Chapter 1

Introduction

Fundamental analysis is very helpful to the investor, which is reflected in the

investment purpose. Fundamental analysis consist of three parts, they are
economic, industry and company. Any investors who go to systematic investment,
he/she would like to know, the complete scenario of the industry. It is interesting to
know the how the fundamental analysis helps to forecast the price of equity.

The fundamental analysis consists of three parts; they are economic, industry and
company. All the factors are involved in this analysis were identified and studied
carefully to identify the factors in the existing environment. The data or information
collected was based on the personal interaction with the guide of the company.

Economic analysis was a task to be studied as it affected the company’s tax, and it
will effect on the revenue of the industry. Also other factors are considered in the
economic analysis. And it will interpret for the fundamental analysis.

Industry analysis was a challenging factor for the research of the fundamental
analysis. All the sub-factors of the industry analysis were taken up from the
secondary source to analyses the each factor with the industry. And was related
those factors with the company. It also analyses the competitiveness of the each
company’s strength, like. Quality, services, cost of R/m, etc.

Company analysis is last factors of the fundamental analysis and it is one of the
most important parts of the company. An approach was made to understand the
existing company and its impact on company’s market share an its performance.

1
Future of Indian IT Industry

The Indian IT Industry has grown at an exponential rate over the past 10 years doing
Rs.10000 crore of export, fetching for India valuable foreign exchange, propping up
the Indian Stock Market with its share prices reaching dizzying heights.

The Indian IT sector persists to be one of the flourishing sectors of Indian financial
system indicating a speedy expansion in the coming years. As per NASSCOM, the
Indian IT exports are anticipated to attain US$ 175 billion by 2020 out of which the
domestic sector will account for US$ 50 billion in earnings.
In total the export and domestic IT sector are expected to attain profits amounting to
US$ 225 billion along with new prospects from BRIC nations and Japan for its
outsourcing operations.

2
Chapter 2
Overview
The most common way that fundamental analysis is done in is in three steps:
I. ECONOMIC ANALYSIS:
The purpose of analyze economic condition of the country in fundamental analysis to
asses the general economic situation both within the country and inter nationally.

If the economy grows rapidly, the industry can also be expected to show raid growth
and vice versa .When the level if economic activity is low, stock prices are low, and
when the level of economic activity is high, stock prices are highly reflecting the
prosperous outlook for sales and profits of the firms.
The analysis of macro economic environment is essential to understand the
behavior of stock prices.
1. Gross Domestic Product (GDP): The GDP is the indicator of the growth rate of
an economy. A higher growth rate is more favorable to the stock market.

According to a study conducted by NASSCOM, The revenue contributed by the

Indian IT industry has grown from 1.2 percent of the GDP to almost 6 percent over
the last ten years. India is popular as the 'Back Office' of the world as it handles a

3
large portion of the global IT services and support. IT-BPO sector in India currently
stands at USD 71.6 billion. IT exports come upto almost USD 47.3 billion.

2. Inflation: Inflation rate refers to a general rise in prices measured against a

standard level of purchasing power.

While inflation till the early nineties was primarily caused by domestic factors (supply
usually was unable to meet demands), today the situation has changed
significantly.

Inflation today is caused more by global rather than by domestic factors. Naturally,
as the Indian economy undergoes structural changes, the causes of domestic
inflation too have undergone tectonic changes.

3. Budget: The budget of a government is a summary or plan of the intended

revenues and expenditures of that government.
In the recent years, Government is setting up Information Technology Investment
Regions (ITIRs) and Special economic Zones (SEZ) but every year there is an
increase in the rate of Minimum Alternate Tax (MAT) also. The government provides
a Software Technology Parks of India (STPI) scheme, which offers tax exemption to
export oriented units on profits.

4
Government also levies excise tax on hardware (desktops, notebooks and servers),
microprocessors (other than motherboard), hard disk drive, flash drive, CD/DVD and
combo drive meant for external use. This leads to increase in the prices and hence
in inflation.

4. Interest rates: The interest rate affects the cost of financing to the firms. A
decrease in interest rate implies lower cost of finance for firms and more profitability.

5. Foreign exchange reserves: India’s foreign exchange reserves have grown

significantly since 1991. The reserves, which stood at US$ 5.8 billion at end-March
1991 increased gradually to US$ 54.1 billion by end-March 2002, after which it rose
steadily reaching a level of US$ 309.7 billion in March 2008. The reserves declined
to US$ 252.0 billion in March 2009. The reserves stood at US$ 292.9 billion as on
September 30, 2010 compared to US $ 279.1billion as on March 31, 2010.

5
6. Infrastructure: The robust current growth in GDP has exposed the grave
inadequacies in the country’s infrastructure sectors. The strong population growth in
India and its booming economy are generating enormous pressures to modernize
and expand India’s infrastructure. In the eleventh five year plan ,investment in the
sectors (Aviation infrastructure ,Construction infrastructure, Highway
infrastructure ,Power infrastructure, Port infrastructure ,Telecom infrastructure ) will
be US$ 384 billions(Rs 17,20,000 Corers) considering the huge infrastructure
market potential in India.

