types. One is Economic Analysis; Industry
analysis and company analysis. These three are very important base of the securities
or stock of market. We have to study about this fundamental analysis.
An Indian stock market has been no different. Memories of its crash of

December 1990 are still there in the minds of many. After record rise in proceeding
few years the index fell precipitously and investor loss heavily. This phenomenon
repeated every now and then. Though the equity cult is fast spreading among the
investor the hard fact is majority of stocks continue to remain volatile to date. All
these are pointers to the fact that the investor market is no longer holding an olive
branch to investor in equity. Much of the danger associated with it can be avoided and
it need not be such nerve raking experience, provided one approaches it as a rational
decision making process. In short Security analysis and portfolio management are
hard work, requiring discipline and patience, and the work is not always rewarded
with exceptional returns.

INTRODUCTION TO THE CONCEPT OF SECURITY
ANALYSIS
An investment is a commitment of funds made in expectation of some positive

rate of return in future. An investor makes some sacrifice in the present in the hope of
desiring benefits in future. The motive behind investment varies from person to
person. Some people invest in order to gain a sense of power or prestige. Often the
control of corporate enterprises is a driving motive. For most investor however their
interest in investment is largely pecuniary to earn a return on their money. But the
return on stock market security is subject to risk. Risk incase refers to the uncertainty
surrounding actual realization of the rate of return offered by an investment. The time
element refers to period of waiting required to reap the return. Accordingly early
investment decision has three key aspects. They are,
 Return
 Risk
 Time
There fore, investment process must be considered in terms above aspects.
One should approach any scheme of investment as a rational decision making

process, in which he should attempt to select a package of portfolio securities that
meets predetermined set of goals. These investors goal are usually expressed in terms
of return. Almost all the cases, the hard fact are that return and risk are inseparable.
Further the maximum higher the return the grater t6he risk.
Therefore the ultimate decisions to be made in the investment are two.
 What securities to be held
 How many rupees should be allocated to each.

These decisions are made in three steps.
1. Security analysis
2. Security evaluation
3. Portfolio analysis, selections and management.
Securities are marketable financial instruments that bestow on their owners the
right to make specific claims on particular assets. An individual security provides
evidence of their creditor ship or ownership depending on whether it is bond or stock,
respectively. A bond is loan that is paid off with interest; the investor lends money to
the borrowing company that issued bond. In contrast, stock ownership represents a
cash investment a future of a corporation; the investor owns a part of a corporation
and share in its profits.
SECURITY ANALYSIS
(a) Traditional investment analysis, when applied to securities, emphasizes projection

of prices and dividends. That is, the potential prices of a firm’s common stock and
future dividend stream are forecast, and then discounted back to the present.
(b) Basically modern security analysis deeply rooted in the fundamental concept. But
the more modern approach to common stock analysis emphasizes risks and return
estimate rather than mere price and dividend estimates, ofcourse dependent on share
price and accompanying the dividend stream.
SECURITY EVALUATION
It refers to the act of assessing the true worth of security. Before committing
the fund on stock exchange securities, the investor should make thorough comparison
of the prices of the security with its true value. The price refers to the price quoted for
the security at the stock exchange at a given movement of time. Value refers to the
intrinsic worth. Only with the help of such evaluation the investor can decide as to
buy hold or sell.

DIFFERENT APPROACHES TO EVALUATION
There are essentially three approaches or school of thoughts on the matter of

security price evaluation, classified as
(a) Fundamental Approach
The concept of time value of money is the business of this approach. Money
has a time value. A rupee now is worth more than rupee a year from now. For
different securities, future benefits may me received at different times. Even when the
amount of future payment is the same, differences in the speed of their receipt may
create differences in value. Time value of money suggests that earlier receipt is more
desirable than later receipt, even when the both are equal in the amount of certainty.
Because, earlier receipt can be re invested to generate additional returns before later
receipt come in. The force operating is the principle of compound interest.
Framework: The proper order in which to proceed in Fundamental analysis

is, first to analyze the overall economy and securities markets. Second, analyze the
industry with in which a particular company operates. Finally, analysis of the
company should be considered. The above analysis involves making a careful
estimate of expected stream of benefits and required return of common stock. The
intrinsic value then can be obtained through the present value analysis – that is, the
dividend discounts model. An alternative method of valuation is the P/E ratio or
earning multiplier approach.
Economic Analysis
Industry Analysis
Company Analysis
Strategic considerations of economic, industry and company analyses are as follows

(1) Economic Analysis
1. A study of economic trends as indicated by rate of growth in gross national

product, employment, aggregate corporate profits, interest rate, exchange rates,
savings and investments, monsoon positions.
2. An analysis of the relationship between economic trends and economic policies

and the stability of such relationships.
3. A study of world economic trends and their impact on Indian economy.
(2) Industry Analysis
1. Implications of projected growth in gross national product for various industries.
2. Implications of plan priorities and plan expenditure for various industries.
3. Vulnerability of an industry for government regulations, and control of prices and

production.
4. Implications of industrial and fiscal policies of government for an industry.
5. Analysis of competitive conditions as reflected in any barriers to entry.
(3) Company Analysis
1. Trend analyses of company’s market share.
2. An analysis of turn over of assets, operating and production efficiencies through

ratio analysis.
3. Leverage and coverage ratio analysis.
4. An analysis of book value per share.
5. An assessment of quality of management
6. An analysis of price –to –earning multiples.
7. An analysis of growth in sales and dividends.
The basis tenets of this approach are as follows:

Each share has an intrinsic value. It can be determined by discounting the

future stream of benefits that does accrue to the holder of the security. For instance if
rupees 100 now is = rupees 100 + R after one year. Where R is the rate of return then
the next question is if we get rupees hundred after one year how much is it worth now.
Rupees 100 + R after one year = 100 now. Therefore rupees 100 after one year =
100/100 + R and if R = 12 % then 100/112 = .0893.
(b) Technical Approach
Technical analysis is an alternative approach to predicting the stocks price

behavior. Technical analysis is frequently used as a supplement to fundamental
analysis rather than as a substitute for it. Thus technical analysis can frequently does,
confirm findings based on fundamental analysis.
Technical analysis is viewed mainly through price and volume statistics. It

helps in measuring price – volume, supply – demand relationship for overall market
as well as for individual stocks. Technicians seldom rely upon a single indicator, as no
one indicator is infallible; they place reliance upon reinforcement provided by groups
of indicators.
(c) Modern Approach
Markovitize led down the foundation for this approach in 1951. He studied
capital market with the help of fairly sophisticated method of investigation and in
general arrived at the following conclusions.
 Stock markets are reasonably efficient in reacting quickly and rationally to the
flow of information.
 Successive price changes are independent. As a result past price behavior cannot
be used to predict future price behavior.
 In the capital market, there is a positive relation ship between the risk and return.
This indicates, in general, investment in several securities would reduce the variability
of return and hence the risk ness of a portfolio.
2. REVIEW OF LITERATURE

Non-current accounts and Bombay Stock Exchange Sensitive (SENSEX)

Index on month-to-month basis for the said period constituted the database. The
company fundamentals and monthly share prices for 17 years of study period
supported the conduct of the present study.
Reports that industrial production, productivity, money supply and

unemployment rates are consistently influencing the share returns, Chen et. al., (1996)
proposes that the unexpected inflation, industrial production, changes in risk
premiums, etc., are crucial in Asset pricing. In a recent study Chen and Jorden (2002)
finds inflation, interest rates on government bonds, industrial production, oil prices,
etc., are germanein asset prices. In Indian environment, the study conducted by Rajan
Mookerjee (1998) observes weak linkages between changes in GDP and stock
prices, Malathy Prabhakaran, (1999), Rao and Bhole (2001), Choudhari (1998) and
others studied the impact of agriculture on stock prices and report conflicting results.
A comprehensive study on these Economic variables is awaited in Indian context.

BACKGROUND OF THE STUDY
Value investing means finding the intrinsic value of the stock. It means
present value of the future cash inflows. I take into consideration of economic,
industry and company analysis.
In Economic factors, we consider macro economic factors because it reflects

the prosperous out look for sales and profit of the firm or company. This economy
reflects behavior of the stock prices.
While macro economic theory has helped to develop risk factors like interest
rate risk, purchasing power risk, market risk and such alike; the theory of the firm
helped in delineating factors like firm’s cash dividend yield, beta coefficient as a
numeric surrogates for security’s quality rating, This is the area where the present
work focuses on. The security investment involves several type of risk diversifiable as
well as non-diversifiable. While the risk of a security is nothing but the likelihood of
the return turning out to be more or less than the expected, the total risk of an asset
may be perceived as being the sum of several different contributing risk factors like
interest rate fluctuations, market cyclical, purchasing power instability and so on. As
mentioned Donald E. Fisher and Ronald J. Joeden.

3 REASEARCH METHODOLOGY
a) Since the study is principally intended to examine the potential growth of

securities, which might be affected of different risk variables on security returns, a
sample of 4 industries, and selecting the profitable scrip through selecting potential
growth industries, whose scrips are actively traded during the period 1998 to 2005 has
been considered. In order to identifying the influence of exogenous variables of
economy and market in security prices information on different indicators like Gross
domestic product, Monsoon, Money supplies, Fiscal deficit etc. And for the market
observation Sensex has been used.
b) For analyzing the relationship between economic indicators and stock market
movement, the correlation tools has been used, and selecting the industry by
comparing their sales growth, dividend and its ratios has been comparatively
analyzed. On the other hand, groups of 18 financial ratios capturing the Size,
Dividend Policy, Leverage, Productivity, Liquidity, Profitability, Earnings
Variability, P/E ratios and Certain Growth Variables constituted the company specific
fundamentals of financial risk variables. The estimation of ‘Accounting Beta’ (the
ratio of EPS of a firm in relation to the average EPS of all firms), Sales, and Earnings
have been measured as linear growth rates the testing period of most recent five-year
period.

