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Equity Research Report

DAYALBAGH EDUCATIONAL INSTITUTE


DAYALBAGH, AGRA

A PROJECT ON
EQUITY RESEARCH
FINANCIAL SERVICES SECTOR
&
PAIR STRATEGY

DATE OF SUBMISSION:

SUBMITTED BY:-
Shashank Sanwar
087633
MBA
DEI

1
Equity Research Report

ESCORTS MUTUAL FUNDS

A PROJECT ON
EQUITY RESEARCH
FINANCIAL SERVICES SECTOR
&
PAIR STRATEGY

DATE OF SUBMISSION:

SUBMITTED BY:-
Shashank Sanwar
087633
MBA
DEI

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Equity Research Report

AUTHORIZATION

The project is submitted as partial fulfillment of the requirements of Master of


Business Administration of DAYALBAGH EDUCATIONAL INSTITUTE
DAYALBAGH, AGRA

I hereby declare that following projects “Equity Research, Valuation of


Financial Services industry, Pair Trading are original and bon-a-fide work done
by me.

This report has been authorized by


Mr. Praveen Sevak, Equity Research
Analyst Securities Ltd Escorts Mutual Funds as a part of evaluation for
the Summer Internship Program.

DATE: Shashank Sanwar


087633

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Equity Research Report

ACKNOWLEDGEMENT

Surpassing milestones towards a mission sometimes gives us such degree of


jubilance that we tend to forfeit the precious guidance and help extended by the
people to whom the success of mission is solely dedicated.

Firstly, I would like express my gratitude to Mr. Lalit Khanna CEO and Dr.
Ashok Aggarwal, COO for allowing me to do the Summer Internship
Training at Escorts Mutual Funds

My Special Thanks to Mrs. Manjeeta Mahajan who found me as the eligible


student for training in Escorts Mutual Funds

I deeply express my special heartfelt thanks to company guide Mr. Praveen


Sevak, Equity Research Analyst who inspired me and guided me
throughout the period of project work that enabled me to present the report on
this topic.

I extend my sincere thanks to


Mr. Ajay Kumar Gupta, Mr. Jagvir
Fauzdar, Mr. Sanjeev Sharma, Mr. Vipul Kumar and all other members
of Equity Research Team for their continuous guidance, cooperation, and
valuable suggestions to initiate & carry out the study.

I would also like to thank my faculty guide Prof K. Shanti Swroop who has
been a source of constant inspiration, stimulating me to learn and making my
learning process an enlightening experience.

Lastly, it gives me immense gratification to place on records my profound


gratitude and sincere appreciation to each and every one of those who have
helped me in this endeavor.

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Equity Research Report

TABLE OF CONTENTS
1. EXECUTIVE SUMMARY………………………………………………………..... 8
2. MAJOR PROJECTS………………………………………………………………….. 9
3. PURPOSE & BENEFITS……………………………………………………………10
4. OBJECTIVE………………………………………………………………………………11
5. Introduction to financial services industries in India…………….12
6. India - Strategic Map in financial services industries……………12
7. Financial services industries –Over View………………………….……13
1) Stock markets……………………………………………………………….14
2) Insurance……………………………………………………………………….14
3) Banking services……………………………………………………………15
4) Government Initiatives………………………………………………….15
8. Private Equity Outlook in India……………………………………………….16
1) Strong Macroeconomic Outlook…………………………………….16
2) Private Equity in India – The Story So Far……………………16
3) Private Equity in India – Future Outlook………………………17
4) India Lags the Developed Markets In PE Investment
Levels…………………………………………………………………………….17
5) PE Investments in India Getting More Diversified ………18
6) Key Industry Groups’ to Look for…………………………………19
7) Risks and Opportunities in India………………………………….20
I. Risks……………………………………………………………….20
II. Opportunities in Public Sector Undertakings
(PSUs)…………………………………………………………….20
III. Opportunities in Family-run Businesses……….21
9. PAIR TRADING……………………………………………………………………….22
1) What Is Pairs Trading?...........................................22
2) An Example Using Stocks ……………………………………23
3) An Example Using Futures Contracts ..............................25
4) An Example Using Options ………………………………….25
5) Evidence of Profitability……………………………………………….25

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Equity Research Report

10. Market-neutral strategy……………………………………………………….26


1) TYPES OF MARKET NEUTRALITY………………………………….26
I. Share Neutrality…………………………………………….26
II. Dollar neutrality…………………………………………….26
III. Sector neutrality…………………………………………….27
IV. Beta Neutrality……………………………………………….27
V. Market capitalization neutrality…………………….27
11. MARKET NEUTRAL INVESTMENT PROCESS ……………………….28
1) INITIAL SCREEN……………………………………………………………28
2) LIQUIDITY…………………………………………………………………….28
3) SHORT –SALE ABILITY…………………………………………………28
4) INVOLVEMENT IN CORPORATE ACTION………………………29
5) STOCK SELECTION……………………………………………………….29
12. FUNDAMENTAL TRADE………………………………………………………….30
13. CORRELATION BETWEEN PAIR…………………………………………….30
14. TECHNICAL TRADE……………………………………………………………….31
15. MARKET STRENGTH INDICATORS……………………………………….31
16. MOVING AVERAGE INDICATORS…………………………………………32
17. BOLLINGER BAND………………………………………………………………..32
18. RELATIVE STRENGTH INDEX……………………………………………….32
19. VOLUME AS INDICATOR………………………………………………………33
20. FINAL PORTFOLIO SELECTION……………………………………………34
21. Summary………………………………………………………………………………34
22. Other Pairs……………………………………………………………………………34
23. CONCLUSION…………………………………………………………………………35
24. REFERENCE……………………………………………………………………………36
25. ANNEXURE…………………………………………………………………………….37

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Equity Research Report

LIST OF FIGURES
1. India - Strategic Map…………………………………………………………….12
2. Private Equity in India – The Story So Far……………………………16
3. Private Equity in India – Future Outlook………………………………17
4. PE Investments in India Getting More Diversified 2000……..18
5. PE Investments in India Getting More Diversified 2008………18
6. Closing Price of AXIS BANK & ICICI BANK……………………………23
7. Bollinger Band…………………………………………………………………………24
8. Price Ratio and Mean Value of Pair…………………………………………31
9. BOLLINGER BAND AXIS Bank & ICICI Bank………………………….32
10. Price Ratio & Mean Value Of Axis Bank & ICICI Bank………..33
11. AXIS Bank/ ICICI Bank Volatility…………………………………………33

LIST OF TABLES
1. Private Equity Investments as a Percentage of GDP (2008) 17
2. Percentage by Number &Market Capitalization of the
Hundred Companies Comprising BSE-100…………………………………21
3. Correlation between the pair…………………………………………………30
4. Summary Table………………………………………………………………………34
5. Other Pairs……………………………………………………………………………..34

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Equity Research Report

EXECUTIVE SUMMARY

Equity Research is the area which deals with the live economy. Equity
Research is a field that has evolved and transformed the Financial Sector
over the Past few decades. With the Capital market in doldrums,
sentiments and confidence reaching all time lows, investors are going
back to fundamental and technical analysis which seems to have taken a
back seat from past few years.

Equity Research helps the investor to know about the value, risk &
volatility of the covered security, and thus assist investors to decide
whether to buy, hold, sell, sell short, or simply avoid the security in
question.

In the process of research, analysts require high level of real time as well
as historical data, so as to evaluate and analyze different aspects of the
covered security. With Technology, the availability of data is no matter
today but there are tools and models needed to analyze the data.

The project is divided into three parts.


The first topic emphasizes on financial services industries in India.
The main idea is to identify the Financial Services Industries Overview
and analysis the working of different financial services. This topic also
includes Geographical Spread and Service Quality of different
financial companies.

The second topic emphasizes on Private Equity Outlook in India. The


main idea is to identify the trend of investment in Private Equity over a
period of time. This part also includes forecasting of the trend of Private
equity in next ten years.

The third topic deals with “Long/Short Trading Strategies: Stock


pairing ideas”. This is the new project that the company is working on.
There are two components of this part. First is to Identifying the pairs and
best trading rules that should lead to higher returns and lower volatility of
returns. And second is for Opening a position when the ratio reaches two
standard deviations away from the mean and closing it at one standard
deviation or when the price ratio approach its mean value, this
methodology has a reasonable balance between reward and risk.