6
II. INDUSTRY ANALYSIS:

The purpose of industry analysis is to review prevailing conditions within specific

industry and its segments. The company's industry obviously influences the outlook
for the company. Even the best stocks can post mediocre returns if they are in an
industry that is struggling.
“It is often said that a weak stock in a strong industry is preferable to a strong stock
in a weak industry.”
To assess the industry group potential, an investor would want to consider the
overall growth rate, market size, and its importance to economy. While the individual
company is still important, its industry group is likely to exert as much as, or more,
influence on the stock price. When stock move the usually move as groups; there
are very few lone guns out there. An understanding of the industry sector involved,
including the maturity of the sector and any cyclical effects that the overall
economies have on it, is also necessary.
The followings are some important factors which should be considered in
Fundamental Analysis
• Growth: A growing industry gives room for profitability.
• Profitability: Average profitability of the industry should be attractive.
• Demand-Supply: the wider demand supply gap, the better is the industry’s
fortune in the future
• Entry barrier
• Competition and Market share:
• Technology trends
• Government Policy
• Capacity Utilization
• Bargaining power of buyers

7
1. Growth Rate: Domestic BPO segment is expected to grow by 16.9 per cent in
FY2011, to reach US$ 2.8 billion. Indian software product segment is estimated to
grow by 14 per cent to reach US$ 3.46 billion, fueled by replacement of in-house
software applications to standardized products from large organizations and
innovative start-ups. Service and software exports remain the mainstay of the sector
contributing USD 36.8 billion.

2. Government Initiatives: Government sector is a key catalyst for increased IT

adoption- through sectors reforms that encourage IT acceptance, National
eGovernance Programs (NeGP) and the Unique Identification Development
Authority of India (UIDAI) program that creates large scale IT infrastructure and
promotes corporate participation.

The government set up the National Taskforce on Information Technology and

Software Development with the objective of framing a long term National IT Policy
for the country.

Government is also setting up Information Technology Investment Regions (ITIRs).

These regions would be endowed with excellent infrastructure and would reap the
benefits of costing, networking and greater efficiency through use of common
infrastructure and support services.

8
Moreover, according to NASSCOM, government IT spend was US$ 3.2 billion in
2009 and is expected to reach US$ 5.4 billion by 2011. Further, according to
NASSCOM, there is US$ 9 billion business opportunity in e-governance in India.

3. Employment: Despite the unprecedented global economic downturn, the Indian

IT industry has weathered the storm well, and achieved sustainable growth going
forward. India witnessed an average of 8% salary increase in 2010 and ~50% of
companies have strong hiring plans, according to a survey by global HR consultancy
Mercer. More than 2.5 million people are employed in the sector either directly or
indirectly, making it one of the biggest job creators in India and a mainstay of the
national economy.

While the larger players continue to lead growth, gradually increasing their share in
the industry aggregate, several high-performing small and medium enterprises have
also stood out.

4. Nature of competition: Indian IT firms are actually adding market share from
their global rivals. The US economy heavily influences business spending for
software products. The success of programming companies depends heavily on
strong technical expertise. The success of packaged-software companies depends
on technical expertise and good marketing. Small software companies compete
mainly by developing packaged products in small niches or producing custom
products for individuals. Many small companies form alliances with larger ones to
market their products.

9
10
5. Demand and supply: With the growth in infrastructure, telecom, retail,
agriculture, automobile and entertainment industry, demand for IT related products
have increased many fold. Also, demand for Indian It professionals is huge both in
the domestic as well as global market. Such is the growth in investment and
outsourcing in India that it was revealed that Cap Gemini will soon have more staff in
India than it does in its home market of France with 21,000 personnel+ in India.

But to meet the increasing software, hardware and outsourcing demand, Indian IT
industries have to improve upon their research and development activities and the
practical knowledge of the professionals. The large loss of experienced
professionals due to relocation to the U.S. under the H-1 B visa program has
increased the problem

6. Research and Development:

As compared to International IT giants, Infosys and other Indian companies are lack
in R&D spending.

SWOT ANALYSIS

Strengths
• Highly skilled human resource
• Low wage structure
• Quality of work

11
 • Initiatives taken by the Government (setting up Hi-Tech Parks and
implementation of e-governance projects)
• Many global players have set-up operations in India like Microsoft, Oracle,
Adobe, etc.
• Following Quality Standards such as ISO 9000, SEI CMM etc.
• English-speaking professionals
• Cost competitiveness
• Quality telecommunications infrastructure
• Indian time zone (24 x 7 services to the global customers). Time difference
between India and America is approximately 12 hours, which is beneficial for
outsourcing of work.

Weaknesses
• Absence of practical knowledge

• Dearth of suitable candidates

• Less Research and Development

• Contribution of IT sector to India’s GDP is still rather small.

• Employee salaries in IT sector are increasing tremendously. Low wages benefit will
soon come to an end.