STATEMENT OF THE PROBLEM
Investors have a lot of investment opportunities. The investor has to find good
among the alternatives. It is very difficult to find the good opportunity so this analysis
helps the investors to find good one among the alternatives. Many investors invest in
securities without analyzing the economic condition, budget decision, industry growth
rates and company factors. Then the investor end up with the losses.
Many invest insecurities by their emotional forces and many invest with out
analyzing economic conditions, budget decisions, industry growth rates and company
factors. Finally, they end up with losses. Of course, no one can predict the uncertainty
factors like September 11 attack in 2001. Despite these factors investors could reduce
the risk associated with securities through analyzing the security properly.
How much the economic factors could influence the stock market? Whether
positively or negatively have the relationship with the stock market movements.
Answering these questions enables the investors to have the perspective about the
overall economy and stock markets.
If the economy prosperous, the industries with in the economy also may also
be prosperous although few may be in the bad shape. Which industry is really having
the potentiality for growth? Knowing these factors through comparing performances
between the industries enables the investors to compare the industries and finally can
select the company which is having the opportunity for growth.

SCOPE OF THE STUDY
a) The security analysis starts from broad environmental factors to the industry,
which influences the share price and finally analyzing the company’s potentiality by
considering possible risks associated with securities.
b) Since share price of the company is empirically found to depend up to 50% on the
performance of the industry and the economy, studying those related field provide
insights for selecting the securities.
c) Budget plays a significant role while selecting the industry, as it may create a
opportunity for one industry and may not for other, the analyzing impact of budget
plan and its polices is important.
d) As research studies shows more than 35% of the share price movements depend
on the company’s performance. So, analyzing the companies’ potential growth
through ratio analysis provides the valuable insights. Comparability between the
companies enables the investors selecting particular securities.

OBJECTIVE OF THE STUDY
The study was conducted with a view to,
a) The main purpose of this study is to comparatively analyze the deferent industry
performance and selecting the appropriate security by considering potentiality of the
industry.
b) Identify the returns of the securities in considering the risk, growth, and other
related variables.
c) Understand the factor influencing the security prices in different industries.
d) Analyzing the environmental factors affects the security prices.
e) Assess the future potential of the companies in the industry.
f) And aid to investor in assessing the worth of the securities

SAMPLE DESIGN
Definitions of the Population
Since the study is mainly related to selecting the appropriate security,

analyzing industries and comparison between those is necessary. Their potentiality for
growth also to be consider for selecting particular industry, where the companies in
that industry has to be analyzed through comparing between the companies
considering their relative advantages over the others.
Sample Size
All the four industries under the study are randomly selected reconsidering
differentialities in the way they do business and the product they produced has been
considered as sample and the four companies in that particular industry has been
considered as representative sample.
Sample Technique Adopted
Techniques for selecting industries is nothing but the way they doing business since
the product they produce also different. However, for the companies, the out
performing industry over the other out of the sample has been selected and the highest
sales in the latest period in the Computer and Software industry has been selected for
studying their performance.

SOURCES OF THE DATA
Secondary data
All the data has been collected through secondary sources only. These data are
a) Fiancé Ministry.
b) Various magazines books and journals and papers
c) Web sites of the companies and indices has been collected from Bombay stock
exchange
Primary data
Since the study is mainly based on the financial results of the industries and the
company and the facts of the economic factors, no such primary data has been
collected

OPERATIONAL DEFFINITIONS
Economic Analysis
Economic analysis refers to analyze the factors or indicators of the economy

that affects the stock market. This is also called non-diversifiable risk analysis where
the risk associated with the securities can not be diversified.
Industry analysis
Industry analysis refers to analyze the plan, priorities and vulnerability of an

industry for government regulations. The competitive conditions as reflected in any
barriers to industry also taken in to consideration.
Company Analysis
Company analysis includes analyze the company as potentiality for growth,

present performance, risk associated with securities are considered as important.
Correlation
Correlation is a statistical measure of the degree to which the security returns

move together. The positive correlation means the variables move together. The
negative correlation suggests that move in opposite direction and zero correlation
shows that no tendency to very either positive or negative direction.
Beta
It measures the sensitivity of the return of a security to changes in returns to

the market portfolio. It may be positive or negative. The positive beta measures that if
1% changes market index, more than 1% in individual security and vice versa.

LIMITATION OF THE STUDY
a) The economy and industry are so wide and comprehensive that is difficult to
encompass all the likely factors influencing to be captured in any set of possible
indicators.
b) Besides, the study has the limitation of the time and resources.
c) Again the study has limited to four big industries and many other sub industries
within the industries and small units have been left out. Hence, the applicability of the
study is limited to that extent.
d) Finally the study is not free from inherent limitation of collection and analysis of
the sources of the data.

OVERVIEW OF THE REPORT
Chapter one started with the introduction of the concept of security analysis,
where the investment scenario in the security takes place. The introduction part
explains about different approaches to the security that is the fundamental approach,
modern approach and technical approach. And investor’s perception about the
characteristics of growth and the value associated with securities.
Then the second part explains the background of the study, where the different
theories and tools like leverages and betas are supported for studying securities.
The second chapter starts with the statement of the problem for studying
security and explains the areas of the analysis. And it covers source of the data
literature review and operation definition of the study.
The third chapter deals with the profile of the respondents. It highlights the
economy of India, industries and the companies. In industries, it deals with growth
rate of sales and dividend of four industries namely, Computer and Software,
Pharmaceutical, Cement, and Automobile industries and also analysis of government
policies that affects performances. The export performance and competitive positions
of said industries provides the guidelines about the future of industries. And come to
the companies, it provides overview of four companies in computer and software
industry, namely Infosys, Satyam, Wipro and HCL.
The share holding patterns of each company brief history sales growth and
earning per share provides the overview of those companies.
Then in analysis part it deals with primarily the global economy, where the
Indian stock market no longer is limited to the Indian situation.
It also deals with the analysis of the economic factor affect to the stock
market. In the second part of analyzing, analyzing industries through comparison of
different ratios, sales and dividend growth that helps to select the appropriate industry
which out perform other industries.

The third part emphasizes on the companies within the Computer and
Software industry, where comparison between Infosys, Satyam, Wipro, and HCL
which are all highly traded in that related industry in the stock market, guides the
investor for selecting appropriate security which is really doing well than other
selected companies.
Finally, the conclusions and suggestions at the end provides the proper
guidelines which is drawn after analyzing the economy, industries and company
enables the investors getting perspective above overall better performance industry
and company.

OVERVIEW OF THE ECONOMY
A top down analysis of the firm’s prospects must start with a global economy.
The international economy might affect a firm’s export prospects, the price
competition it faces from competitors, or profit it makes from abroad. Certainly,
despite the fact that the economies of most countries are linked with global economy,
there is considerable variation in the economic performance across countries at any
time.
Given the degree of openness to trade and investment, it is a well-accepted

fact that the national markets are inter-related and increasingly global. When making
decisions, traders incorporate information pertaining to price movements and
volatility in the asset they are trading including information about related assets. The
movement of markets in rhythm and chorus could nullify much of the gain out of
diversification across borders, besides being vulnerable to the caprices of global
capital.
Companies are part of the industrial and business sector, which in turn is a part
of the overall economy. Thus, the performance of the company depends of the
performance of the economy in the first place. If the economy is in recession or
stagnation, centeris paribus, the performance of the company will be bad in general or
vise versa.
Since India started deregulating its financial markets in the post-liberalization

phase, her integration with the international financial markets has been proceeding
rapidly. Based on the observations it has been concluded that in the post-liberalization
era, international financial market integration has accelerated, though not yet
complete.
Indian stock markets have come of age where they have seamlessly joined
themselves with other international stock markets and no longer are the stock prices in
India governed only by the events of the local importance. As per research studies so
far, nearly 50% of the stock prices changes can be attributed to market influences,
which are general and caused by the economic, and industry factors. It is therefore

important that any stock market investment is preceded by economic analysis and
industry analysis.
Economic conditions are non-diversifiable risk. It applies to all the industries,

but some industries are expanding while others are stagnant and some contracting
depending on the demand and market conditions. The investor has to choose growth
industry from industries, and then choose the scrip under valued and judged by study
and analysis.


3. PROFILE OF THE INDUSTRIES
The forgoing section in this report had a perspective of overall Economy in India. The next
step is to analyze particular industry and compare them for selecting potential growth industry.
Once the economics analysis is over; getting the prospects of the likely trend
in the economy, analyzing the industry would be taken importance, knowing which
groups are promising in the coming year makes possible better entry into the
company. There is however, no perfect correlation between the economy and the
industry on one hand and of industries and companies on the other.
India has mixed economy, where private and public sectors play a
complementary role and promote a planned development. Since the initiation of the
reforms in 1991, even foreign enterprises and MNCs given a due role to play in the
development of the economy. As per the latest policy barring about 18 scheduled
industrial groups, others are both open to public and private sector. But as the security
market comprise only marketable securities and they are mostly form private
corporate sector and pubic undertakings which are being shifted to the joint sector.
Many financial services are thrown open to foreign sector now.