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Equity Research Report

MAJOR PROJECTS
The project is categorized under the following major topics.

 The first topic emphasizes on Introduction to financial services


industries in India. The main idea is to identify the Financial
Services Industries Overview and analysis the working of different
financial services. This topic also includes Geographical Spread
and Service Quality of different financial companies.

 The second topic emphasizes on Private Equity Outlook in India.


The main idea is to identify the trend of investment in Private
Equity over a period of time. This part also includes forecasting of
the trend of Private equity in next ten years.

 The third topic deals with “Long/Short Trading Strategies:


Stock pairing ideas”. This is the new project that the company is
working on. There are two components of the project –

• Identifying the pairs and best trading rules that should lead to
higher returns and lower volatility of returns.

• Opening a position when the ratio reaches two standard


deviations away from the mean and closing it at one standard
deviation or when the price ratio approach its mean value,
this methodology has a reasonable balance between reward
and risk.

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Equity Research Report

PURPOSE & BENEFITS

The Purpose of the project is to have in-depth knowledge and


understanding of Financial Sector in India. The project also intends to
forecast and predict the future trend of financial sector in India.

The Main Purpose of project is the exposure to market neutral


strategies and to understand the derivative and stock market.

As the aspect of this project is multidimensional so is its purpose. The


project brought about value additions not only to the company but also
benefited me academically.

This project also helps in understanding the Trading Strategies used by


Escorts Mutual Funds.

This project leads us to emphasize on Using Pair Trading Strategy in


Stock Market.

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Equity Research Report

OBJECTIVE
Introduction to financial services industries in India

 To determine the present factors affecting the financial services


industries in India
 To determine the - Strategic Map of financial services companies
with respect of Geographical spread & Service Quality.

Introduction to Private Equity in India

 To study the performance of Private Equity So far in India.


 To determine the future trend of Private Equity in India.
 To analysis the factor affecting Private Equity in India.
 To identify the Risk and Opportunities for Private Equity in India.

Stock Pair Trading


 To study the meaning of Pair Trading Strategy.
 To analysis the stocks which are appropriate for making Pair.
 To build profitable long-short strategies with equal in investment in
long & short. The return is not based on individual movement but
relative movement reflected in the price ratio.

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Equity Research Report

Introduction to financial services industries in


India
Financial Services Industries - Overview

Financial
Services

Commercial Investment Insurance Advisory


Bank Services Services

• Private banking • Asset • Insurance • Stock brokers


Management Brokerage (private client
• Investment Banks
services) and
• Bank cards
• Hedge Fund • Insurance
discount brokers
Managers Underwriting
• Credit card
• Custody services • Reinsurance
machine services
and networks

India - Strategic Map


Citibank
High

Stan C ABN Amro


HSBC

ICICI Bank
HDFC
Karur Vysya
AXIS Bank
Service Quality

IndusInd Bank
Vysya Bank

State Bank of India

Bank of Baroda
Bank of India

PNB
Andhra Bank
Canara Bank

Co-operative Bank
Low

Rural Banks

Rural Regional Urban


Geographical Spread

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Equity Research Report

With market sentiment turning positive due to the formation of a stable


newly elected government, the ripple effect is likely to felt across all the
financial services in India. The sectors, including banking and insurance,
and mutual funds are all beginning to reap the benefits of a good closure
for 2008-09. In 2008-09, the Indian economy is estimated to have grown
by 6.7 per cent. According to the latest Central Statistical Organization
(CSO) data, financial services and real estate sector rose by 9.5 per cent
in the first quarter of 2009-10.

The government has taken a number of steps in recent months to revive


the economy, including slashing interest rates, lowering factory levies and
more than doubling the limit on foreign investment in corporate bonds.
The financial services space is a rapidly growing one in India. The country
received US$ 45 billion in foreign currency remittances from non-resident
Indians in 2008, the highest in the world.

April-May 2009 saw increased inflow in to equity with investors steadily


turning positive on equity according to mutual fund analysts. As per the
Securities and Exchange Board of India (SEBI), on May 15, net
investment of mutual funds in equity was around US$ 83.3 million
lowering to US$ 20.5 million on May 21. As against this, net investment of
mutual funds in debt has more than tripled from US$ 42.9 million on May
15 to US$ 134.2 million on May 31, 2009.

There is optimism in the economy as funds are investing in corporate


bonds, making liquidity available to enterprises. The total amount traded
in corporate bonds tripled from US$ 17.8 million to US$ 55.7 million
during May 15 to May 21, 2009.

The largest fund house, Reliance Mutual Fund, registered 16 per cent
growth in its average assets under management (AUM) to US$ 21.6
billion in May 2009 compared to April’s figure of US$ 18.6 billion. The
second-largest fund house, HDFC Mutual Fund, grew 18 per cent to US$
16 billion, compared with the previous month’s figure of US$ 13.4 billion.

The Spice Group is now looking for a US$ 1-billion valuation in financial
services business in the next three to five years. It has put US$ 105.2
million as seed money for the financial services business and is roping in
a Singapore-based firm as a partner for the asset reconstruction business.

India has increased its exposure to American debt securities by over


three-fold to US$ 38.2 billion till March 2009 as against US$ 11.8 billion in
March 2008, according to the data from the US Treasury Department.

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Equity Research Report

Stock markets

India’s market capitalization (m-cap) has touched US$ 1.04 trillion


making it the ninth largest in the world. India’s share in the total world
m-cap has risen to 2.79 per cent currently. The Indian stock market has
currently responded to the optimism of reforms by the new stable
government and its continuity in policies. Further, according to global
consultancy firm, Deloitte Haskins & Sells, the Indian economy and capital
markets are expected to witness a turnaround within six to nine months.

Fund raising by India Inc through initial public offers (IPOs) rose by a
whopping 62 per cent since the beginning of 2008 to May 29, 2008 to
US$ 4.2 billion, against US$ 2.6 billion during the same period in 2006,
according to global deal data provider, Dealogic. According to Goldman
Sachs, Indian companies may raise US$ 4 billion-6 billion from IPOs in the
fiscal year ending March 31, 2010

Insurance

India is the fifth largest life insurance market in the emerging insurance
economies globally and the segment is growing at a healthy 32–34 per
cent annually. The insurance industry’s sales rose the fastest in two years
since April 2007. The country’s 22 life insurance companies saw 29.5 per
cent rise in premium collected through sale of new policies to US$ 758
million in April 2009, as against US$ 585 million in the corresponding
period last year. In case of LIC, which recorded 69.33 per cent growth in
first-year premium during April 2009, a bulk of the growth came from the
group single premium segment and individual single premium rose to US$
89.8 million from US$ 77 million in the corresponding period of last year.

According to a report by research firm RNCOS—'Booming Insurance


Market in India (2008–2011)'—the total life insurance premium in India is
projected to grow to US$ 259.72 billion by 2010–11. Life Insurance
Corporation (LIC) is bullish on growth and is targetting business in excess
of US$ 59.14 billion by 2011–12.

The government is planning to ease restrictions on foreign investments in


insurance, banking and pensions, and allow foreign direct investment
(FDI) of 49 per cent from the present 26 per cent.

The ‘Mallassurance’ delivery channel is first of its kind in India's insurance


sector, selling life and general insurance policies through all Future Group
retail outlets across the country. For Future Generali Insurance, a sizeable
chunk of their customers now comes through the Mallassurance route.

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Equity Research Report

Online sales take place through two major channels through direct sales
by the insurers and through online insurance portals which offer a range
of products from various insurers. The most active insurers online are
ICICI Lombard, Bajaj Allianz etc.

Banking services

During 2008-09, State Bank of India (SBI) and associate banks advanced
US$ 16.8 billion for infrastructure projects such as power plants and
petroleum refineries. The big-sized credits have made SBI and group one
of the largest project financiers in the country.

IDFC Mutual Fund and Bank of India have entered into a strategic alliance
to distribute and market mutual fund products of IDFC through Bank of
India's branches.