Opportunities
• High quality IT education market
• Increasing number of working age people
• India 's well developed soft infrastructure
• Upcoming International Players in the market

Threats

• Countries like China and Philippines with qualified workforce making efforts to
overcome the English language barrier
• IT development concentrated in a few cities only

12
III Company Analysis:
The purpose of company analysis to analyze the financial and non-financial aspects
of a company to determine whether to buy, sells, or holds onto the shares of a
particular company
After determining the economic and industry conditions, the company itself is
analyzed to determine its financial health.
WIPRO
Wipro Limited is a global information technology (IT) services company headquartered in
Bangalore, India. According to the 2011 revenue, Wipro is the third largest IT services
company in India and employs more than 122,385 people worldwide as of March 2011.
What differentiates Wipro today?
• Broad based portfolio across Verticals, Geographies, Service Lines and
Customers.
• Strong ($1B) and Established (20+ years) presence in some of the key growth
markets –India & Middle East.
• A complete, integrated portfolio of services.
• Leadership in R&D.

13
INFOSYS
Infosys Limited is a global technology Services Company headquartered in
Bangalore. Infosys is the second largest IT Company in India with 130,820
employees (including subsidiaries) as of March 2011.
Infosys Strategy:
Infosys has adopted a client-focused strategy to achieve growth. Rather than
focusing on numerous small organizations, it focuses on limited number of large
organizations throughout world. In order to cater its clients, the company
emphasizes on custom-built softwares. It has an image for quality driven model
rather than cost-differentiating model.
• Increase business from existing and new clients- Infosys increases its
recurring business with clients by providing software re-engineering,
maintenance, infrastructure management and business process management
services.
• Expand geographically-Infosys plans to establish new sales and marketing
offices, representative offices and global development centers to expand its
geographical reach.
• Enhance solution set- Infosys focuses on emerging trends, new
technologies and specific industries. In recent years, it has added new service
offerings, such as consulting, business process management, systems
integration and infrastructure management, which are major contributors to its
growth.
• Develop deep industry knowledge: Infosys has specialized industry
expertise in the financial services, manufacturing, telecommunications, retail,
transportation and logistics industries.
Values are important part of Infosys’s organizational culture
• Customer Delight and expectations.
• Leadership by Example i.e.; to set standards in business
• Integrity and Transparency
• Fairness: A commitment to be objective and transaction-oriented
Tata Consultancy Services Limited (TCS)

14
TCS is an Indian IT services, business solutions and outsourcing company
headquartered in Mumbai. TCS is the largest provider of information technology in
Asia and second largest provider of business process outsourcing services in India.
TCS has offices in 47 countries with 142 branches across the globe.

Key Differentiators of TCS

• Pioneer in the industry & Brand -Having started in 1968, TCS has
established himself as the industry leader.
• Integrated full-services player -Portfolio of offerings extends from
consulting to implementation, testing and support; from engineering services
to BPO; from products to end-to-end solutions.
• Collaboration with multiple stakeholders i.e.; customers, partners, and
other service providers.
• High Quality and Maximum security - In 2005, TCS was awarded
enterprise-wide triple certification for: Quality (ISO 9001:2000), Security (BS
7799-2:2002) & Services (BS 15000-1:2002)
• Innovation Network -TCS has established 19 labs with strong links to start-
ups, academia and alliance partners to continuously develop innovative
solutions for their customers.
• Low cost Global delivery - 24X7 model.
• Focus on customer relationship management -customer retention (for
repeat business revenue which is 95.6%).
• Timely delivery with the help of proven delivery & quality framework
• Differentiation in low end services in terms of cost, resources.

TCS organization restructuring in April 2008 was one of the major moves in last
decade to adapt to external environments. Having an organization structure that
would respond to customer demands is most efficient way to lay down your business
strategies. TCS did it little late but just in time.

15
HCL TECHNOLOGY
HCL Technologies Ltd. is a global IT Services company headquartered in Noida.
HCL Technologies is fifth largest IT company in India and is ranked 48 in the global
list of IT services providers. HCL Technologies, along with its subsidiaries, had
consolidated revenues of US$3.3 billion, as on 31st March 2011, and employs more
than 73,420 people of diverse nationalities. HCL Technologies has global network of
offices in 26 countries.

The major differentiators of HCL are as follows:

• Large Pool of Consultants: HCL has a rich resource pool with skills and
experience in diverse technology and domain areas. HCL has domain experts
who have an in depth understanding of the business processes in their area
of specialization and also suggest best practices in their domain.
• Transparent Engagement: HCL has a transparent working procedure for
project monitoring, reporting and review by which HCL is completely
transparent to the micro level details of the project.
• Organizational strengths: HCL has mature practices with extensive
experience of implementing eGovernment solutions. With its expertise in
various domains HCL has rich experience in analyzing potential risks and has
a strong hold for risk mitigation and risk management.
• Proven quality processes: HCL has SEI CMM Level 5 and ISO 9000
certified processes. There is an Involvement of Project Quality Analyst (PQA)
for strict adherence to quality processes

HCL's expertise in implementing and maintaining IT systems and the unique value
proposition comprising all segments of IT including design, development,
implementation, infrastructure and support, both voice and non-voice.