COMPUTER AND SOFTWARE INDUSTRY
Indian software industry has a mix of a few large companies and several small
to medium sized companies. Currently 37 Indian companies have exports of more
than Rs1billion. These few large companies would however be classified as small
companies by US standards. First generation entrepreneurs, who had limited access to
finance and low risk taking capability, operate most of these large companies. Smaller
companies, which are also typically entrepreneur run companies, have a similar
potential to strike it rich.
(a) Competitive Advantage- Low Cost and Location
Much of India's strong growth in software in the past is attributable to the low
cost of Indian programmers. Indian programmers repaid only about 15-20% of his/
her counterpart in developed nations. Even among competing countries Indian
software professionals were paid the least. India enjoys a location advantage. The
advantage it enjoys over other countries is a 12-hour difference with the world's
largest market - the USA. This enables US companies to establish round the clock
software factories by subcontracting to Indian companies.
(b) Export Performance
The performance of the Indian software and service exports sector for the first
three quarters, April to December 2005, FY 2004-05, the survey revealed that
software and services exports from India generated revenues of Rs. 34,000 crores in
April-Dec, 2002 This was up from Rs. 26,600 crores for the corresponding period in
the previous year, and represented a growth of 28% over the same period last year.
(c) Government Policies
Government policies so far have been favorable to software companies. If tax

exemption on exports is withdrawn it could affect software companies adversely.
WTO regards tax exemptions on exports as an indirect subsidy and hence the
government may phase out exemption in the near future. Software industry has
enjoyed virtually unbridled liberty to conduct its business in the best possible manner.
Government has also encouraged the industry by providing tax benefits to exporters.

10000 140
9000
120
8000
7000 100
rowth rate
6000 80
sales
5000
4000 60
3000 40
2000
20
1000
0 0
2001 2002 2003 2004 2005 2006
SALES GGROETH RATE
Growth rate of Sales of Computer and Software industry
3000 500
2500 400
300
2000
200
1500
100
1000
0
500 -100
0 -200
2001 2002 2003 2004 2005 2006
Dividend Growth rate
Growth rate of Dividend of Computer and Software Industry

PHARMACEUTICAL INDUSTRY
The pharmaceutical industry is knowledge driven industry and is heavily

dependent on Research and Development for new products and growth. However,
basic research (discovering new molecules) is a time consuming and expensive
process and is thus, dominated by large global multinationals.
Global pharmaceutical market, western markets are the largest and fastest
growing due to introduction of newer molecules at high prices. A well-established
reimbursement and insurance system implies that per capita drug expenditure is a
billion normally high in Western Countries as compared to the developing nations.
The Indian pharmaceutical industry is highly fragmented, but has grown

rapidly due to the friendly patent regime and low cost manufacturing structure.
Intense competition, high volumes and low prices characterize the Indian domestic
market. Exports have been rising at around 30% over last five years.
(a) Export Performance
India’s pharmaceutical exports are to the tune of Rs87bn, of which

formulations contribute nearly 55% and the rest 45% comes from bulk drugs. In
FY2004 exports grew by 21% year. India’s pharmaceuticals imports were to the tune
of Rs20.3bn in FY2004. Imports have registered a CAGR of only 2% in the past 5
years. Imports of bulk drugs have slowed down in the past 2-3 years. . Exports have
been rising at around 30% CAGR over last five years.
(b) Competitive Position and Advantage
The Indian pharmaceutical industry is highly fragmented, but has grown

rapidly due to the friendly patent regime and low cost manufacturing structure.
Intense competition, high volumes and low prices characterize the Indian domestic
market. Over 20,000 registered pharmaceutical manufacturers exist in the country.
The market share of MNCs has fallen from 75% in 1971 to around 35% in the Indian
pharmaceuticals market, while the share of Indian companies has increased from 20%
in 1971 to nearly 65%. PSUs have almost lost out completely. The sector has

undergone several policy as well as attitudinal changes over the past two years.
Patents are the main competitive advantage.
(c) Government policy
All the benefits listed under health-care will also promote pharmaceutical
industry. Besides, income tax concessions to pharmaceuticals at par. All drugs and
materials imported or produced domestically for clinical trials will be exempt from
customs and excise duties. Customs duty on import of Reference Standards by the
industry has been reduced from 25 per cent to 5 per cent.



CEMENT INDUSTRY
The installed capacity of the industry reached 190mn tons in FY05 The
industry has added capacity of around 14mn tons during the year. India is the second
largest producer of cement after China. But the present per capita cement
consumption is around 82kgs as against the world average of 255kgs. This lower per
capita consumption presents a good opportunity for growth of cement industry in
future. The industry is expected to grow at a rate of 7-8% in FY05. The slowdown of
industrial growth witnessed in FY 2005, continued in FY01. The growth in terms of
Index of Industrial Production was 2.3% as compared to 5.8% in the previous year.
Industrial slowdown hit all the major sectors.
(a) Exports Performance
The cement sector is relatively insulated from international markets. This is

largely due to inadequate infrastructure to carry on international trade. This is amply
borne out by the fact that cement accounts for not more than 0.20% of total world
exports From a peak of 2.68mn tons in 2004-05, cement exports from India have slid
down to 2.06mn tons in 1998-99. However the situation has improved gradually. In
04 the exports were 2.77mn tons as against 2.37mn tons in FY01, an increase by
16.87%.
(b) Competitive Position
India is the world’s second largest cement producing country after China. The
industry is characterized by a high degree of fragmentation that has created intense
competitive pressure on price realizations. Spread across the length and breadth of the
country, there are 120 large plants belonging to 56 companies with an installed
capacity of around 135mn tons as on March 2005.
(c) Government Policy
Given the role the government has in fixing key input costs, it is very difficult
for a company to minimize costs beyond a point. The key driver of profitability is
cement prices, which fluctuate depending on outlook on demand-supply gaps.



AUTOMOBILE INDUSTRY
Since commercial vehicles sales have a linkage with industrial growth and
diesel prices, the demand may fall on account purchase deferment due to prolonged
uncertainties in respect of fuel prices and uniform sales taxes. The crude oil has
grown by 0.6% in the current fiscal and the sustained increase in the global crude oil
prices has led to a hefty increase in the diesel prices.
(a) Government Policy
After the rationalization of excise duty in the budget 2004-05; the special
excise duty for CVs is levied at 16% and total duty is pegged at 32%. The differential
in duty structure also affects the demand for respective segments e.g. differential duty
provisions between 8-seater and 10-seater changed the demand for each of the
segments. Over and above state governments charge sales tax and control to effect the
final prices to customer. In the current year, uniform sales tax to the tune of 04% has
been levied in all the states across India.
(i) Policy on Scrapping of Old Vehicles:
The recent notification by judicial body to ban commercial vehicles above 20

years in age in New Delhi will lead to a demand for at least 15,000 vehicles to be
satisfied in short period of time. If similar measures are implemented in other parts of
the country will boost demand for new vehicles.



PROFILE OF THE ORGANIZATIONS
INFOSYS TECHNOLOGIES LTD
BSE Code : 500209
NSE Code : INFOSYSTCHEQ
Face Value : 5
Market Lot : 1
Infosys Technologies- At a Glance
Name of the company Incorporation year Industry
Infosys Technologies LTD July 2nd 1981 Computer and Software
Chairman Group Auditors
Mr. N R Narayana Murthy Not Applicable Bharat S Raut & Co.
Registered office BSE group Bankers
44, Electronics City Hosur A Bank of America

Road Bangalore Karnataka ICICI Bank Ltd.
561229

Chart. Share Holding Pattern of Infosys as on '31/03/2005’
No. of
%
Category Sub Category Securities
Holding
Held
Promoter's Holding Indian Promoters 53730717 19.50
Foreign Promoters 0 0.00
Persons Acting in Concert 0 0.00
Sub Total 53730717 19.50
Institutional Investors Mutual Funds and UTI 10092784 3.66
Banks, FIs, Insurance Co.s, Central / State Govt. /

7672718 2.78
Non-Govt. Institutions
FIIs 104467680 37.91
Sub Total 122233182 44.35
Others Private Corporate Bodies 3892188 1.41
Indian Public 42647831 15.48
NRI / OCBs 12385054 4.49
Any Other 40666008 14.76
Sub Total 99591081 36.14
GRAND TOTAL 275554980 100.00

BACKGROUND INFORMATION
(a) On July 2nd 1981 the company was incorporated as Infosys Consultants
Private Limited at Mumbai. The company is engaged in software development in the
form of services, turnkey projects and products for the domestic and export market.
The software development is targeted towards the distribution, banking
telecommunication and manufacturing sectors worldwide.
(b) On April 21st 1992 the name changed to Infosys Technologies Private
Limited, and the registered office was moved to Bangalore.
(c) On June 2nd 1992 company was converted into a Public Limited Company
under the name Infosys Technologies Ltd. - The Company provides software
maintenance, re-engineering and downsizing of software applications in these market
segments. It also markets internationally, two well-known packages, one for the
distribution industry (DMAP) and one for retail banking (Banks 2000). And Company
turned up with ISO 9000 certification.
(d) The Company has re-emerged as India's second most valuable company,
replacing the FMCG heavy weight, HLL in the year 2000.
(e) The company has a joint venture in USA with KSA (Kurt Salmon Associates).
KSA is a $40 million management consultancy company operating in ten cities of the
USA and also in eight different countries. The company also has an offshore software
development center for General Electric USA. Yantra Corporation is an wholly
owned subsidiary of the Company
(f) Besides the company has many subsidiaries, and branches in India as well as
abroad namely 22 in India, 15 in USA, and many countries like Germany, Japan,
Hong Kong, Canada, Australia, Us and Europe etc.