Government Initiatives

The Central Board of Direct Taxes (CBDT) has changed the investment
pattern for recognised provident funds and superannuation trusts
managed by the private sector under the income-tax rules to take a
greater exposure in the stock market from April 1, 2009

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Equity Research Report

Private Equity Outlook in India

India: Strong Macroeconomic Outlook


Current Snapshot
 Gross Domestic Product (GDP) of US $1,030 billion
 12th largest economy in the world and 4th largest in PPP terms
 Real GDP growth of 9.4% in 2006-07

Projections - 2020
 GDP of $1,030 billion during calendar year 2007
 Assuming real GDP growth rate of 8% per year and an average of
5.5% inflation:
 GDP of $1.920 billion in 2012
 GDP of $5,040 billion in 2020

Projections – 2020 – Comparison


 Real GDP growth rate 8% per annum (13.5% including 5.5% annual
inflation)
 4th largest economy of the world after US, China and Japan
 3rd largest economy in PPP terms behind China and the US

Private Equity in India – The Story So Far


400 8,000
7,460
350 7,000
299
300 280 6,000
Number of Deals

Value of Deals
(USD million)
250 5,000

200 4,000
146
150 3,000
107 110
100 2,183 2,000
1,160 311 71
60 56
50 500 591 1,650 1,000
250
5 20 18 80 937 470
0 0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Number of Deals Value of Deals

(Source: Evalueserve, IVCA, Venture Intelligence India)

 First started in 1975 by Risk Capital Foundation followed by other


domestic financial institutions
 After 1996, international VC and PE firms started investing in India
 Investments started surging in 2004

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Equity Research Report

Private Equity in India – Future Outlook

400 8,000
7,460
350 7,000
299
300 6,000
Number of Deals

280

(In US$ million)


Value of Deals
311
250 5,000
200 4,000
146
150 110 3,000
107
100 71 2,183 2,000
60 56 1,650
50 18 1,160 937591 1,000
5 500 470
0 20 80 250 0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Number of Deals Value of Investments

 PE Investments of US $13.5 billion in 2009 to increase to US $23


billion by 2012
 366 PE firms currently operating in India and another 69 planning to
start their operations soon
 US $48 billion already earmarked for investment during the next
three and a half years

India Lags the Developed Markets In PE Investment


Levels:-
Private Equity Investments as a Percentage of GDP (2006)
PE PE Investment/GDP
Countries GDP
Investment Ratio
USA $13,245 billion $191 billion 1.44%
UK $2,374 billion $42.3 billion 1.78%
China $2,630 billion $13 billion 0.49%
India $910 billion $7.5 billion 0.82%

 PE investment/GDP ratio in US/UK is much higher than China/India


 India already catching up fast, projected ratio of 1.3% in 2008
 Indian economy can easily absorb US $60 billion during 2008-2010
and as much as US $490 billion during 2007-2020 including
investments by hedge funds

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Equity Research Report

PE Investments in India Getting More Diversified


2000
IT & ITeS
66%

Financial
Services
4%

Manufacturi
ng
Others Medical & 3%
25% Healthcare
2%

IT & ITeS Financial Services


Manufacturing Medical & Healthcare
Others

2008
Financial
Services
IT & ITeS 10% Manufacturing
28% 18%

Medical &
Healthcare
Others Engineering & 10%
26% Construction
8%

IT & ITeS Financial Services


Manufacturing Medical & Healthcare
Engineering & Construction Others

 PE Investments in 2000 dominated by IT & ITES


 Share of several other sectors esp. manufacturing, financial
services, and healthcare increasing significantly
 New areas of investment include Engineering & Construction,
Textiles, Logistics, Food and Beverages, etc.

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Equity Research Report

‘Key Industry Groups’ to Look for…

Hi-tech Services and Products Domestic Services Sector

 Includes:
 Includes: → Retail
→ IT/ITES → Travel and hospitality
→ Drug Research → Health care
→ Clinical Research → Entertainment
Outsourcing (CRO) → Private education
→ Engineering Services → Financial Services
Outsourcing (ESO)
→ Telecom products and  Expected to grow at
services approximately 19% per year
 Expected to grow at during the next five years
approximately 22% per year  Likely to contribute about 2.7%
during the next five years out of a total growth of 13%
 Likely to contribute about per year
1.3% out of a total growth
of 13% per year

High-end Manufacturing and


Infrastructure

 Includes:
→ Auto/Auto-
components
→ Electrical/electronic
goods
→ Specialty chemicals
→ Pharmaceuticals
→ Gems and Jewellery
→ Textiles
→ Construction/Real
Estate
 Expected to grow at
approximately 19% per
year during the next five
years
 Likely to contribute about
2.5% out of a total growth

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Equity Research Report

Risks and Opportunities in India

Risks First...
 High volatility in Indian stock markets
→ Heavy dependence on short-term Foreign Institutional
Investment inflows
→ Rich valuations: P/E ratio of 25 for BSE-100 compared with 13
for emerging markets as a whole
 Currency fluctuations, which are making India less competitive to
China. For example, Indian Rupee has appreciated by 14.5% during
Oct. 15, 2006 and Oct. 14, 2007 whereas the Chinese Yuan has
only appreciated by 5.4% (during the same period).
 Political risk: “Rules of the game” sometimes not clear
 Shortage of skilled workers especially in IT/ITES leading to wage
inflation
 Indian economy heating up very quickly. For example, real costs
have gone up by a factor of five in five years whereas wages have
only doubled during last five years.

Opportunities in Public Sector Undertakings (PSUs)


 Top 42 listed PSUs make up the BSE-PSU index and have a
combined market cap exceeding US $210 billion
 Impressive operational gains post liberalization (1991 to 2007)
→ Average revenue per employee up 10 times
→ Average profit per employee up 16 times
 Room for further efficiency gains – up to 60 percent in BSE-PSU
companies and perhaps more in other PSUs
 Recent investments from Actis in Punjab Tractors andfrom Mittal
Steel in HPCL refinery are recent examples of Private participation
in state owned enterprises

Key Challenge
 Most PSUs are hierarchical and bureaucratic in nature, and do not
like external advice

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Equity Research Report

Opportunities in Family-run Businesses

Percentage by Number and Market Capitalization of The


Hundred Companies Comprising BSE-100
Percentage by Percentage by Market
As of June 30, 2009
Number Capitalization
Public Sector
16 24
Undertakings
Family run
47 46
companies
Subsidiaries of
23 20
Multi-nationals
Others 14 9
(Source: Bombay Stock Exchange Website)
 Overall, less than 1/3rd of family run businesses survive 20 years.
Issues include:
→ Corporate governance
→ Good management structure
→ Long-term vision
 Can be a win-win for both parties if:
→ PE firm contributes strategy and operational expertise, not
just capital

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Equity Research Report

PAIR TRADING

What Is Pairs Trading?

Pairs trading strategy is a market neutral strategy which enables traders


to profit from virtually any market condition; uptrend, downtrend or
sidewise movement. Although introduced in early 1980’s, the strategy
became popular among retail traders only after the introduction of online
trading through sophisticated trading systems. Opportunities of pairs
trading usually last for only a short-period of time thus quick response to
market movements is required, which can only be achieved by high
degree of automation.

Pair Trading refers to opposite positions in two different stocks or indices


that is long position in one stock and short position in another stock. Pair
Trading can be simple in concept, but can be one of the most complex
types of trading in practices

The first and most important step in pairs trading strategy is to find pairs.
Pairs are trading instruments (stocks, options, futures, currencies, bonds,
etc.) which show great correlation that is the price of one move in same
direction of the other. For stocks, pairs can be shares of two companies in
same (or related) industry. For futures it can be mini and full-size
contract or can be futures of related (same) industries. And for forex it
can be currencies of countries having good trade relations. Traders should
use various fundamental and technical analysis tools to find these pairs*.

Pair traders look for divergence of correlation between shares of a pair.


When a divergence is noticed, traders take opposite positions in a pair.
For stocks, currencies and futures, the trader takes long position for
underperforming instrument and short position for over performing
instrument; for options, the trader writes put option for outperforming
stock and call option for underperforming stock. In most cases cost of
taking one position is compensated by the revenue from the opposite
position. Trader is profited when the divergence is corrected and the
instruments are brought to original (mean) correlation by market forces.

*Handbook of Pair Trading by Douglas E Ehram

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Equity Research Report

An Example Using Stocks


Traders can use either fundamental or technical data to construct a pairs
trading style. Our example here is technical in nature, but some traders
use a P/E ratio or other fundamental factors to measure correlation and
divergence.