16
PATNI COMPUTERS

Patni Computer Systems Limited is a provider of Information Technology services

and business solutions. The company employs over 15000 people, and has 23
international offices across the Americas, Europe, and Asia-Pacific, as well as
offshore development centres in 8 cities in India. Patni's clients include more than
400 Fortune 1000 companies.

Key Differentiators

• Single Window Clearance Service.

• Integrated IT-CIS delivery framework to provide end-to-end support services.
• Global delivery centers to provide support services in multiple languages.
• Ability to integrate technical and functional capability to deliver support
services by leveraging our large pool of qualified talent with specialized skills
set.
• Business transformation led strategy that includes consolidation,
standardization and functionalization capabilities, and operating model
redesign.
• Cost reduction with ongoing productivity enhancement.
• Integrated BPO and IT solution to address holistic requirements.

17
Chapter 3
Review of Literature

• Khutia (2010) conducted a study on “A Fundamental Analysis of Infosys

Tech Ltd. “The paper outlines the economic analysis on factors like Interest
Rate, Foreign Exchange, Inflation etc. It also outlines industry analysis on the
basis of Past performance, competitive structure and growth. The paper uses
the projected profit and loss account and calculates the growth during the
past years and the probable reasons for it. The intrinsic value of the company
has been calculated and it has been concluded that market price of infosys
share is overvalued. In this study Dilip Khultia outlines more about what
fundamental analysis is and how it is used.

• Tiwari and Verma (2009) conducted a study–“Fundamental Analysis of

Public Sector Banks in India”.
The Study examined that fundamental analysis, which aims at developing an
insight into the economic performance of the business is of paramount
importance from the view point of investment decisions. In this study, financial
analysis has been given more stress so as to find out the profitability position
of the sample banks and to evaluate the intrinsic value of the firm. The article
gives recommendations on investing in companies having high profit margins
constantly.

• Patidar (2010) conducted a study named “Fundamental Analysis

Assignment” which examines information technology industry analysis. The
article reveals that Indian IT companies are growing due to outsourcing and
FDI. It also states that according to NASSCOM government, IT spend was
US$ 3.2 billion in 2009 and is expected to reach US$ 5.4 billion by 2011.
Further, according to NASSCOM, there is US$ 9 billion business opportunity
in e-governance in India. Financial analysis is used to interpret the changes in

18
 different ratios of the IT companies over the years. The Main emphasis of the
article is on predicting future performance and trends of the IT industry.

• Duggal and Singh (2009), in their report named “IT Industry & TCS Strategic
Analysis” presents that Indian IT industry has also gained immensely from the
availability of a robust infrastructure (telecom, power and roads) in the
country. There is a large pool of Technical Talent in India. India has the
advantage of Young working population compared to the West. Also we have
a highly educated workforce fluent in English .Indians work on low salary
compared to other countries.They have pointed out that Being a pioneer in
the IT industry, TCS have a good appreciation of trends and challenges faced
by industries TCS choose to focus. The solutions TCS build are powered by
domain expertise, enterprise solutions and infrastructure services, turning the
challenges of globalization into a competitive edge for clients.

• Patel (2008) has conducted a study “Financial Analysis of Wipro”. He

analyzed the Balance Sheet, Profit and loss account, Ratios, Cash and fund
flows of the company highlighting that fixed assets are efficiently utilized by
the company due to which the profit of the company is increasing every year.
Also that the share holder equity is showing high fluctuation. The investment
trend of the company shows that the company has not taken risk but has
invested money for developing its own business. He has done a Trend
Analysis of net sales and services and concluded that net sales of the
company increasing. The section on cash flow suggest that the company will
proceed in both short term and long term borrowings with proceeds from
exercise of employee stock option.

• Chaudhari, Goyal and Hussain (2009) in their paper “Strategic Analysis of

Infosys” have done a PESTLE analysis highlighting the Political, Economic,
and Social. Technological, Legal and Environmental aspects of Indian IT
Industry. They have emphasized that Infosys must move up the value chain –

19
 concentrating more in consulting, BPO and KPO business and have
presented the Revenue break- up by services offered by Infosys i.e.; in
product engineering services, systems integration, testing services,
infrastructure management etc. They have highlighted that, Infosys has
adopted a client-focused strategy to achieve growth and that it is a highly
values oriented company.

• Garg (2007) presented a paper on “Fundamental analysis of Steel industry”

The paper outlines the importance of fundamental analysis. It states that the
main principle of fundamental analysis is to find profitable companies to invest
in by comparing revenues, sales, management etc. Investors may use
fundamental analysis to determine future growth rates for buying high priced
growth stocks. It highlights that the main strengths of fundamental analysis is
that it helps to find Long-term Trends, company’s value, the revenue and
profit drivers of the company. . By understanding a company's business,
investors can better position themselves to categorize stocks within their
relevant industry group. But still Fundamental Analysis is a very subjective
topic and investor has to be very vigilant about the stocks they want to invest
in.
• Sidhdhapura and Shah (2010) presented a paper on “Financial Analysis of
Infosys Technologies Ltd.”. They compared the ratios of Infosys with other IT
giants- Wipro and TCS, and concluded that is financially stronger in terms of
NPM and EPS, which are leading factors to determine the condition and
performance of a company. They offer constant dividend of around 23%
every year. Dividend payout ratio is also around 22%-23%.The paper
analyses the capital structure of the company. It is found that - Infosys does
not have any long term debts and has very high ability to meet short term
obligations. It has very high efficiency in operations and has high ability to
cover all interest changes.