Growth Rate of Sales of Infosys Technology
10000 140
120
8000
100
6000
sales
80
In %
4000 60
40
2000
20
0 0
sales growthe rate
200 100
180 80
160 60
140 40
120
In Rs
20
IN %
EPS in Rs
100
0 Growth rate
80
60 -20
40 -40
20 -60
0 -80
31- 30- 28- 31- 31- 31- 31-
Mar- Mar- Mar- Mar- Mar- Mar- Mar-
00 01 02 03 04 05 06
Growth Rate of EPS of Infosys Technology

WIPRO LTD
BSE Code : 507685
NSE Code : WIPROEQ
Face Value : 2
Market Lot : 1
Chart Wipro LTD – At a Glance
Name of the company Incorporation Industry

year
Wipro LTD Computer and Software
29th 1945
Mr. Azim H Premji Wipro N M Raiji & Co
Office Doddakannelli Sarjapur Road A Not Reported

Bangalore Karnataka 560035

Chart Share Holding Pattern of Wipro as on '31/03/2005’
No. of
%
Holding
Held
Sub Total 1161136260 81.44

14024057 0.98
FIIs 66695330 4.68
Sub Total 88880526 6.23
NRI / OCBs 14944157 1.05
Any Other 29515212 2.07
Sub Total 175737481 12.33
GRAND TOTAL 1425754267 100.00

(a) The Company was Incorporated on 29th 1945 December, at Mumbai. The
Company Manufacture vegetable ghee, vanaspati, and refined oils including salad oil,
soap, waxs and tin containers for packing, crushing and oil milling trading in oils and
oilseeds and manufacture of fluid power products. The Products trade names were
"Kisan", "Sunflower" and "Camel".
(b) In 1997 the name of the Company was changed from Western India Vegetable
Products Ltd., to Wipro Products Ltd., with effect from 7th June. It was again
changed to Wipro Ltd., with effect from 28th April 1984.
(c) The Company set up a joint venture company with General Electric of U.S.A.,
in the name of Wipro GE Medical Systems Pvt. Ltd., for the manufacture, sale and
service of diagnostic and imaging products. The Joint Venture has also an OEM
sourcing arrangement with Elpro International Ltd., for locally made x-ray products.
In 1990, the joint venture became a subsidiary of the Company.
(d) 1n 1990 the Company undertook to set up a high technology plant and R&D
Center at Aurangabad with an investment of Rs 40 crores. The product range was to
include incandescent lamps, linear and circular fluorescent lamps, accessories and
luminaries.
(e) 1n 2000 company has become the second largest company in terms of market
capitalization on the Bombay Stock Exchange.
(f) In 2002, the company has strong software engineering processes & also
achieved ISO 9000 certification. Wipro is the first software company to get SEI Level
5 & also implemented Six Sigma TQM practices to software projects and support
functions.
(g) Besides the company has 34 branches in India 2 branches in USA, as well as
in other countries like Japan and United Kingdom.

8000 45
7000 40
6000 35
30
5000
Growth
Sales 25
4000
20
3000
15
2000 10
1000 5
0 0
Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05
sales growth rate
Growth Rate of Sales of Wipro
45 140
40 120
35 100
80
30
60
25 EPS In Rs
40
20 Growth rate
20
15
0
10 -20
5 -40
0 -60
30-Mar- 28-Mar- 31-Mar- 31-Mar- 31-Mar- 31-Mar-
01 02 03 04 05 06
Growth Rate of EPS of Wipro

SATYAM COMPUTER SERVICE LTD
BSE Code : 500376
NSE Code : SATYAMCOMPEQ
Face Value : 2
Market Lot : 1
Chart. 3.3.3-1 Satyam Computers at a Glance
Satyam Computer Service LTD 24th June 1987 Computer and Software
Mr. B. Ramalinga Raju Satyam Price Waterhouse
Mayfair Center 1 Floor 1-8- Bank of Baroda

303/36 Secunderabad Andhra BNP Paribas
Pradesh 500003 Citibank NA.
A HDFC Bank Ltd.

Hongkong & Shanghai
Banking Corporation Ltd.
ICICI Bank Ltd.
Vijaya Bank

Chart. Share Holding Pattern of Satyam as on '31/03/2005’
No. of
%
Holding
Held
Sub Total 45480204 14.02

5652834 1.74
FIIs 170270584 52.48
Sub Total 194423618 59.92
NRI / OCBs 3589153 1.11
Any Other 64682481 19.94
Sub Total 84545717 26.06
GRAND TOTAL 324449539 100.00

(a) On 24th June 1987 company was incorporated as a Private Limited Co. for
providing Software Development and Consultancy Services to large corporations. B
Rama Raju and B Ramalinga Raju promoted the company.
(b) On 26th August 1991 it was converted into a Public Limited Company.
Satyam Computer has four subsidiaries: Satyam Spark Solutions, Satyam Infoways,
Satyam enterprise Solutions and Satyam Renaissance, Consulting, Spark solutions
focuses on software products, Infoways operates in the field of electronic commerce
and electronic data interchange. Satyam Computer Services Ltd., one of the fastest
growing IT companies in the country, has taken significant decisions recently
including the merger of three of its subsidiaries with the parent company and a 1:1
bonus issue.
(c) The Company has formed a strategic alliance with Microsoft Corporation to
provide Web and enterprise integration application deployment solutions to US public
sector customers utilizing Windows DNA 2000 technology.
(d) The Company has been rated as one of the 10 most well regarded companies
in the country in prestigious 2000/2001 Review 2000 Survey conducted by the Hong
Kong-based Far Eastern Economic Review.
(e) Company has 29 branches in India and 6 branches in USA. Besides it has
many branches other counters like Germany, Malaysia, United Kingdom and
Singapore etc.

4000 90
3500 80
3000 70
60
Sales in Rs
2500
50
In %
2000
40
1500
30
1000 20
500 10
0 0
Mar-01 Mar-02 Mar-03 Mar-04 Mar-05
Saless Groeth
Growth Rate of Sales of Satyam
45 100
40 80
35 60
30
40
25
20
20
0
15
10 -20
5 -40
0 -60
30-Mar-01 28-Mar-02 31-Mar-03 31-Mar-04 31-Mar-05 31-Mar-06
EPS in Rs Growth
Growth Rate of EPS of Satyam

HCL TECHNOLOGIES LTD
BSE Code : 532281
NSE Code : HCLTECHEQ
Face Value : 2
Market Lot : 1
Chart 3.3.4-1 HCL Technologies At-a Glance
HCL Technologies LTD 12th November 1991 Computer and

software
Mr Shiv Nadar HCL BSR & Co.
806-808, Siddharth, 96, Nehru A Citibank NA.

Place New Delhi Delhi 110019 Deutsche Bank AG
ICICI Bank Ltd.
Standard Chartered
Grindlays Bank

Chart. 3.3.4-2. Share Holding Pattern of HCL as on '31/03/2005'
No. of
%
Holding
Held
Sub Total 224143150 69.44

4786180 1.48
FIIs 46393545 14.37
Sub Total 68328259 21.16
NRI / OCBs 1432203 0.44
Any Other 11687004 3.62
Sub Total 30319651 9.39
GRAND TOTAL 322791060 100.00

(a) HCL Technologies Limited was originally incorporated on 12th November

1991, as "HCL Overseas Limited". The certificate of commencement of business was
received on 10th February, 1992. On July 14, 1994, the name of the Company was
changed to "HCL Consulting Limited". The Company changed its name to "HCL
Technologies Limited" on 6th October 1999 to better reflect the line of activities of
the Company. HCL provides new technology development services to its clients.
(b) The Company has one of the largest software development infrastructures in
India. This state-of-the-art infrastructure, which comprises seven software factories, is
designed to take advantage of the high productivity and scalability as well as the
relatively lower cost of software development in India
(c) 1n 1998 the company has a rich heritage in technologies like the Internet and
e-Commerce, networking and internetworking, Internet telephony, telecom,
embedded software, ASIC/VLSI design and testing, satellite communication, wireless
communication and component based object technologies like COM, DCOM and
CORBA.
(d) In 1999, HCL Technologies has created wholly owned subsidiaries to cater to
specific geographic regions. Its major subsidiary is HCL Technologies America, 100
per cent owned by the company.
(e) HCL Technologies has entered into a strategic alliance with NASDAQ-listed
Vitesse Semiconductor to develop software solutions for global networking
markets.2001
(f) The company more than six branches in India and more than 9 branches in
USA. Besides it has many branches in other countries.

1600 90
1400 80
70
1200
60
1000 50
sales
In %
800 40
600 30
20
400
10
200 0
0 -10
Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06
sales growth rate
Growth Rate of Sales of HCL
20 100
18
80
16
14 60
12 40
10
8 20
6 0
4
-20
2
0 -40
30-Mar-01 28-Mar-02 31-Mar-03 31-Mar-04 31-Mar-05 31-Mar-06
EPS inRs Growth rate
Growth Rate of EPS of HCL

GLOBLE ECONOMY
In recent years, globalization of capital flows hassled to the growing relevance

of emerging capital markets and India is one of the countries with an expanding stock
market that is increasingly attracting funds from the FIIs. In particular, deregulation
and market
Liberalization measures, rapid developments in communication technology

and computerized trading systems, and increasing activities of multi national
corporations have accelerated the growth of Indian capital market. From 1999
onwards, Indian firms are raising capital from the US market by listing themselves in
US exchanges.
The economic dailies as well as official publications have been full of stories
of a newfound alliance between the NSE and the NASDAQ. Through these news
reports, market regulators, traders, and the general investing public in India have
become sensitized to the US stock market movements. Finally, a quick examination of
stock market movements of these two markets suggests that there exists a substantial
degree of inter dependence between the US and Indian stock market indices.