The first step in designing a pairs trade is finding two stocks that are
highly correlated. Usually that means that the businesses are in the same
industry or sub-sector, but not always.

For instance, index tracking stocks like the AXIS BANK (NSE) or the ICICI
BANK (NSE) can offer excellent pairs trading opportunities. Two indices
that generally trade together are the AXIS BANK and the ICICI BANK.
This simple price plot of the two indices demonstrates their correlation:

For my example, I look at two businesses that are highly correlated: L&T
and BHEL. Since both are INDIAN MANUFACTURERS, their stocks tend to
move together.

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Equity Research Report

Below is an annually chart of the price ratio between L&T and BHEL
(calculated by dividing L&T’s stock price by BHEL’s stock price). This price
ratio is sometimes called "relative performance" (not to be confused with
the relative strength index, something completely different). The center
Pink line represents the mean price ratio over the past One years. The
Blue and Sky blue lines represent Plus(+tive) one and two standard
deviations from the Mean ratio, respectively. The Red and Green lines
represent Minus(-tive) one and two standard deviations from the Mean
ratio, respectively.

In the chart below, the potential for profit can be identified when the price
ratio hits its first or second deviation. When these profitable divergences
occur it is time to take a long position in the underperformer and a short
position in the overachiever. The revenue from the short sale can help
cover the cost of the long position, making the pairs trade inexpensive to
put on. Position size of the pair should be matched by Rupees value
rather than number of shares; this way a 5% move in one equals a 5%
move in the other. As with all investments, there is a risk that the trades
could move into the Blue & Green, so it is important to determine
optimized stop-loss points before implementing the pairs trade.

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Equity Research Report

An Example Using Futures Contracts


The pairs trading strategy works not only with stocks but also with
currencies, commodities, and even options. In the futures market, "mini"
contracts - smaller-sized contracts that represent a fraction of the value
of the full-size position - enable smaller investors to trade in futures.

A Pairs trade in the futures market might involve an arbitrage between


the futures contract and the cash position of a given index. When the
futures contract gets ahead of the cash position, a trader might try to
profit by shorting the future and going long in the index tracking stock,
expecting them to come together at some point. Often the moves
between an index or commodity and its futures contract are so tight that
profits are left only for the fastest of traders - often using computers to
automatically execute enormous positions at the blink of an eye.

An Example Using Options


Option traders use calls and puts to hedge risks and exploit volatility (or
the lack thereof). A call is a commitment by the writer to buy shares of a
stock at a given price sometime in the future. A put is a commitment by
the writer to sell shares at a given price sometime in the future. A pairs
trade in the options market might involve writing a call for a security that
is outperforming its pair (another highly correlated security), and
matching the position by writing a put for the pair (the underperforming
security). As the two underlying positions revert to their mean again, the
options become worthless allowing the trader to pocket the proceeds from
one or both of the positions.

Evidence of Profitability
In June of 1998, Yale School of Management released a paper written by Even G. Gatev,
William Goetzmann, and K. Geert Rouwenhorst who attempted to prove that pairs trading
is profitable. Using data from 1967 to 1997, the trio found that over a six-month trading
period, the pairs trade averaged a 12% return. To distinguish profitable results from plain
luck, their test included conservative estimates of transaction costs and randomly selected
pairs.

NOTE:-
The broad market is full of ups and downs that force out weak players and
confound even the smartest prognosticators. Fortunately, using market-
neutral strategies like the pairs trade, investors and traders can find
profits in all market conditions. The beauty of the pairs trade is its
simplicity. The long/short relationship of two correlated securities acts as
a ballast for a portfolio caught in the choppy waters of the overall market.
Good luck with your hunt for profit in pairs trading, and here's to your
success in the markets.

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Market-neutral strategy

Market-neutral strategy is a trading strategy that derives its returns from


the relationship between the performance of its long positions and the
performance of its short positions, regardless of whether this relationship
functions on the security or portfolio level.

A market-neutral strategy has three key features: the combination of long


and short investing, the ability to use leverage, and the inclusion of an
arbitrage situation. In market neutral strategy, the return on the portfolio
is a function of the return differential between the securities that are held
long and those that are held short. As the market appreciates, both the
long and short positions appreciate in value, so the overall portfolio value
remains constant.

TYPES OF MARKET NEUTRALITY


There are several types of neutrality, each of which has a different impact
on the portfolio and relates differently to pair trading. Understanding each
and how to apply it appropriately will directly impact the portfolio
construction process.

Share Neutrality

Share neutrality refers to balancing a trade with an equal number of long


shares and short shares. This is a very uncommon approach because in
terms of relationship investing, the share price of either security is
somewhat irrelevant. While it is usually a good idea to trade in similarly
priced securities, because it is unlikely that the two securities in question
will be priced identically, share neutrality results in a disproportionate
amount of exposure between the two legs of the trade.

Dollar neutrality

Dollar neutrality is the most common type of market neutrality and is


usually considered a requirement for market-neutral investing in equity
securities. Dollar neutrality refers to buying equal amounts of long and
short investments so that the dollar risk is equal on each side of the
portfolio. By employing dollar neutrality in a market-neutral strategy, an
investor ensures that his net dollar exposure to market swings is zero.

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Equity Research Report

Sector neutrality

Sector neutrality means that portfolios are long/short balanced within


each sector of the market to insulate the overall portfolio against the
possibility that one sector will perform very well while another performs
poorly. Being sector neutral avoids the risk of market swings affecting
some industries or sectors differently from others

Beta Neutrality

Beta neutrality refers to balancing the beta of the long side of the
portfolio against the beta of the short side of the portfolio. Beta is the
measurement of a stock’s volatility relative to the market. A stock with a
beta of 1 move historically in sync with the market, while a stock with a
higher beta tends to be more volatile than the market and a stock with a
lower beta can be expected to rise and fall more slowly than the market.
Beta neutrality, therefore, refers to the practice of matching the beta of
the long portfolio with the beta of the short portfolio to ensure that
market swings affect each portfolio in a similar way.

Market capitalization neutrality

Market capitalization neutrality refers to balancing the portfolio in such a


way as to keep the market capitalization exposure of the long side of the
portfolio similar to the market capitalization exposure of the short side of
the portfolio. Stocks of different market capitalization can be affected by
market forces in various ways; while large cap stocks tend to be more
stable and liquid, they may fall out of favor in times of explosive growth.
While there are exception that the stocks of similar market capitalization
are more likely to react similarly to general economic conditions. For this
reason, managers prefer to keep their portfolios relatively neutral to this
type of exposure. It is important to remember that the ultimate goal of
market neutral investing is to reduce systematic risk whenever possible.

“This strategy is used by Escorts securities in screening the stocks for pair trading:”
(Escorts Securities policies)

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MARKET NEUTRAL INVESTMENT PROCESS


The process describes the step involved to achieve a well constructed
market neutral portfolio. The process is broken down into three basic
steps:-
 Initial Screen
 Stock selection process
 Final Portfolio construction.

In order to have an in-depth understanding of the market neutral


investment process an example is taken. The entire concept will be
explained taking this example into account. This example was also a part
of the work done during my summer internship.

INITIAL SCREEN

The most important step involves initial screening of stocks. By taking this
step, we can quickly eliminate a large percentage of stocks that would not
be included in the portfolio under any circumstances. There are usually
four criteria used during the initial screen.

LIQUIDITY

Market capitalization is most salient way to judge the liquidity of a stock.


The greater the liquidity of a given security, the more assurance the fund
manager can have that he will be able to quickly, easily and efficiently
exit a position when time comes. As per the company policy all the stocks
having market capitalization of more than 2 million averages are
considered for the pair trading*

SHORT –SALE ABILITY

Market-neutral investing involves shorting securities as well as buying


them long. A manager must, therefore, be able to short the equities he is
considering in order to build a portfolio. Many of the largest brokerage
houses keep lists, called “hard-to-borrow” lists, of securities that are not
always easy to short sell. Many managers will obtain these lists in
advance of their initial screen and exclude any stock that is listed on the
“hard-to-borrow” list.

“Escorts Securities have declared a list as “hard to borrow” stocks and are excluded from the
initial screening of stocks”.