20
Chapter 4
Research Methodology
RESEARCH
Research is a common parlance refers to a “search for knowledge”. It is an original
contribution to the existing stock of knowledge, making for its advancements. It is
pursuit of truth with the help of study, observation, comparison & equipment.
Research has its special significance in solving various operational and market
planning problems of the business and the industry.

RESEARCH DESIGN
The research is descriptive in nature. For the purpose of statistical analysis data
from the company’s balance sheet and income statements have been taken.

SAMPLE DESIGN:

• Sample Method: The study is done with special reference to IT Companies. The
reason being that the data or the financial statements are readily available for
them. Thus, the Technique of ‘Convenience Sampling’ is being adopted for the
study.
• Sample Size: Five Indian IT Companies are chosen as sample size foe the study
on account of having high market capitalization. The Companies Selected are-
Wipro Technologies, Infosys Technologies Ltd., HCL Technologies Ltd., Patni
Computers Systems and Tata Consultancy Services.

TOOLS AND TECHNIQUES:

• Analysis of Variance: The statistical Tool that is used for testing hypothesis is
on way Analysis of Variance (ANOVA).
• Graphical Analysis: To study the company’s profit and sales rend.

MAJOR HYPOTHESIS:

The hypothesis been taken to put on test are:

21
• H1: The Earning per share (EPS) position of the sample companies does not
differ significantly.
• H2: The Operating Profit margin (OPM) position of the sample companies does
not differ significantly.
• H3: The Net Profit margin (NPM) position of the sample companies does not
differ significantly.
• H4: The Debt Equity Ratio (DER) position of the sample companies does not
differ significantly.
• H5: The Return on asset (ROA) position of the sample companies does not differ
significantly.
• H6: The Return on equity (ROE) position of the sample companies does not
differ significantly.

OBJECTIVE:
Analysis of fundamentals to acquire a deep knowledge of the Indian IT industry.
• To acquire practical exposure of financial analysis of an enterprise.
• To make projection on its business performance and in the bad condition to
improve the performance of company.
• To benchmark the company’s performance to their competitor’s in order to
assess a relative performance measure.
• To take investment decisions cautiously after studying risks involved in the
same.

Chapter 5

22
Analysis and Interpretations
1. TCS
Profit and Sales trend

25,000.00

20,000.00

15,000.00

Sales(in Rs. Cr)

10,000.00

5,000.00

0.00
2006 2007 2008 2009 2010

6,000.00

5,000.00

4,000.00

3,000.00
Profit(in Rs. Cr)

2,000.00

1,000.00

0.00
2006 2007 2008 2009 2010

Current Price 1127.70

52 Week High 1247.00

52 Week Low 692.00

Face Value 1

23
The net sales and net profit of TCS shows an increasing trend from year 2006 to
2010.The profit of TCS in the year 2010 has crossed the mark of Rs. 5000 Cr.

Share holding Pattern:

8 Indian
0.12
promoter
12 Bank

6 FII

Other

74 General
Population

The share holding pattern of TCS says that almost 74% shares are held by Indian
promoter and only .12% held by private corporate bodies and NRI’s and director’s
and employees of the company. The general population holds almost 8 % shares.

24
2. Wipro
Profit and Sales trend

25,000.00

20,000.00

15,000.00

Sales(in Rs. Cr)

10,000.00

5,000.00

0.00
2006 2007 2008 2009 2010

5,000.00
4,500.00
4,000.00
3,500.00
3,000.00
2,500.00
Profit(in Rs. Cr)
2,000.00
1,500.00
1,000.00
500.00
0.00
2006 2007 2008 2009 2010

Current Price 1127.70

52 Week High 499.90

52 Week Low 692.00

Face Value 2

25
The net sales and net profit of Wipro shows an increasing trend from year 2006 to
2010.The profit of Wipro in the year 2010 is nearly Rs. 5000 Cr. The sales figure
has also progessed from 10,000 crore to 25,000 crore , These figures show increase
of profit for the shareholders also.

Share holding Pattern:

2%
6% Indian
6% promoter
3% Bank

FII

Other

General
83%
Population

The share holding pattern of infosys says that almost 80% shares are held by Indian
promoter and only 2% held by private corporate bodies and NRI’s and director’s and
employees of the company. The general population holds almost 6 % shares.