INDIAN ECONOMY
TRENDS IN GROWTH RATE OF GDP
Table. Trends in Growth Rate of GDP
COMPONENTS OF GROSS DOMESTIC PRODUCT (At factor cost)
change in change in change in

Year Agriculture % Industry % Service %
1991-92 $219,660.00 $148,555.00 $333,648.00
1992-93 232,386.00 5.79 154,631.00 4.09 350,774.00 5.13
1993-94 241,967.00 4.12 164,569.00 6.43 374,809.00 6.85
1994-95 254,090.00 5.01 183,221.00 11.33 400,720.00 6.91
1995-96 251,892.00 (0.87) 206,863.00 12.90 440,808.00 10.00
1996-97 276,091.00 9.61 223,766.00 8.17 470,225.00 6.67
1997-98 269,384.00 (2.43) 230,580.00 3.05 516,631.00 9.87
1998-99 286,094.00 6.20 237,957.00 3.20 558,696.00 8.14
1999-00 286,983.00 0.31 247,595.00 4.05 613,789.00 9.86
2000-01 286,666.00 (0.11) 263,740.00 6.52 648,186.00 5.60
2001-02 304,666.00 6.28 273,004.00 3.51 690,275.00 6.49
2002-03 283,393.00 (6.98) 290,486.00 6.40 744,483.00 7.85
2003-04 310,611.00 9.60 309,422.00 6.52 810,515.00 8.87
2004-05 314,180.00 1.15 335,036.00 8.28 880,192.00 8.60
Source: Central Statistical Organization

(a) Impact of Gross domestic product
Gross domestic product is the measure of economy’s total production of goods and
services. Rapidly growing GDP indicates expanding economy with ample opportunity
for a firm to increase the sales vise versa. Penetration of GDP provides the insights on
the economy- agriculture, industry, and service sectors performance.
Correlation between Growth rates of GDP and Sensex
Table Correlation between Growth rates of GDP and Sensex
Year Growth rate of GDP Growth rate of Sensex
1998-99 6.5 26.7
1999-00 6.1 7.7
2000-01 4.4 -22.8
2001-02 5.6 -4.5
2002-03 4.4 -3.8
2003-04 7.0 8.8
2004-05 7.5 58.4
Correlation 0.843609

80
60
40
GDP
20
SENSEX
0
-20 9 9 0 1 2 3 4 5
8- 9-0 0-0 1-0 2-0 3-0 4-0
9 99 0 0 0 00 0
19
-40 1 20 20 20 2 20
Relationship between GDP and Sensex

(b) Correlation
GDP has become most crucial variable affecting the stock market. As the
graph shows, there has been positive correlation 0.843 between GDP and Sensex
indicates that GDP has direct influence on stock market. Of course there are several
other factor impact the movement of Sensex, like September 11 attacks in 2001.
(c) The government is expecting that the GDP growth would be higher than last
year The Center for Monitoring Indian Economy (CMIE) raised its forecast for GDP
growth for the year ending March 31, 2005 to 7.5% from the earlier 4.4%.
TRENDS IN DEFICITS OF CENTRAL GOVERNMENT
Table Trends in Deficits of Central Government
Primary Revenue Fiscal sensex

year deficit deficit deficit return
1999-00 14468 67596 104717 7.7
2000-01 19502 85234 118816 -22.8
2001-02 33495 100162 140955 -4.5
2002-03 18134 95377 135524 -3.8
2003-04 29803 104712 145466 8.8
2004-05 30414 112292 153637 58.4
co relation 0.546908924
Source: Budget document

(a) Impact of Fiscal deficit
Fiscal deficit measure the difference between government spending and

revenues. Since government borrowing must offset the budgetary shortfall, large
amounts of government borrowing can force up the interest rate by increasing the
total demand for credit in the economy.
80
60
40
in %
20
0
-20 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05
-40
change in % sensex return
Relationship between Fiscal Deficit and Sensex
(b) Correlation
The table. 4.2.2. Shows there has been positive 0.546908924 between the fiscal deficit
and Sensex, indicates that deficit does not have direct influence on Sensex. However
the relationship is negative, the above variable may move in opposite direction.
Currently the government estimate fiscal deficit for FY05 is 5.6 per cent of GDP, it
affects positively in a very lees amount to the stock market.

TRENDS IN THE SAVINGS AND INVESTMENT
Table Trends in the Savings and Investment
SECTOR-WISE DOMESTIC SAVINGS (Rupees crores)
Year Household sector Private Public Gross domestic Net

corporate sector savings (4+5+6) domestic
Financial Physical Total sector savings
savings savings (2+3)
1 2 3 4 5 6 7 8
1994-95 120733 78625 199358 35,260 16845 251463 153469
1995-96 105719 110421 216140 58,542 24065 298747 180821
1996-97 141661 91591 233252 61,092 22917 317261 180758
1997-98 146777 121660 268437 63,486 20255 352178 200181
1998-99 180346 146456 326802 65,026 -17169 374659 206593
1999-00 205743 198658 404401 84329 -20049 468681 286322
2000-01 216774 235494 452268 86142 -48361 490049 292154
2001-02 253964 259146 513110 81076 -61912 532274 314595
2002-03 254439 320242 574681 94269 -26652 642298 409346
2003-04 314261 357431 671692 114157 -9429 776420 522783
Source: Central Statistical Organization.

(a) Impact of saving and investments
Saving and investment is the portion of amount that is saved and invested by the
people and corporate. Moderate level of saving and high investment is favorable to
stock market, but increase in savings rate indicates little scope for further
improvement.
50
40
30
20
10
0
1999-00 2000-01 2001-02 2002-03 2003-04
-10
-20
-30
investment % sensex return
Relationship between Investment Rate and Sensex
(b) Correlation
The graph shows the relation between investment and stock market was 0.56 percent)
moving in opposite way from 1999-00 onwards. Mainly because of the saving was
increasing, on the same time the investment started decrease, seems to be the Sensex
is rising.

TRENDS IN THE INTEREST RATE
STRUCTURE OF INTEREST RATES
Year Call/Notice Commercial bank rates
money
rates (i) Deposit rates (ii) (iii) SFCs* (viii)
1 to 3 yrs. Over 3 yrs. & Above 5 yrs. PLR Rate
upto 5 yrs.
1 2 3 4 5 6 7
1999-00 8.87 8.50-9.50 ! 10.00-10.50 ! 10.00-10.50 12.00-12.50 @ 12.00-18.00
2000-01 9.15 8.50-9.00 ! 9.50-10.00 ! 9.50-10.00 11.00- 12.00 @ 9.75-17.00
2001-02 7.16 7.50-8.50 ! 8.00-8.50 ! 8.00-8.50 11.00-12.00 @ 9.50-16.75
2002-03 5.89 4.25-6.00 ! 5.50-6.25 ! 5.50-6.25 10.75-11.50 @ 9.50-14.50
2003-04 4.33 4.00-5.25 ! 5.25-5.50 ! 5.25-5.50 10.25-11.00 @ 9.50-14.51
2004-05 4.55 5.25-5.50 ! 5.75-6.25 ! 5.75-6.25 10.25-10.75 @ 9.50-14.51
2005-06 5 5.25-5.50 ! 5.75-6.25 ! 5.75-6.25 10.25-10.75 @
Table Trends in the Interest Rate
Source: Monitory and credit policy
(a) Impact of interest rate
Interest rate is the cost of borrowing depends on nature of instruments, which

will be decided by demand and supply of money and controlled by RBI. It indicates
the attractiveness of future investment opportunity and it is key determinant of
business expenditure. High interest rate reduces the value of future cash flow as well
as opportunities for investment.

(b) Relationship between interest rate and stock market
As table shows interest rate declining over the period, it enables the investors
to invest in securities instead of any other instrument. Investors also can borrow the
money from other sources and could invest in stock avenues. In conclusion declining
interest rate favorable to the market as well as to the companies, where their cost on
borrowed fund reduces.
TRENDS IN MONEY SUPPLY
Table Trends in Money Supply
Absolute value
Growth rate of
Year (Rs, 1000 Percentage changes
Sensex
Crore)
1998-99 937.50 13.2 26.7
1999-00 1,124.20 14.6 7.7
2000-01 1,318.20 16.8 -22.8
2001-02 1,500.00 14.2 -4.5
2002-03 1,689.00 15.7 -3.8
2003-04 1375.69 17.7 8.8
2004-05 1627.43 18.3 58.4
Correlation 0.23442
Source: Central statistical organization

(a) Impact of money supply
A rate of increase in money supply ensures inflation is with in the permissible

limit. The table shows the correlation between money supply and Sensex was highly
negative, which indicates increase in money supply makes adverts affect on stock
market vise versa. So the money supply is also one of the crucial factor decides stock
market movement.
100
80
60
40
20
0
1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05
-20
Percentage changes Growth rate of Sensex
Relationship Between Money supply and Sensex
(b) Correlation
Above graph shows there is the negative relationship between Money supply
and Sensex as it moving in the opposite way during the year. So one should be
careful before taking investment decision in any security about the present movement
of money supply.

TRENDS IN GROWTH RATE OF INFRASTRUCTURE
Table Trends in Growth Rate of Infrastructure
Growth Rate
Growth
Transport and
Year Total Energy Steel rate of
communication
Sensex
1998-99 2.96 3.85 1.4 1.7 26.7
1999-00 10.06 6.68 15 11.6 7.7
2000-01 6.12 4.65 6.5 8.3 -22.8
2001-02 -1.56 1.61 2.4 -5.8 -4.5
2002-03 7.5 2.1 9.7 83.2 -3.8
Correlation -.07
Source: Ministry of commerce and industry, Railways, Shipping, Communication,

Statistics and program implementation.
(a) Impact of infrastructure
Investment in infrastructure developments indicates positive signal to the

sectors in the economy, especially manufacturing companies related to transportation.
In order to gain from the trade the transaction costs should be low. So the better
facility reduces the cost of trade and enables the companies for making profit.