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INVOLVEMENT IN CORPORATE ACTION

At any given time, there are many companies involved in some type of
corporate action, ranging from mergers and acquisitions to secondary
public offerings and stock repurchases. Such activities have a tendency to
cause the price of the company’s stock to fluctuate in ways that it might
not otherwise. The stock of a company being considered for acquisition is
more likely to feel upward price pressure than that of a company
considering making acquisition; such stocks are excluded from
consideration.

STOCK SELECTION

This is the most vital step because of its value added characteristics.
Stock selection involves looking for quantifiable metrics that have strong
predictive ability across a wide range of stocks. This metrics is based on
fundamental and technical analysis of the stock.

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FUNDAMENTAL TRADE
The two companies being considered for pair trading are AXIS BANK and
ICICI BANK. These companies make an appropriate pair because they
are not only in the same sector and industry, but they follow similar
business plans.

CORRELATION BETWEEN PAIR


In order to calculate the correlation and mean of the pair, first the price
ratio is calculated which is defined as ratio of the closing price of the two
stocks (figure ). Table below shows the correlation for 1 year, 6 months
and 3 months. We observe that the correlation is quite healthy not only
for short term but also for long term. As on 12th December 2008 the
correlation between the pair comes to near about 97% which is calculated
by Pair Trade finder software.

Correlation between the pair

Period 1 Yr 6 months 3 months


MEAN(PR) 1.13467498 1.091353116 1.104409894

Correlation 0.904893798 0.970676362 0.969121659

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Price Ratio and Mean Value of Pair


Price Ratio Mean Value
P Ric e Ra tio & M e a n V a lue
2
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
6 /1 6/2 0 0 8

7 /1 6/2 0 0 8

8 /1 6/2 0 0 8

9 /1 6/2 0 0 8

1 0 /1 6/2 0 0 8

1 1 /1 6/2 0 0 8

1 2 /1 6/2 0 0 8

1 /1 6/2 0 0 9

2 /1 6/2 0 0 9

3 /1 6/2 0 0 9

4 /1 6/2 0 0 9

5 /1 6/2 0 0 9
DATE

TECHNICAL TRADE
Technical analysis deals with three pieces of data: price, volume and
sentiments while fundamental analysis uses huge amount of subjective
data. There are thousands of indicators used worldwide however our
study will be limited to those that are related to market neutral strategy.

The indicators are broken down into three groups


 Market Strength Indicators
 Moving average indicators
 Volume as indicators

MARKET STRENGTH INDICATORS


There are two indicators which describes the strength of the market:-

RELATIVE STRENGTH INDEX


RSI Measurement can be used to examine the relationship between the
two stocks .The RSI formula is as follows:

RSI=100-100/(1+RS)

Where RS = Average for net up closing changes for N days divided by


average of net down closing changes for N days. The trader selects the
number of days to be used; 5, 9, and 14 are standards used by most
traders and are included in most commercial software programs (Pair
Trade Finder). However manual calculation is very difficult to calculate.

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Pair trading is only possible if the reading of RSI measurement is between


20 and 70.

For AXIS BANK and ICICI BANK the RSI is 29.3% which is within the
acceptable limits.

MOVING AVERAGE INDICATORS

The moving average is a technical indicator that is widely used by almost


all technical traders. In its simplest form, the moving average is
calculated by finding the average price for a given stock or index over a
set period of time. Traders use this information to determine how a stock
is behaving today relative to how it has behaved in the past.

BOLLINGER BAND
Bollinger Bands are envelopes that surround the means price bars on a
chart. Bollinger Bands are plotted two standard deviations away from a
simple moving average. Bollinger Bands can be used to evaluate the
relationship between two stocks as well as to evaluate a single stock or
index. Bollinger Bands also give us the time and position at which a trader
should enter or exit the trade. As we observe in the figure, entry point of
the trader should be at the point when the price ratio is away form mean
value. The return would be higher in the case when the price ratio curve
is close to two standard deviation as compared to when the curve is near
mean value. As evident from the figure below, price ratio is close to two
standard deviation, eventually with passage of time it would come back to
its mean value; however the time taken the stock can be utilized by the
trader to make profit.

2
1.8 Entry Point
1.6
Price
1.4
1.2 Ratio
1 MEAN(PR)
0.8
0.6 SD(+1)
0.4
0.2
0 (SD+2)
6 /1 6 /2 0 0 8

7 /1 6 /2 0 0 8

8 /1 6 /2 0 0 8

9 /1 6 /2 0 0 8

1 0 /1 6 /2 0 0 8

1 1 /1 6 /2 0 0 8

1 2 /1 6 /2 0 0 8

1 /1 6 /2 0 0 9

2 /1 6 /2 0 0 9
3 /1 6 /2 0 0 9

4 /1 6 /2 0 0 9

5 /1 6 /2 0 0 9

SD(-1)

SD(-2)

DATE

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VOLUME AS INDICATOR
If increasing volume is observed in a down-trending stock, the technician
confirms the strength of that trend and believes it will continue. In
simpler terms, volume should increase or expand in the direction of the
prevailing price trend. When volume decreases in the direction of the
prevailing price trend, this suggests that a reversal may occur in the near
future.

As we observe in the figure the price ratio of AXIS BANK/ ICICI BANK has
decreased for the past 100 days. Since the volatility of the pair is also
starting decreasing we can expect an inverse of the trend in future.

This indicator gives a tentative confirmation that trading in this pair would
be profitable.

Price Ratio Mean Value


PRice Ratio & Mean Value

2
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
6/16/2008

7/16/2008

8/16/2008

9/16/2008

10/16/2008

11/16/2008

12/16/2008

1/16/2009

2/16/2009

3/16/2009

4/16/2009

5/16/2009

DATE

Series1
AXIS Bank / ICICI Bank Volatility
1.4

1.2

0.8

0.6

0.4

0.2

0
1 15 29 43 57 71 85 99 113 127 141 155 169 183 197 211 225 239

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FINAL PORTFOLIO SELECTION


This pair has passed all the test so can be considered in the final portfolio
selection. The pair trading call for this pair can be summarized (Refer
Annexure)

Summary
Price Ratio Target Stop %
C.P(15Jun09) Ratio Loss Return
AXISBANK(Long) 718.4 0.977747533 .50 .20 48.99
ICICI 734.75
BANK(Short)

The same process was followed for the below mentioned pair. Depending
upon the result, recommendation was given to Fund managers of the
company. Table 21 below shows the summary of the work done by me.
The stock highlighted as red signifies stock to be short (sell) while green
signifies to long (buy). For all calculation please have a look at the excel
sheet attached in the annexure

OTHER PAIRS
S SD SD SD SD SD
N Stock1 Stock2 Correlation Mean of PR (Stock1 / (PR) (+1) (+2) (-1) (-2)
Stock2)

1yr 6m 3m Cur 1yr 6m 3m


1 R TATA 0.80 0.98 0.97 0.44 0.52 0.48 0.13 0.93 1.05 0.67 0.80
POWER STEEL
2 HDFC ICICI .83 .96 .97 2.21 2.34 2.31 .35 1.18 1.52 .49 .83

3 AIRTEL TATA .16 .16 .36 1.58 1.41 1.38 .22 .38 .60 -.07 .16
COM
4 M&M MARUTI .72 .96 .98 .66 .56 .60 .13 .84 .97 .59 .72

5 L&T BHEL .74 .58 .88 1.03 .52 .47 .47 1.50 1.97 .55 .08

6 WIPRO INFOSYT .96 .94 .95 .22 .20 .22 .03 .98 1.0 .93 .96
ECH 1

7 RANBAX CIPLA .44 .09 .47 1.39 1.00 .90 .54 .98 1.52 -0.1 .44
Y

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CONCLUSION
This example has helped us to understand the factors that go into market
neutral investing. Some of the advantages and risks associated with this
type of investment strategy as well as the steps one takes to build a
market-neutral portfolio have been explored. Large investment banks,
institutions & hedge funds spend millions of dollars each year on
developing pair trading programs and the application of them, they know
it’s crucial to not only have the right information, but be able to view &
analyze it in a timely manner. With the significant advances and
development in technologies in recent years this has become possible for
the average online trader to view and analyze the same information.