26
3. Infosys
Profit and Sales trend

25,000.00

20,000.00

15,000.00

Sales(in Rs. Cr)

10,000.00

5,000.00

0.00
2006 2007 2008 2009 2010

6,000.00

5,000.00

4,000.00

3,000.00
Profit(in Rs. Cr)

2,000.00

1,000.00

0.00
2006 2007 2008 2009 2010

Current Price 2878.35

52 Week High 3493.95

52 Week Low 2510.00

Face Value 5

27
The net sales and net profit of Infosys shows an increasing trend from year 2006 to
2010.In the year 2010, the company has maintained its profit and sales of the last
year.

Share holding Pattern:

15% 18% indian

promoter
Bank
5%
FII
22%
Other

General
40% Population

The share holding pattern of infosys says that almost 40% shares are held by FII
and 22% held by private corporate bodies and NRI’s. The general population holds
almost 15% shares.

28
4. HCL

Profit and sales trend

6,000.00

5,000.00

4,000.00

3,000.00
Sales(in Rs. Cr)

2,000.00

1,000.00

0.00
2006 2007 2008 2009 2010

1,200.00

1,000.00

800.00

600.00
Profit(in Rs. Cr)

400.00

200.00

0.00
2006 2007 2008 2009 2010

Current Price 505.55

52 Week High 528.40

52 Week Low 347.00

Face Value 2

29
The net sales and net profit of Infosys shows an increasing trend from year 2006 to
2010.In the year 2010. Hower HCL had a decline in profit in the years of recession
ie; 2008 and 2009. but has improved it’s profits algain in year 2010 to more than Rs
1000 Cr s. This means investor’s money is save in HCL and they can get increasing
profits in the years to come.

Share Holding Pattern

Indian
promoter
18
Bank

3 FII
5 47
Other

General
21 Population
3 Foreign
Promoter

The share holding pattern of HCL says that almost 47% shares are held by Indian
Promoters,18% by foreign promoters and 5% held by private corporate bodies and
NRI’s. The general population holds almost 3% shares.

30
5. Patni Computers
Profit and Sales Trend

1,800.00

1,600.00

1,400.00

1,200.00

1,000.00

800.00 Sales(in Rs. Cr)

600.00

400.00

200.00

0.00
2006 2007 2008 2009 2010

600.00

500.00

400.00

300.00
Profit(in Rs. Cr)

200.00

100.00

0.00
2006 2007 2008 2009 2010

Current Price 368.05

52 Week High 624.00

52 Week Low 347.05

Face Value 2

31
The net sales and net profit of Patni shows an increasing trend from year 2006 to
2010.The profit of Patni in the year 2010 is nearly Rs. 500 Cr. The sales figure has
also progressed from Rs. 9,000 Cr to Rs.17, 000 Cr, and these figures show
increase of profit for the shareholders also.

Share holding Pattern

Indian
promoter
16
Bank
30.08
3
FII

Other
2
General
35 11 Population
Foreign
Promoter

The share holding pattern of Patni computers says that almost 30% shares are held
by Indian promoter and 16 % by foreign investors. 35% held by private corporate
bodies and NRI’s and directors and employees of the company. The general
population holds almost 3% shares.

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Earnings per share (EPS) Ratio
IT is the measure of a company’s ability to generate after tax profits per share held
by the investors.
EPS = Earning after tax and Preference dividend
Total No. of equity shares outstanding
Year Wipro Infosys TCS HCL Patni
2006 14.17 87.86 55.53 19.74 14.11
2007 19.48 66.23 38.39 16.6 14.88
2008 20.96 78.15 46.07 11.72 27.88
2009 20.30 101.53 47.92 14.88 30.38
2010 33.36 101.13 15.57 42.08 28.62
Average 21.654 86.98 40.636 21.004 23.174

As shown in the table, the EPS of all the companies show an increasing trend. The
EPS of Infosys is substantially higher than that of other companies. On an average,
Infosys has generated highest EPS of 86.98 and the lowest EPS was generated by
HCL (21.004). The analysis reveals that Infosys is the most efficient company in
terms of generating EPS.
HYPOTHESIS TESTING:-
• Ho: The EPS position of the sample companies does not differ
significantly.
• H1: The EPS position of the sample companies differ significantly.
Sources of Sum of Degree of Mean F-Ratio 5% limit
variation Squares(SS) freedom Square
SS Between 16,686.62 (5-1) = 4 4171.655 39.55 2.87
SS Within 2,120.84 (25-5) = 20 106.042
SS Total 18,807.46 ( 25-1) = 24
Inference: Since the calculated value of F is 39.55, which is greater than the table
value of 2.87,the null hypothesis is rejected and the alternative hypothesis is
accepted. Hence it is concluded that EPS position of Wipro, Infosys, TCS, HCL,
Patni Computers differ significantly.