12 30
Infrastructure Growth Rate

10
20
Percentage of sensex
8
10
6
4 0
2
-10
0
1998-99 1999-00 2000-01 2001-02 2002-03 -20
-2
-4 -30
Year nfrastructure Sensex
Relationship Between Infrastructure and Sensex
(b) Correlation
The table shows there has been negative correlation between infrastructure
and Sensex, but in real sense growing infrastructure rate would show positive signal
for the economy.
(c) In the budget there – new road projects at an estimated cost of around Rs.40,
000 Crore; with a quarter of them being made of cement concrete; showing
opportunity for automobile companies as well as cement companies.

TRENDS IN MONSOON AND AGRICULTURAL GROWTH RATES
Table Trends in Monsoon and Agricultural Growth Rates
Percentage of Growth of
district with agricultural Growth rate of
Year Normal Excess Deficient
normal/excess and allied Sensex
rain fall sector
1 2 3 4 5 6 7
1998-99 20 13 2 81 6.2 26.7
1999-00 25 3 7 67 0.3 7.7
2000-01 23 5 7 66 -0.4 -22.8
2001-02 29 1 5 68 5.7 -4.5
2002-03 14 1 21 44 -3.1 -3.8
Correlatio
n between 0.53
6&7
Correlatio
n between 0.50
5&7
Source: Central statistical organization

(a) Impact of agriculture and allied products growth rate
In the Indian economy the matters to be considered in the first place is the
behavior of the monsoon and performance of agriculture. As agriculture is the main
stay of 70% of the population and contributes nearly 35% of the out put of the
economy. If the monsoon is good and agricultural income rise, the demand for
industrial products and services will be good and industry prospers.
8 30
6 20
Growth Rate of Sensex

Monsoon Performence
4 10
2 0
0 -10
1998 1999 2000 2001 2002 2003
-2 -20
-4 -30
Year Agreculture and allied products Sensex
Relationship between Monsoon and Sensex
(b) Correlation
The above figure shows the relationship between agriculture and Sensex was
positive. As could be seen easily from the graph, the growth rate of both variables was
moving in the same direction, indicates that the agriculture production has direct
impact on stock market. In fact good growth in industrial and service sectors moved
the Sensex higher in 2002-03.
(c) The economic think tank expects the agricultural sector to grow by 7.5%
despite the delayed, but good start to the southwest monsoon, which is likely to lead
to better food grain output this fiscal. Thus, there is a positive sign to the stock
market.

TRENDS IN EXCHANGE RATE OF RUPEE
Trends in Exchange Rate of Rupee
EXCHANGE RATE OF THE INDIAN RUPEE,
Year US Pound Deutsche Mark Japanese Yen

Dollar Sterling @ sensex
1999-00 43.332 69.8510 44.7909 39.0606

7 7.7000
2000-01 45.684 67.5522 41.4832 41.4052 -

4 22.8000
2001-02 47.691 68.3189 42.1811 38.1790

9 -4.5000
2002-03 48.395 74.8193 48.0901 39.7363

3 -3.8000
2003-04 45.951 77.7389 53.9896 40.7077

6 8.8000
2004-05 44.931 82.8644 56.5130 41.8046

5 58.4
Co -0.3664
relation
Source: Reserve bank of India

(a) Impact of exchange rate
Exchange rate measures the value of the rupee over the foreign currency.
Exchange rate decides international competitiveness of domestically produced goods
and it can affect import export, import and the rate of inflation domestically.
120.0000
100.0000
80.0000
sensex
60.0000
US Dollar
40.0000
20.0000
0.0000
1999- 2000- 2001- 2002- 2003- 2004-
00 01 02 03 04 05
Relationship between Exchange Rate and Sensex
(b) Correlation
There has been positive relationship between exchange rate and Sensex. (-
0.3664) As above table indicates initially value of money was decreased and the
Sensex also moved in the same way. In the year 2005 June the Sensex has gained,
since the value of the rupee raised. In the above graph and table it has been taken a
Dollar against Rupee.

COMPARATIVE ANALYSIS OF COMPUTER AND

SOFTWARE, PHARMACEUTICAL, CEMENT AND AUTOMOBILE
INDUSTRIES
Sales Growth Rate of Computer and Software, Pharmaceutical, Cement and

Automobile industry.
500.0
400.0
300.0
200.0
100.0
0.0
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
-100.0
-200.0
soft pharma cement auto


INFERENCE
The graphs show the growth rate of sales and dividend of different industries
respectively. When comparing between the different industries Computer and
Software industry showing the positive signal in the last year where other industries
are looking down in the dividend payment even though the sales shows bit increasing
trend. All other industries except Computer and Software industries are down ward
trend in the comming years.

COMPARATIVE STATEMENT OF RATIOS OF FOUR INDUSTRIES
CURRENT RATIO
Current Ratio
Industry 1999 2000 2001 2002 2003 2004 2005
Computer and
Software 3.52 3.61 3.42 3.18 2.66 2.54 2.8
Pharmaceutical 1.3 1.37 1.35 1.24 1.25 1.35 1.45
Cement 0.79 0.76 0.81 0.93 1.16 1.28 1.32
Automobile 1.08 1.07 1.15 1.28 1.48 1.52 1..49
Source: Financial Results of Computer and Software, Pharmaceutical, Cement and

Automobile Industries
INFERENCE
Current ratio indicates the extent of current assets available to meet current
liabilities. The satisfactory level is considered as 2:1. The above table shows current
ratio for Computer and Software is the highest in all the years, followed by
Pharmaceutical and Automobile industry and very less than the standard level in
cement industry where it will face problem in meeting current obligation.

DEBT-EQUITY RATIO
Table
Debt-equity Ratio
Industry 1999 2000 2001 2002 2003 2004 2005
Computer and
Software 0.04 0.02 0.04 0.07 0.17 0.21 0.22
Pharmaceutical 1.13 1.04 0.9 1.08 1.31 1.34 1.38
Cement 2.22 2.2 1.99 1.73 1.65 1.61 1.55
Automobile 0.91 0.9 0.85 0.86 0.91 0.95 0.93

INFERENCE
Debt-equity ratio enables the investor to analyze the long-term solvency of the
industry. In the above table solvency position of the Computer and Software industry
is good, followed by automobile. On the other hand, Pharmaceutical industry showing
not bad and Cement industry had worst case in 1999, but gradually recovering in
coming years. This high ratio indicates that the profit will be eaten away by debt
through payment of interest.

FIXED ASSETS TURNOVER RATIO
Table
Fixed Asset Turnover Ratio (in times)
Industry 1999 2000 2001 2002 2003 2004 2005
Computer and
Software 2.24 0.86 2.22 2.54 2.65 2.8 2.95
Pharmaceutical 1.34 1.26 1.44 1.21 1.27 1.35 1.43
Cement 0.84 0.85 0.86 0.88 0.9 1.22 1.4
Automobile 1.61 1.61 1.56 1.83 1.58 1.62 1.64

INFERENCE
This ratio indicates efficiency in utilizing assets. Higher the turnover implies
more efficient the industry in utilizing the assets. The above table shows the
Computer and software industry is effectively utilizing the assets, followed by
Automobile and pharmaceuticals. And the last place taken by cement industry, which
is not doing well comparing to other industries

INVENTORY TURNOVER RATIO
Table.
Inventory Turnover Ratio in (days)
Industry 1999 2000 2001 2002 2003 2004 2005
Computer and
Software 49.54 34.12 51.13 38.12 25.64 22.37 19.36
Pharmaceutical 5.14 4.98 5.6 4.99 5 5.32 5.14
Cement 9.31 9.35 8.83 8.75 7.99 7.21 6.98
Automobile 6.93 7 6.65 7.79 5.54 5.8 6.05

INFERENCE
This ratio indicates efficiency of the management in selling its product. The
high ratio indicates the products are not being sold quickly. The above table indicates
the holding period of inventory in Pharmaceutical industry was least compare to other
industries, but in the Computer and Software industry, it has high stock for selling,
however it can not be come to the conclusion that the industry can not sell the
products, because the each product consists large some of money.

DEBTORS TURNOVER RATIO
Table.
Debtors turnover ratio (in times)
Industry 1999 2000 2001 2002 2003 2004 2005
Computer and
Software 4.34 1.88 4.22 4.49 4.78 4.91 4.96
Pharmaceutical 3.53 3.64 4.09 3.66 4 4.6 4.4
Cement 16.55 17.33 15.09 12.92 11.62 10.89 11.1
Auto 8.45 8.48 7.25 6.12 3.63 4.2 3.9

INFERENCE
The debtor turnover ratio indicates the number of times the debtors’ turnover
each year. Generally, the higher the value of debtors turnover the more efficient in the
industry environment in the management of credit. In the above table, the Cement is
doing well in managing the debtors, but other industries are slower in collecting
debtors, in comparing Cement industry.