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Equity Research Report

REFERENCE

Reading Material

 NCFM module From National Stock Exchange


• Derivative Module
• Currency Module
• Debt Market Module

 Portfolio Management
• Where Science Meets Business, Patrick Grogan, Sr.
Director, Strategic Planning, BD Biosciences

 The Hand Book Of Pairs Trading


• Strategies Using Equities, Options, and Futures by DOUGLAS
S. EHRMAN

 Jefferies Pairs Trading Strategy

 Economic Survey

Website
 www.commodityonline.com

 www.moneycontrol.com

 http://capitalmarket.com/

 www.mcxindia.com

 http://www.appuonline.com

 www.bseindia.com

 http://www.nseindia.com/

 www.commodityonline.com/FuturesWatch/commodityfuture.ph
p

 http://www.khelostocks.com/

 www.anyoption.com

 http://www.bseindia.com/histdata/hindices.asp#

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Equity Research Report

ANNEXURE
Price
Date AXIS Bank ICICI Bank Ratio MEAN(PR) SD(+1) (SD+2) SD(-1) SD(-2)
16-Jun-08 735.75 797.45 0.92 1.13 1.02 1.14 0.79 0.90
17-Jun-08 794.5 820.65 0.97 1.13 1.02 1.14 0.79 0.90
18-Jun-08 750.5 786.95 0.95 1.13 1.02 1.14 0.79 0.90
19-Jun-08 718.1 753.6 0.95 1.13 1.02 1.14 0.79 0.90
20-Jun-08 703.7 732.95 0.96 1.13 1.02 1.14 0.79 0.90
23-Jun-08 697.15 720.7 0.97 1.13 1.02 1.14 0.79 0.90
24-Jun-08 678.65 703.15 0.97 1.13 1.02 1.14 0.79 0.90
25-Jun-08 685.05 698.2 0.98 1.13 1.02 1.14 0.79 0.90
26-Jun-08 678.2 697.55 0.97 1.13 1.02 1.14 0.79 0.90
27-Jun-08 628.6 652.15 0.96 1.13 1.02 1.14 0.79 0.90
30-Jun-08 605.05 630.2 0.96 1.13 1.02 1.14 0.79 0.90
1-Jul-08 593.85 589.1 1.01 1.13 1.02 1.14 0.79 0.90
2-Jul-08 634.45 621.05 1.02 1.13 1.02 1.14 0.79 0.90
3-Jul-08 580.2 571.9 1.01 1.13 1.02 1.14 0.79 0.90
4-Jul-08 600.45 603.6 0.99 1.13 1.02 1.14 0.79 0.90
7-Jul-08 603.95 605.15 1.00 1.13 1.02 1.14 0.79 0.90
8-Jul-08 606.95 594.35 1.02 1.13 1.02 1.14 0.79 0.90
9-Jul-08 669.1 621.7 1.08 1.13 1.02 1.14 0.79 0.90
10-Jul-08 678.45 616.9 1.10 1.13 1.02 1.14 0.79 0.90
11-Jul-08 665.25 591.6 1.12 1.13 1.02 1.14 0.79 0.90
14-Jul-08 634.35 578.9 1.10 1.13 1.02 1.14 0.79 0.90
15-Jul-08 597.1 529.15 1.13 1.13 1.02 1.14 0.79 0.90
16-Jul-08 584.45 519.75 1.12 1.13 1.02 1.14 0.79 0.90
17-Jul-08 635.45 551.85 1.15 1.13 1.02 1.14 0.79 0.90
18-Jul-08 685.6 617.45 1.11 1.13 1.02 1.14 0.79 0.90
21-Jul-08 697.4 642.95 1.08 1.13 1.02 1.14 0.79 0.90
22-Jul-08 735.05 661.7 1.11 1.13 1.02 1.14 0.79 0.90
23-Jul-08 763.65 738.7 1.03 1.13 1.02 1.14 0.79 0.90
24-Jul-08 760.3 730.2 1.04 1.13 1.02 1.14 0.79 0.90
25-Jul-08 712.85 656.75 1.09 1.13 1.02 1.14 0.79 0.90
28-Jul-08 697.3 663.4 1.05 1.13 1.02 1.14 0.79 0.90
29-Jul-08 619.7 607.7 1.02 1.13 1.02 1.14 0.79 0.90
30-Jul-08 679.25 636.1 1.07 1.13 1.02 1.14 0.79 0.90
31-Jul-08 653.9 637.3 1.03 1.13 1.02 1.14 0.79 0.90
1-Aug-08 679.9 642.4 1.06 1.13 1.02 1.14 0.79 0.90
4-Aug-08 706.05 640.45 1.10 1.13 1.02 1.14 0.79 0.90
5-Aug-08 760.55 694.1 1.10 1.13 1.02 1.14 0.79 0.90
6-Aug-08 743.05 706.65 1.05 1.13 1.02 1.14 0.79 0.90
7-Aug-08 746.55 707.95 1.05 1.13 1.02 1.14 0.79 0.90
8-Aug-08 735.15 731.6 1.00 1.13 1.02 1.14 0.79 0.90
11-Aug-08 759.6 771.15 0.99 1.13 1.02 1.14 0.79 0.90
12-Aug-08 720.55 740.65 0.97 1.13 1.02 1.14 0.79 0.90
13-Aug-08 725.1 710.7 1.02 1.13 1.02 1.14 0.79 0.90
14-Aug-08 700 673.45 1.04 1.13 1.02 1.14 0.79 0.90
18-Aug-08 692.5 665 1.04 1.13 1.02 1.14 0.79 0.90
19-Aug-08 679.8 677.7 1.00 1.13 1.02 1.14 0.79 0.90
20-Aug-08 673.8 678.8 0.99 1.13 1.02 1.14 0.79 0.90
21-Aug-08 649.1 643.7 1.01 1.13 1.02 1.14 0.79 0.90
22-Aug-08 679.85 644.55 1.05 1.13 1.02 1.14 0.79 0.90
25-Aug-08 685.6 657.15 1.04 1.13 1.02 1.14 0.79 0.90
26-Aug-08 679.65 666.55 1.02 1.13 1.02 1.14 0.79 0.90

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27-Aug-08 677.35 649.95 1.04 1.13 1.02 1.14 0.79 0.90