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Operating Profit Margin (OPM): Operating profit margin indicates how effective a
company is at controlling the costs and expenses associated with their normal
business operations.
Operating Profit Margin = Operating Profit * 100
Net Sales
Year Wipro Infosys TCS HCL Patni
2006 24.28 33.11 29.71 26.69 34.22
2007 23.78 32.13 28.79 24.86 33.83
2008 21.24 31.72 27.11 26.58 30.03
2009 22.12 34.09 26.87 29.72 31.58
2010 24.00 34.82 28.93 27.83 35.23
Average 23.084 33.174 28.282 27.136 32.978

It can be observed that, among all the sample companies, Infosys has sustained the
highest operating profit margin followed by Patni Computers which has registered a
reasonably higher margin. Thus it is found that Infosys is the most efficient company
in controlling costs and expenses when compared to other sample companies.
HYPOTHESIS TESTING:-
• Ho: The OPM position of the sample companies does not differ
significantly.
• H1: The OPM position of the sample companies differ significantly.
Sources of Sum of Degree of Mean F-Ratio 5% limit
variation Squares(SS) freedom Square
SS Between 362.7953 (5-1) = 4 90.265 34.39 2.87
SS Within 52.4932 (25-5) = 20 2.624655
SS Total 415.2885 ( 25-1) = 24

Inference: Since the calculated value of F is 34.39, which is greater than the table
value of 2.87, the null hypothesis is rejected and the alternative hypothesis is
accepted. Hence it is concluded that OPM position of Wipro, Infosys, TCS, HCL,
Patni Computers differ significantly.

Net Profit Margin (NPM): NPM indicates how much a company is able to earn after
accounting for all the direct and indirect expenses to every rupee of revenue.

34
Net Profit Margin = Net Profit * 100
Net Sales
Year Wipro Infosys TCS HCL Patni
2006 19.53 26.17 24.05 21.00 21.75
2007 20.34 28.05 25.00 29.11 19.79
2008 17.19 27.37 24.11 16.68 31.70
2009 13.53 27.52 20.74 20.63 24.19
2010 20.97 26.36 24.13 20.18 30.06
Average 18.312 27.094 23.606 21.52 25.498

The data in the table shows that Infosys outperformed other companies in terms of
net profit margin. Also there is almost stagnation in NPM of TCS. Thus it is found
that Infosys is the most efficient company in controlling indirect expenses as
compared to other sample companies.
HYPOTHESIS TESTING:-
• Ho: The NPM position of the sample companies does not differ
significantly.
• H1: The NPM position of the sample companies differ significantly.
Sources of Sum of Degree of Mean F-Ratio 5% limit
variation Squares(SS) freedom Square
SS Between 236.6182 (5-1) = 4 59.155 4.89 2.87
SS Within 241.7428 (25-5) = 20 12.087
SS Total 478.361 ( 25-1) = 24

Inference: Since the calculated value of F is 4.89, which is greater than the table
value of 2.87, the null hypothesis is rejected and the alternative hypothesis is
accepted. Hence it is concluded that NPM position of Wipro, Infosys, TCS, HCL,
Patni Computers differ significantly.

Debt Equity Ratio (D/E): D/E is a financial ratio indicating the relative proportion of
shareholders' equity and debt used to finance a company's assets. Closely related to
leveraging, the ratio is also known as Risk, Gearing or Leverage.
Year Wipro Infosys TCS HCL Patni
2006 0.01 - 0.01 0.01 -

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2007 0.03 - 0.01 0.01 -
2008 0.33 - 0.01 0.01 -
2009 0.40 - 0.01 0.15 -
2010 0.31 - 0.01 0.28 -
Average .216 - .01 .092 -

The table shows that Wipro has the highest debt equity ratio, while Infosys and Patni
Computer do not have D/E ratios. So, infosys and patni do not have borrowed funds
or long term debt.

HYPOTHESIS TESTING:-
• Ho: The D/E position of the sample companies does not differ
significantly.
• H1: The D/E position of the sample companies differ significantly.
Sources of Sum of Degree of Mean F-Ratio 5% limit
variation Squares(SS) freedom Square
SS Between .2125 (5-1) = 4 .0531 6.825 2.87
SS Within .1556 (25-5) = 20 .0007
SS Total .3681 ( 25-1) = 24

Inference: Since the calculated value of F is 6.825, which is greater than the table
value of 2.87, the null hypothesis is rejected and the alternative hypothesis is
accepted. Hence it is concluded that D/E position of Wipro, Infosys, TCS, HCL, Patni
Computers differ significantly.

Return on Equity (ROE): IT measures the rate of return on the ownership interest
(shareholders' equity) of the common stock owners. It measures a firm's efficiency at
generating profits from every unit of shareholders' equity (also known as net assets
or assets minus liabilities).

36
Year Wipro Infosys TCS HCL Patni
2006 31.36 35.10 48.43 24.78 9.52
2007 30.50 33.89 46.62 32.16 9.31
2008 26.51 33.13 41.34 24.29 15.15
2009 31.34 32.67 35.13 28.59 15.43
2010 25.19 26.33 37.30 21.41 17.00
Average 28.986 32.224 41.764 26.246 13.282