RETURN ON CAPITAL EMPLOYED
Table
ROCE (%)
Industry 1999 2000 2001 2002 2003 2004 2005
Computer and
software 25.61 12.05 24.85 31.37 34.01 37.5 39.23
Pharmaceutical 0 11.75 10.28 9.8 0 8.6 9.5
Cement 0 8.26 0 0 0 9.3 11.23
Automobile 8.71 8.86 3.27 6.29 6.49 6.9 7.2

INFERENCE
The return on capital employed ratio provides a test of profitability related to

the source of long-term fund. The above table indicates that the Computer and
Software industry has return over long term-fund than other industries. The ratios
related to Computer and software industry are increasing over the years, where as the
other industries’ ratio declining trend, indicates performance of these industries are
declining trend.

RETURN ON NET WORTH RATIO
Table
RONW (%)
Industry 1999 2000 2001 2002 2003 2004 2005
Computer and
software 23.3 10.16 22.84 29.74 33.74 39 43
Pharmaceutical 0 8.07 4.26 3.64 0 5.5 7.83
Cement 0 4.09 0 0 0 4.9 6.2
Automobile 2.2 2.55 -8.22 -2.09 -0.41 2.2 2.86

INFERENCE
This ratio is the most important to judge whether the industry has earned
satisfactory return for its equity-holders or not. From the above table it can be clearly
analyzed the profitability to the equity-holders increasing over the years, however the
rate of increasing has been declining. But the profitability to the equity-holders
declining over the years for other industries namely Pharmaceutical and Automobile,
where as in Automobile industry it has been negative growth, indicates that dividend
available to equity holders decreasing over the years, Cement industry also not for
behind.

COMPARATIVE ANALYSIS OF FOUR COMPANIES
8000
7000 H C L Technologies
6000 Ltd.
5000 Infosys
SALES
Technologies Ltd.
4000
Satyam Computer
3000 Services Ltd.
2000 Wipro Ltd.
1000
0
2000 2001 2002 2003 2004 2005
Sales Growth of Infosys, Wipro, Satyam and HCL
200
150 H C L Technologies
Ltd.
100 Infosys
Technologies Ltd.
50 Satyam Computer
Services Ltd.
0 Wipro Ltd.
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06

EPS Growth Rate of Infosys, Wipro, Satyam and HCL
INFERENCE
The figure shows the sales and EPS of four companies in Computer and
Software industry respectively. Growth rate of sales of Infosys and Wipro indicates
the positive signal in the last year, but EPS of Infosys only showing positive signal.
Satyam was doing well during the middle period but failed to provide good return to
investors, HCL also far behind when comparing between these companies.

COMPARATIVE STATEMENT OF RATIOS OF FOUR COMPANIES
Category 1
MARKET VALUE RATIOS
Table Market Value Ratios
Name of the company Price Earning Ratio Market to book
Infosys 44.8 12.3
Wipro 32.6 9.65
Satyam 22.8 6.36
HCL 26.5 10.86
Source: Financial Results of Infosys, Wipro, Satyam and HCL
INFERENCE
(a) P/E Ratio
The above table shows the P/E ratio for Wipro is the highest followed by
Infosys. The general rule is P/E ratio of well-established companies is very high and
low in case of weaker ones. Earning of Wipro and Infosys justifies its high P/E ratio.
(b) Market to Book Ratio
In the table shows the Market Book Ratio of all the companies are high
(market price is triple or quadruple to its book value) which indicates, investors
having the tremendous confidence in the growth prospects of the company. Viewed in
these scenes Wipro and Infosys seem to enjoy investor’s confidence. Remaining two
companies also favorable in this regard.

Category 2
EARNING RATIOS
Table Earning Per Share Ratio
Name of
the
company 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06
Infosys 40.9 43.23 95.05 122.07 144.61 186.59 70.37 87.86
Wipro 7.43 13.12 28.73 37.25 34.98 39.31 21.25 14.17
Satyam 5.6 4.8 17.29 14.29 9.77 17.57 23.5 38.21
HCL 16.72 30.42 14.26 14.97 13.77 12.47 9.48 18.19
INFERENCE
In this regard Infosys indicates more favorable than others followed by Wipro.
Satyam and HCL stand poor in this regard. However to calculate the value of shares
on the basis of this one needs the information on the normal rate of return expected by
investor in the Computer and Software industry. As this can vary from investor to
investor the same is not attempted.

Table Dividend per Share Ratio
compamy name Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05
H C L Technologies Ltd. 1.83 3.42 31.41 43.21 131.81 334.06
Infosys Technologies Ltd. 33.03 74.85 137.42 191.11 972.96 357
Satyam Computer Services Ltd. 14.18 26.05 38.85 103.23 142.96 180.49
Wipro Ltd. 10.48 14.81 23.25 26.24 761.49 401.12
INFERENCE
Dividend percentage is high in Infosys through out the period, Wipro and
HCL is found to have consistency in this regard. However to ascertain the correct
value of shares the correct value of share it is essential to include capital appreciation
also. As it is not available it is concluded that Infosys is consistently increasing from
the year 2004-05

Table Dividend Pay out Ratio
company name 200603 200503 200403 200303 200203 200103
infosys 55.1 16.65 76.12 18.91 16.49 10.67
wipro 250 1450 50 50 25 15
satyam 18.91 21.89 23.49 31.61 8.32 4.66
hcl 14.6 13.9 10.89 7.36 1.71
INFERENCE
Infosys has an edge over others in this regard from 1999-00 onwards.
Normally young aggressive growth companies have low dividend payout ratios. So it
is inferred that all the companies including Wipro and Satyam is encouraging.

Category 3
PROFITABILITY RATIOS
Table. Profitability Ratios
Return on Capital Employed
company 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06
Infosys 42.44 47.4 63.17 54.42 46.94 37.51 13.73 61.12
Wipro 26.34 31.4 52.5 58.52 42.53 33.25 32.84 6.13
Satyam 25.69 32.5 33.44 45.55 33.83 24.64 27.95 29.85
HCL 24.52 30.83 42.25 46.73 38.26 -91.97 -30.3 -69.57
Return on Net Worth
company 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06
Infosys 36.2 41.7 56.57 46.57 38.78 37.51 13.73 61.12
Wipro 37.83 46.55 55.1 52.94 39.29 35 31.5 5.33
Satyam 27.23 54 50.28 55.46 32.76 10.59 20.89 24.65
HCL 21.12 29.02 31.59 41.57 38 65.73 3.39 4.26
INFERENCE
The profitability ratios related to investment are no doubt impressive for all
four units over the years. However in the last year 2003-04 the ratios of all the
companies are low compare to previous two years. So, all the companies indicating
well sign in this regard.

Category 4
LIQUIDITY RATIOS
Table Liquidity Ratios
Current Ratio
Name of the company 1998-99 1999-00 2000-01 2001-02 2002-03
Infosys 6.57 4.69 3.49 3.87 3.92
Wipro 2.36 2.11 1.30 3.33 3.42
Satyam 3.99 4.64 4.93 4.17 7.05
HCL 4.66 6.04 9.47 6.68 5.11
Quick Ratio
Infosys 6.57 4.69 3.49 3.82 3.87
Wipro 1.73 1.66 1.08 3.11 3.26
Satyam 3.99 4.64 4.93 4.17 7.05
HCL 4.66 6.04 9.47 6.68 5.10
INFERENCE
From the point of view of liquidity all the concern is maintaining high
liquidity position than standard norms (2:1) incase of current ratio and (1:1) incase of
quick ratio, of course in software companies, lot of money associated with inventory
only, which is the main variable in current ratio. The above table indicates, both
Infosys and Wipro perform well compare to others.

Category 5
TURNOVER RATIOS
Table Turnover Ratios
Fixed assets Turnover Ratio
Name of the company 1998-99 1999-00 2000-01 2001-02 2002-03
Infosys 3.71 3.90 4.15 3.27 3.24
Wipro 4.35 4.44 4.62 4.53 3.92
Satyam 1.33 1.61 1.89 2.53 2.70
HCL 4.13 4.39 4.98 5.40 3.40
Debtor Turnover Ratio
Infosys 8.54 8.15 8.67 8.00 8.18
Wipro 5.50 5.89 6.19 6.07 5.54
Satyam 4.49 4.13 4.20 4.96 5.02
HCL 4.20 4.40 4.40 4.50 3.40
Average Collection Period (in days)
Infosys 43 45 42 46 45
Wipro 66 62 59 60 66
Satyam 81 88 87 74 73
HCL 86 82 83 80 106

INFERENCE
Turnover ratios in general show a favorable trend. This is comes from

financial performance of the companies. However the collection for HCL is very
slow, followed by Satyam. But Infosys ‘s performance is encouraging where they
manage the debtors also well.
COMPARISON BETWEEN COMPANIES THROUGH LEVERAGES
Table Leverages
Name of the company Operating Financial Combined
Infosys 0.51 0.90 0.46
Wipro 0.13 -3.00 -0.38
Satyam 0.35 -5.30 -1.86
HCL -0.87 0.53 -0.46
INFERENCE
The above table shows Infosys’s leverages are positive, it indicates that the
changes in sales by 100 percent, the changes in profit by 46 percent. However the
leverage less than one indicates the company has to bear fixed cost regardless of sales.
As the leverages which is more than one is encouraging, the negative leverage
indicated by remaining companies suggest not investing on those expect in the
Infosys.

COMPARISON BETWEEN COMPANIES THROUGH BETA
BETA ANALYSIS
Table Correlation and Betas
Name of the company Correlation Beta Values
Infosys 0.38 1.88
Wipro 0.40 2.13
Satyam 0.10 1.92
HCL 0.45 2.01
Source: Bombay Stock Exchange
INFERENCE
From the above table it can be perceived that the stocks of these companies are
very aggressive and undiversifide risk for them is very high. Comparing between the
companies, Infosys seems to be better as its beta is comparatively slow.
The experts’ opinion on the utility of beta is not unanimous. The beta was very
popular in the seventies. Of late the glamour of beta seems to have faded somewhat. It
should also be noted that there is a third variable –economy. Economic events cause
systematic change in both security and market index prices. The most logical way to
forecast beta is to quantify the relationship between market and security return and
these factors.