28-Aug-08 670.55 632.55 1.06 1.13 1.02 1.14 0.79 0.90
29-Aug-08 723.4 671.9 1.08 1.13 1.02 1.14 0.79 0.90
1-Sep-08 722.9 665 1.09 1.13 1.02 1.14 0.79 0.90
2-Sep-08 759.85 714.05 1.06 1.13 1.02 1.14 0.79 0.90
4-Sep-08 734.2 716.65 1.02 1.13 1.02 1.14 0.79 0.90
5-Sep-08 687.25 686.75 1.00 1.13 1.02 1.14 0.79 0.90
8-Sep-08 711.25 720.45 0.99 1.13 1.02 1.14 0.79 0.90
9-Sep-08 710 712.1 1.00 1.13 1.02 1.14 0.79 0.90
10-Sep-08 710.45 701 1.01 1.13 1.02 1.14 0.79 0.90
11-Sep-08 704.15 686.6 1.03 1.13 1.02 1.14 0.79 0.90
12-Sep-08 692.55 652.8 1.06 1.13 1.02 1.14 0.79 0.90
15-Sep-08 656.9 627.5 1.05 1.13 1.02 1.14 0.79 0.90
16-Sep-08 695.8 591.65 1.18 1.13 1.02 1.14 0.79 0.90
17-Sep-08 666.45 560.05 1.19 1.13 1.02 1.14 0.79 0.90
18-Sep-08 678.6 577.15 1.18 1.13 1.02 1.14 0.79 0.90
19-Sep-08 708.55 627.5 1.13 1.13 1.02 1.14 0.79 0.90
22-Sep-08 704.9 635.75 1.11 1.13 1.02 1.14 0.79 0.90
23-Sep-08 683.35 599.15 1.14 1.13 1.02 1.14 0.79 0.90
24-Sep-08 710.2 600.1 1.18 1.13 1.02 1.14 0.79 0.90
25-Sep-08 721.4 596.2 1.21 1.13 1.02 1.14 0.79 0.90
26-Sep-08 705.1 560.4 1.26 1.13 1.02 1.14 0.79 0.90
29-Sep-08 671.55 493.3 1.36 1.13 1.02 1.14 0.79 0.90
30-Sep-08 720.25 535.55 1.34 1.13 1.02 1.14 0.79 0.90
1-Oct-08 734.6 550.9 1.33 1.13 1.02 1.14 0.79 0.90
3-Oct-08 702.3 504.35 1.39 1.13 1.02 1.14 0.79 0.90
6-Oct-08 678 490.05 1.38 1.13 1.02 1.14 0.79 0.90
7-Oct-08 682.9 485.05 1.41 1.13 1.02 1.14 0.79 0.90
8-Oct-08 647.75 453.75 1.43 1.13 1.02 1.14 0.79 0.90
10-Oct-08 552.6 363.65 1.52 1.13 1.02 1.14 0.79 0.90
13-Oct-08 659.95 425.15 1.55 1.13 1.02 1.14 0.79 0.90
14-Oct-08 639.05 449.55 1.42 1.13 1.02 1.14 0.79 0.90
15-Oct-08 618.8 414.15 1.49 1.13 1.02 1.14 0.79 0.90
16-Oct-08 626.25 416.15 1.50 1.13 1.02 1.14 0.79 0.90
17-Oct-08 620.35 391.25 1.59 1.13 1.02 1.14 0.79 0.90
20-Oct-08 617.9 411.35 1.50 1.13 1.02 1.14 0.79 0.90
21-Oct-08 656.5 431.05 1.52 1.13 1.02 1.14 0.79 0.90
22-Oct-08 631.2 396.7 1.59 1.13 1.02 1.14 0.79 0.90
23-Oct-08 622.4 365.8 1.70 1.13 1.02 1.14 0.79 0.90
24-Oct-08 538.85 308.5 1.75 1.13 1.02 1.14 0.79 0.90
27-Oct-08 534.55 316.1 1.69 1.13 1.02 1.14 0.79 0.90
28-Oct-08 570 335.5 1.70 1.13 1.02 1.14 0.79 0.90
29-Oct-08 526.85 345.35 1.53 1.13 1.02 1.14 0.79 0.90
31-Oct-08 562.95 398.75 1.41 1.13 1.02 1.14 0.79 0.90
3-Nov-08 602.2 430.7 1.40 1.13 1.02 1.14 0.79 0.90
4-Nov-08 640.45 457.8 1.40 1.13 1.02 1.14 0.79 0.90
5-Nov-08 604 450.85 1.34 1.13 1.02 1.14 0.79 0.90
6-Nov-08 582.7 433.4 1.34 1.13 1.02 1.14 0.79 0.90
7-Nov-08 581.6 432.3 1.35 1.13 1.02 1.14 0.79 0.90
10-Nov-08 608.9 471.85 1.29 1.13 1.02 1.14 0.79 0.90
11-Nov-08 564.05 434.35 1.30 1.13 1.02 1.14 0.79 0.90
12-Nov-08 525.3 397.3 1.32 1.13 1.02 1.14 0.79 0.90
14-Nov-08 492.95 395.9 1.25 1.13 1.02 1.14 0.79 0.90
17-Nov-08 456.65 386.45 1.18 1.13 1.02 1.14 0.79 0.90

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18-Nov-08 437.75 360.2 1.22 1.13 1.02 1.14 0.79 0.90


19-Nov-08 427.55 348.25 1.23 1.13 1.02 1.14 0.79 0.90
20-Nov-08 405.45 319.5 1.27 1.13 1.02 1.14 0.79 0.90
21-Nov-08 411.5 334.05 1.23 1.13 1.02 1.14 0.79 0.90
24-Nov-08 397.55 322.55 1.23 1.13 1.02 1.14 0.79 0.90
25-Nov-08 376.55 321.1 1.17 1.13 1.02 1.14 0.79 0.90
26-Nov-08 404.45 350.85 1.15 1.13 1.02 1.14 0.79 0.90
28-Nov-08 408.5 351.65 1.16 1.13 1.02 1.14 0.79 0.90
1-Dec-08 413.05 325.55 1.27 1.13 1.02 1.14 0.79 0.90
2-Dec-08 429.1 323.4 1.33 1.13 1.02 1.14 0.79 0.90
3-Dec-08 433.7 334.8 1.30 1.13 1.02 1.14 0.79 0.90
4-Dec-08 455.2 364 1.25 1.13 1.02 1.14 0.79 0.90
5-Dec-08 443.05 358.4 1.24 1.13 1.02 1.14 0.79 0.90
8-Dec-08 451.95 370 1.22 1.13 1.02 1.14 0.79 0.90
10-Dec-08 462.8 400.05 1.16 1.13 1.02 1.14 0.79 0.90
11-Dec-08 457 406.1 1.13 1.13 1.02 1.14 0.79 0.90
12-Dec-08 468.8 411 1.14 1.13 1.02 1.14 0.79 0.90
15-Dec-08 486.2 418.7 1.16 1.13 1.02 1.14 0.79 0.90
16-Dec-08 500.8 421 1.19 1.13 1.02 1.14 0.79 0.90
17-Dec-08 497.6 431.8 1.15 1.13 1.02 1.14 0.79 0.90
18-Dec-08 537.2 472 1.14 1.13 1.02 1.14 0.79 0.90
19-Dec-08 546 472.8 1.15 1.13 1.02 1.14 0.79 0.90
22-Dec-08 537.5 445.7 1.21 1.13 1.02 1.14 0.79 0.90
23-Dec-08 499.5 426.85 1.17 1.13 1.02 1.14 0.79 0.90
24-Dec-08 490.75 440.95 1.11 1.13 1.02 1.14 0.79 0.90
26-Dec-08 482.8 417.35 1.16 1.13 1.02 1.14 0.79 0.90
29-Dec-08 494.95 445 1.11 1.13 1.02 1.14 0.79 0.90
30-Dec-08 510.25 458.6 1.11 1.13 1.02 1.14 0.79 0.90
31-Dec-08 504.7 448.1 1.13 1.13 1.02 1.14 0.79 0.90
1-Jan-09 516.85 464.15 1.11 1.13 1.02 1.14 0.79 0.90
2-Jan-09 541.9 471.25 1.15 1.13 1.02 1.14 0.79 0.90
5-Jan-09 560.1 499.9 1.12 1.13 1.02 1.14 0.79 0.90
6-Jan-09 569.75 523.45 1.09 1.13 1.02 1.14 0.79 0.90
7-Jan-09 522.1 467.85 1.12 1.13 1.02 1.14 0.79 0.90
9-Jan-09 486.6 456.6 1.07 1.13 1.02 1.14 0.79 0.90
12-Jan-09 451.7 438 1.03 1.13 1.02 1.14 0.79 0.90
13-Jan-09 440.3 425.45 1.03 1.13 1.02 1.14 0.79 0.90
14-Jan-09 449.4 441.1 1.02 1.13 1.02 1.14 0.79 0.90
15-Jan-09 434.05 408.65 1.06 1.13 1.02 1.14 0.79 0.90
16-Jan-09 443.55 423.75 1.05 1.13 1.02 1.14 0.79 0.90
19-Jan-09 438.3 412.6 1.06 1.13 1.02 1.14 0.79 0.90
20-Jan-09 422.4 396.3 1.07 1.13 1.02 1.14 0.79 0.90
21-Jan-09 407.7 369.35 1.10 1.13 1.02 1.14 0.79 0.90
22-Jan-09 416.05 378.05 1.10 1.13 1.02 1.14 0.79 0.90
23-Jan-09 384.3 363.85 1.06 1.13 1.02 1.14 0.79 0.90
27-Jan-09 394.75 381.1 1.04 1.13 1.02 1.14 0.79 0.90
28-Jan-09 422.85 408.05 1.04 1.13 1.02 1.14 0.79 0.90
29-Jan-09 435.65 410.1 1.06 1.13 1.02 1.14 0.79 0.90
30-Jan-09 433.7 416.25 1.04 1.13 1.02 1.14 0.79 0.90
2-Feb-09 397.85 385.1 1.03 1.13 1.02 1.14 0.79 0.90
3-Feb-09 395.5 392 1.01 1.13 1.02 1.14 0.79 0.90
4-Feb-09 395.15 389.7 1.01 1.13 1.02 1.14 0.79 0.90
5-Feb-09 392.3 390.55 1.00 1.13 1.02 1.14 0.79 0.90
6-Feb-09 403 407.1 0.99 1.13 1.02 1.14 0.79 0.90