The highest average of ROE of 41.75 is of TCS followed by infosys whose average
ROE is 32.224.It can be concluded that TCS is most effiecient company in
generating additional earnings by using invested earnings other than the four
companies.
HYPOTHESIS TESTING:-
• Ho: The ROE of the sample companies does not differ significantly.
• H1: The ROE of the sample companies differ significantly.
Sources of Sum of Degree of Mean F-Ratio 5% limit
variation Squares(SS) freedom Square
SS Between 2133.53 (5-1) = 4 533.3825 31.90 2.87
SS Within 334.78 (25-5) = 20 16.739
SS Total 2468.3106 ( 25-1) = 24
Inference: Since the calculated value of F is 31.90, which is greater than the table
value of 2.87, the null hypothesis is rejected and the alternative hypothesis is
accepted. Hence it is concluded that ROE of Wipro, Infosys, TCS, HCL, Patni
Computers differ significantly.
Return on Assets (ROA):
ROA measures the overall efficiency of the capital invested in business. It indicates
what the yield is for every rupee invested in assets.
ROA= Earning after taxes and preferred dividends *100
Total assets
Year Wipro Infosys TCS HCL Patni
2006 21.80 26.56 36.59 79.64 148.20
2007 63.86 195.41 62.35 51.61 159.66
2008 79.05 235.84 111.43 48.22 184.02

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2009 85.42 310.90 136.36 52.04 196.80
2010 120.49 984.02 76.72 72.69 247.19
Average 74.124 230.546 84.69 60.84 187.174

The data in the table shows that Infosys outperformed other companies in terms of
net profit margin. Also there is almost stagnation in NPM of TCS. Thus it is found
that Infosys is the most efficient company in controlling indirect expenses as
compared to other sample companies.
HYPOTHESIS TESTING:-
• Ho: The ROA position of the sample companies does not differ
significantly.
• H1: The ROA position of the sample companies differ significantly.

Sources of Sum of Degree of Mean F-Ratio 5% limit

variation Squares(SS) freedom Square
SS Between 116523.55 (5-1) = 4 29130.8875 6.39 2.87
SS Within 91086.0086 (25-5) = 20 4554.30
SS Total 2,07,609.563 ( 25-1) = 24
1

Inference: Since the calculated value of F is 6.39, which is greater than the table
value of 2.87, the null hypothesis is rejected and the alternative hypothesis is
accepted. Hence it is concluded that ROA position of Wipro, Infosys, TCS, HCL,
Patni Computers differ significantly.
P/E ratio – It is a measure of the price paid for a share relative to the annual net
income or profit earned by the firm per share

P/E ratio = Market price per share

EPS

Comany P/E Ratio(current)

Wipro 22.29
Infosys 24.3
TCS 29.16

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HCL 32.58
Patni 6.94

From the table it can be infeered that P/E Ratio of HCL is the highest for the current
year.There is more responsiveness between earning capacity and share price in
case of HCL than the other companies. But past data of infosys sugest that it’s P/E
decreased around 2008 and 2009 but increased again to 22.85 in 2010. In 2011,the
P/E ratio of infosys is at 24.3. i.e.; it is showing an increasing trend.

Chapter 6
Conclusion
Fundamental Analysis is very important in determining the prices of the shares of the
companies in which the investor wants to invest.

By using fundamental analysis. Investor can study the past performance of the
company and can find out the growth rates and profit margins.
Fundamental analysis also helps in finding out the intrinsic value of the share of a
firm.

39
Through calculation of P/E ratio and its projected value, investor can find out
weather the stock price is overvalued or undervalued.

If the stock price is overvalued, investor must sell it and if the stock price is
undervalued, investor should buy the stock.

Fundamental analysis of the Indian IT industry has shown that, The Indian IT sector
persists to be one of the flourishing sectors of Indian financial system indicating a
speedy expansion in the coming years.
IT industry in India is at a very high growth stage and the share of IT in the national
GDP is increasing.This shows that a lot of people are employed and the general
standard of living of people has improved.

Investing in the IT giants like Wipro, Infosys, TCS, HCL Technologies and Patni
Computers will give a better return as their profits and sales margins are increasing
throughout the years. Higher profits mean more share of income to the shareholders
and more dividends.

Bibliography

Tiwari and Verma (2009), ‘A Fundamental Analysis of Public Sector Banks in

India’, Indian Journal of Finance (November, 2009), pp. 24-32

Nasscom Strategic Review 2009 taken from www.nasscom.in

Khutia (2010), “A Fundamental Analysis of Infosys Tech Ltd. “,

Downloaded from the site:
http://www.scribd.com/doc/40051928/Fundamental-Analysis-of-Infosys

40
Patidar K Mahendra (2010), “Fundamental Analysis Assignment”
Downloaded from the site:
http://www.scribd.com/doc/900748/Fundamental-Analysis- Assignment

Duggal and Singh (2009), “IT Industry & TCS Strategic Analysis”

Patel (2008), “Financial Analysis of Wipro” Journal of Financial Economics

Chaudhari, Goyal and Hussain (2009) , “Strategic Analysis of Infosys”

downloaded from website.

Garg (2007), “Fundamental analysis of Steel industry” ,downloaded from website.

Sidhdhapura and Shah (2010) , “Financial Analysis of Infosys Technologies Ltd.”,

downloaded from website.

www.moneycontrol.com

www.investopedia.com

www.wikipedia.com

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