8000
7000 infosys
6000
5000 hcl
4000 wipro
3000 satyam
2000
1000 nifty
0
1/1/2001
7/1/2001
1/1/2002
7/1/2002
1/1/2003
7/1/2003
1/1/2004
7/1/2004
1/1/2005
7/1/2005
Comparison between Share movements of Sensex, Infosys, Wipro, Satyam and HCL Companies

CONCLUSIONS
Now at the final the following facts emerge from the study security analysis for
selecting appropriate security through analyzing economy and industry
a) When come to the economic factors the global economies are getting interrelated,
the Indian market will no longer be limited to domestic economic situation.
b) As far as the Indian economy is concerned, the GDP is the primary factor, has the
positive correlation with the Sensex, which directly affects the overall market and
followed by other factor. Where the GDP is forecasted at 8% for the present year as
compared against 4.3%in the year 2002-03, showing good sign for the stock market.
c) Agricultural growth rate and the monsoon both has direct influence on stock
market and responsible for the economy to become prospers. It has the correlation
0.50 with the Sensex indicates the stock market would be prospers only when the
agriculture grow well.
d) The exchange rate has the positive correlation with the Sensex. In the resent trend
the value of the rupee is going up, shows positive signs to stock market, as Sensex
also associated with that movement.
e) When come to the Industrial Factors, in the year 2004-05 the overall growth
different sector according to CMIE report would be: The growth of service sector
would be 7%, same as it was in the previous year 2003-04. On the other hand, growth
of industrial sector is forecasted at 4.5% in 2003-04 as against 5.8% in 2002-03. As
the service sector is the main part of GDP in the present year 2003-04, the Computer
and Software industry, which is part of the Service sector is given weight than other
Industrial sectors.
f) When compare the ratios of Computer and software, Cement, Automobile and
Pharmaceutical industries, the computer and software industry provides handsome
return to the investors.

g) Except the computer and software industry, all other industry’s short-term
solvency position is not good. Of course, the remaining ratios also far behind
compared Computer and Software industry.
h) As the main part of the sales in the Computer and Software industry takes place
through export only, it is sensitive to the global economy and has high risk. It is also
from the fact that the September 11 attack in 2001, many software companies has
been affected than any other industries. Even though the above factors Computer
and Software industry is selected where it shows better opportunities for growth than
other industries.
i) Then come to the companies, all the units under study are financially sound and
performance indicator reveals the same.
j) Market potentials for growth of these units are quite encouraging.
k) Fundamentals of those companies are quite strong. None of the fundamental,

signals for disinvestments for moving out of computer and software industry.
l) When compare to the specific indicators like sales growth and EPS, the Infosys
will in the first place then followed by Wipro and remaining those Satyam and HCL
could be left out because, the sales and EPS and other ratios are encouraging.
m) The market to book ratio of all the companies are high indicates the existing
investors have an interest about the overall industry and think that still the
opportunities exists for these companies.
n) The leverages of all the companies shows negative mark except Infosys, reveals
the Infosys is only encouraging comparing to Wipro, Satyam and HCL companies.
o) When comparing the betas between the companies Infosys is less volatile to
overall market which is having the beta1.88, followed by Wipro having the beta 1.92
and the remaining Satyam and Wipro crossed the beta value two.

SUGGESTIONS
a) After a close scrutiny of economy industries and companies in considering the

risk, it may be recommended that international economy might affects the firms
export prospects, the price competition it faces from competitors, or the profit it
makes from abroad. Certainly, despite the fact that the economies of most countries
are linked with the global economy, there is a considerable variation in the economic
performance across the different countries at any time; investor should properly
analyze both globally and domestically before taking investment decision.
b) The investor also should consider the budget decision and present years forecast
of different sectors. Comparisons between the different is also necessary because of
companies perform well when potential opportunity exists for industry.
c) Even though the industry may perform well, the companies in the that particular
industry may suffer form lack of ability or any other factor, one should scrutinize the
performance of the company, in considering importantly, sales growth, leverages,
betas, P/E ratio and market to book ratios
d) It may be pointed out that to make out generalization in this regard is not very
easy. This is because of share do not always retaining their lustre. There are several
instances of quite blue chip of yester years now languishing in a colorless state. It is
the personal intuition, sensing patterns of behavior, there is always something
unknown and undeserved. So the points to be noted are
 No one should purchase on whim.
 Investment in shares is a serious business.
e) However, there are such things as a final answer to security values, a dozens
experts arrive at twelve different conclusions. Market values are fixed only in part by
balance sheet and income statement; much more by hopes and fears of humanity; by
greed, by act of god, where the investor should carefully consider the emotional
factors influence the market.

f) Of all the systems, the researcher is of the view that fundamental analysis even
today holds good. It demands, may insist on information about the company. It
requires subjecting a company’s performance and its financial statements to in-depth
scrutiny. It also calls for the company and industry in which the company operates

BIBLIOGRAPHY
A. TEXT BOOKS
i) Donald, E. Fisher and Ronald, J. Jorden, “Security Analysis and
Portfolio Management”, (6th ed.), New Delhi, Prentice Hall India,
2002.
ii) M. Y. Khan and P. K. Jain, “Financial Management”(3rd ed.),
Tata McGraw-Hill, New Delhi, 2002
B. NEWS PAPERS
i) Mangesh Soman and Arnav Pandya/ETIG, “Sensex Monsoon
Correlation is Only Skin Deep”, Economics Times, June-10-2003.
ii) Tushar, k. Mhanti/ETIG, “Lower Interest Cost Key to India
Inc’s Net Profit Growth in 02-03”, Economics Times, May-15-
2003.
iii) “Economic Growth Projected 6.5%”, Vijay Times, July-12-
2003
C. WEB DOCUMENTS
i) http:/www.bseindia/historicaldata/betavalues.html.
ii) http:/www.bseindia/charts.
iii) http:/www.finministry/unionbudjet/budgetglance.htm.

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A STUDY ON FUNDAMENTAL ANALYSIS OF SECURITIES

Submitted in partial fulfillment of the requirement for MBA

Under the guidance of

M.P.Birla Institute of Management

M.P.BIRLA INSTITUTE OF MANAGEMENT

I hereby declare that the research project titled “A STUDY ON

Place: Bangalore MOHAN KUMAR D R

M.P.BIRLA INSTITUTE OF MANAGEMENT

This is to certify that Mr.MOHAN KUMAR D R bearing Registration

No: 04XQCM6057 has done a research project on “A STUDY ON

FUNDAMENTAL ANALYSIS OF SECURITIES” under the guidance of DR N S

Place: Bangalore Dr.N.S.MALLAVALLI

M.P.BIRLA INSTITUTE OF MANAGEMENT

STUDY ON FUNDAMENTAL ANALYSIS OF SECURITIES”has been undertaken and completed

by Mr. MOHAN KUMAR D R under my guidance and supervision.

Place: Bangalore Dr N S MALLAVALLI

Date: Research Guide

M.P.BIRLA INSTITUTE OF MANAGEMENT

The successful accomplishment of any task is incomplete without acknowledging

My special thanks to my project Guide Dr N S MALLAVALLI, who guided me

their wholehearted direct and indirect support and encouragement.

M.P.BIRLA INSTITUTE OF MANAGEMENT

Investment is the employment of fund on assets with an aim of earning income

Investment means the present consumption is sacrified to get return in future.

An Indian stock market has been no different. Memories of its crash of

M.P.BIRLA INSTITUTE OF MANAGEMENT

INTRODUCTION TO THE CONCEPT OF SECURITY

An investment is a commitment of funds made in expectation of some positive

There fore, investment process must be considered in terms above aspects.

One should approach any scheme of investment as a rational decision making

Therefore the ultimate decisions to be made in the investment are two.

 What securities to be held

 How many rupees should be allocated to each.

M.P.BIRLA INSTITUTE OF MANAGEMENT

These decisions are made in three steps.

3. Portfolio analysis, selections and management.

(a) Traditional investment analysis, when applied to securities, emphasizes projection

M.P.BIRLA INSTITUTE OF MANAGEMENT

DIFFERENT APPROACHES TO EVALUATION

There are essentially three approaches or school of thoughts on the matter of

(a) Fundamental Approach

Framework: The proper order in which to proceed in Fundamental analysis

Strategic considerations of economic, industry and company analyses are as follows

M.P.BIRLA INSTITUTE OF MANAGEMENT

(1) Economic Analysis

1. A study of economic trends as indicated by rate of growth in gross national

2. An analysis of the relationship between economic trends and economic policies

3. A study of world economic trends and their impact on Indian economy.

(2) Industry Analysis

1. Implications of projected growth in gross national product for various industries.

2. Implications of plan priorities and plan expenditure for various industries.

3. Vulnerability of an industry for government regulations, and control of prices and

4. Implications of industrial and fiscal policies of government for an industry.

5. Analysis of competitive conditions as reflected in any barriers to entry.

(3) Company Analysis

1. Trend analyses of company’s market share.

2. An analysis of turn over of assets, operating and production efficiencies through

3. Leverage and coverage ratio analysis.

4. An analysis of book value per share.

5. An assessment of quality of management

6. An analysis of price –to –earning multiples.

7. An analysis of growth in sales and dividends.

The basis tenets of this approach are as follows:

M.P.BIRLA INSTITUTE OF MANAGEMENT