39
Equity Research Report

9-Feb-09 422.45 428.35 0.99 1.13 1.02 1.14 0.79 0.90


10-Feb-09 421 428.7 0.98 1.13 1.02 1.14 0.79 0.90
11-Feb-09 430.95 435.2 0.99 1.13 1.02 1.14 0.79 0.90
12-Feb-09 430.5 421.4 1.02 1.13 1.02 1.14 0.79 0.90
13-Feb-09 440.4 434.4 1.01 1.13 1.02 1.14 0.79 0.90
16-Feb-09 418.8 409 1.02 1.13 1.02 1.14 0.79 0.90
17-Feb-09 399.15 385.7 1.03 1.13 1.02 1.14 0.79 0.90
18-Feb-09 394.25 369.5 1.07 1.13 1.02 1.14 0.79 0.90
19-Feb-09 388.45 361.5 1.07 1.13 1.02 1.14 0.79 0.90
20-Feb-09 372.7 335.85 1.11 1.13 1.02 1.14 0.79 0.90
24-Feb-09 363.65 335.95 1.08 1.13 1.02 1.14 0.79 0.90
25-Feb-09 366.05 340.6 1.07 1.13 1.02 1.14 0.79 0.90
26-Feb-09 346.3 324.85 1.07 1.13 1.02 1.14 0.79 0.90
27-Feb-09 347.9 327.55 1.06 1.13 1.02 1.14 0.79 0.90
2-Mar-09 323.1 304.4 1.06 1.13 1.02 1.14 0.79 0.90
3-Mar-09 324.9 295.6 1.10 1.13 1.02 1.14 0.79 0.90
4-Mar-09 322.15 284.9 1.13 1.13 1.02 1.14 0.79 0.90
5-Mar-09 300.7 270.05 1.11 1.13 1.02 1.14 0.79 0.90
6-Mar-09 294.95 269.15 1.10 1.13 1.02 1.14 0.79 0.90
9-Mar-09 281.4 262.95 1.07 1.13 1.02 1.14 0.79 0.90
12-Mar-09 304.5 284.15 1.07 1.13 1.02 1.14 0.79 0.90
13-Mar-09 329.9 308.65 1.07 1.13 1.02 1.14 0.79 0.90
16-Mar-09 342.55 322.8 1.06 1.13 1.02 1.14 0.79 0.90
17-Mar-09 325.5 323.4 1.01 1.13 1.02 1.14 0.79 0.90
18-Mar-09 340.7 334.65 1.02 1.13 1.02 1.14 0.79 0.90
19-Mar-09 358 337.9 1.06 1.13 1.02 1.14 0.79 0.90
20-Mar-09 342.4 323.05 1.06 1.13 1.02 1.14 0.79 0.90
23-Mar-09 373.65 346.8 1.08 1.13 1.02 1.14 0.79 0.90
24-Mar-09 371.95 355.45 1.05 1.13 1.02 1.14 0.79 0.90
25-Mar-09 398.1 365.55 1.09 1.13 1.02 1.14 0.79 0.90
26-Mar-09 421.4 375.05 1.12 1.13 1.02 1.14 0.79 0.90
27-Mar-09 431.05 385.2 1.12 1.13 1.02 1.14 0.79 0.90
30-Mar-09 397 338.1 1.17 1.13 1.02 1.14 0.79 0.90
31-Mar-09 414.95 332.8 1.25 1.13 1.02 1.14 0.79 0.90
1-Apr-09 418.15 349.35 1.20 1.13 1.02 1.14 0.79 0.90
2-Apr-09 439.6 360.7 1.22 1.13 1.02 1.14 0.79 0.90
6-Apr-09 435.25 374.8 1.16 1.13 1.02 1.14 0.79 0.90
8-Apr-09 443.55 376.4 1.18 1.13 1.02 1.14 0.79 0.90
9-Apr-09 445.6 397.8 1.12 1.13 1.02 1.14 0.79 0.90
13-Apr-09 461.85 416.6 1.11 1.13 1.02 1.14 0.79 0.90
15-Apr-09 504.2 442.9 1.14 1.13 1.02 1.14 0.79 0.90
16-Apr-09 472.1 427.55 1.10 1.13 1.02 1.14 0.79 0.90
17-Apr-09 503.25 440.85 1.14 1.13 1.02 1.14 0.79 0.90
20-Apr-09 509.85 426.65 1.20 1.13 1.02 1.14 0.79 0.90
21-Apr-09 493.95 398.75 1.24 1.13 1.02 1.14 0.79 0.90
22-Apr-09 472.15 400.05 1.18 1.13 1.02 1.14 0.79 0.90
23-Apr-09 502.05 424.4 1.18 1.13 1.02 1.14 0.79 0.90
24-Apr-09 529.6 434.1 1.22 1.13 1.02 1.14 0.79 0.90
27-Apr-09 557.5 467.55 1.19 1.13 1.02 1.14 0.79 0.90
28-Apr-09 530.7 439.2 1.21 1.13 1.02 1.14 0.79 0.90
29-Apr-09 557.3 479.2 1.16 1.13 1.02 1.14 0.79 0.90
4-May-09 609.35 529.9 1.15 1.13 1.02 1.14 0.79 0.90
5-May-09 627.35 569.1 1.10 1.13 1.02 1.14 0.79 0.90
6-May-09 605.25 539.6 1.12 1.13 1.02 1.14 0.79 0.90

40
Equity Research Report

7-May-09 624.75 549.3 1.14 1.13 1.02 1.14 0.79 0.90


8-May-09 607.25 520.75 1.17 1.13 1.02 1.14 0.79 0.90
11-May-09 620.35 523.35 1.19 1.13 1.02 1.14 0.79 0.90
12-May-09 669 558.1 1.20 1.13 1.02 1.14 0.79 0.90
13-May-09 671.7 551.15 1.22 1.13 1.02 1.14 0.79 0.90
14-May-09 637.55 536.25 1.19 1.13 1.02 1.14 0.79 0.90
15-May-09 659.6 574.7 1.15 1.13 1.02 1.14 0.79 0.90
18-May-09 778.4 707.1 1.10 1.13 1.02 1.14 0.79 0.90
19-May-09 764.8 756.15 1.01 1.13 1.02 1.14 0.79 0.90
20-May-09 728.55 708.9 1.03 1.13 1.02 1.14 0.79 0.90
21-May-09 736.2 673.05 1.09 1.13 1.02 1.14 0.79 0.90
22-May-09 762.85 702.65 1.09 1.13 1.02 1.14 0.79 0.90
25-May-09 774 704.65 1.10 1.13 1.02 1.14 0.79 0.90
26-May-09 744.75 666 1.12 1.13 1.02 1.14 0.79 0.90
27-May-09 797.75 710.25 1.12 1.13 1.02 1.14 0.79 0.90
28-May-09 782.05 730.3 1.07 1.13 1.02 1.14 0.79 0.90
29-May-09 778.95 740.15 1.05 1.13 1.02 1.14 0.79 0.90
1-Jun-09 741.75 722.55 1.03 1.13 1.02 1.14 0.79 0.90
2-Jun-09 719.9 732.3 0.98 1.13 1.02 1.14 0.79 0.90
3-Jun-09 717 719.45 1.00 1.13 1.02 1.14 0.79 0.90
4-Jun-09 734.85 733.5 1.00 1.13 1.02 1.14 0.79 0.90
5-Jun-09 738.5 754.75 0.98 1.13 1.02 1.14 0.79 0.90
8-Jun-09 698.2 724.65 0.96 1.13 1.02 1.14 0.79 0.90
9-Jun-09 726.05 737.85 0.98 1.13 1.02 1.14 0.79 0.90
10-Jun-09 752.5 747.7 1.01 1.13 1.02 1.14 0.79 0.90
11-Jun-09 726.6 750.3 0.97 1.13 1.02 1.14 0.79 0.90
12-Jun-09 703.75 742.45 0.95 1.13 1.02 1.14 0.79 0.90
15-Jun-09 718.4 734.75 0.98 1.13 1.02 1.14 0.79 0.90

41