DECLARATION

I hereby declare that the project on “STUDY OF THE PERFORMANCE OF

CONSUMER DURABLE INDUSTRY IN INDIA WITH SPECIAL REFERENCE TO
SAMSUNG PVT . LTD”of “DISSERTATION” of PGDM to Sri Sharada Institutes of Indian
Management Research is my own original work for the fulfillment of the requirement for any
course of the study. I also declare that no chapter of the manuscript in whole or part is lifted
and incorporated in this report from any other work done by me or others.

Place:

Date:
 Acknowledgement
Survey is an excellent tool for learning & exploration. No classroom routine can substitute
which is possible while working in real situations. Application of theoretical knowledge to
practical situations is the bonanzas of this survey. Without a proper combination of inspection
& perspiration, it’s not easy to achieve to anything. There is always a sense of gratitude, which
we express to others for the help & needy services they render during the different phases of
our lives. I really wish to express my gratitude towards all those who have been helpful to me
directly or indirectly during the development of this project.

I would like to acknowledge to my project guide Prof. Mr Khuspat S Jain Sir for helping me
in this project work. I am thankful to them for their encouraging and valuable support. Working
under them was an extremely knowledgeable and enriching experience for me.

I am very thankful to them for all the value addition and enhancement done to me. No words
can adequately express my overriding debt of gratitude to my parents and friends whose support
helps me in all the way.
CONTENTS:-

Chapter No. Name of the concept Page No.

I Introduction 6

Need of the study 15

Objectives of the study 16

Scope of the study 16

Methodology of the study 16

Limitations of the study 18

II Review of Literature 19
III Industry Profile 32
IV Data analysis and interpretation 46
V Findings, Suggestions and 73
Conclusion
77
VI Bibliography 79
SUMMARY

The automobile industry, one of the core sectors, has undergone metamorphosis with the advent
of new business and manufacturing practices in the light of liberalization and globalization.
The sector seems to be optimistic of posting strong sales in the couple of years in the view of
a reasonable surge in demand. The Indian automobile market is gearing towards international
standards to meet the needs of the global automobile giants and become a global hub.

A detailed analysis of Automobile industry has been covered in respect of past growth and
performance. Under this project to better understand the Industry I have used Fundamental
tools to make it more authentic and meaningful.

An economy-industry-company (E.I.C) approach has been followed under Fundamental

Analysis which covers effect of Recession, the impact of inflation, FDI’s, Export, and GDP
etc. on Automobile Industry. The Industry Analysis has been done with the help of SWOT
analysis and industry life cycle. For Company Analysis as a part of Fundamental tool we have
undergone with the comparative analysis of TATA Motors the leading company, Maruti Suzuki
India’s largest Car manufacturer and Mahindra and Mahindra along with the help of ratio
analysis. The fundamental aspect consists of financial and Non-Financial analysis of these
companies.

At the end conclusion and recommendations have been specified so as to make the project work
more meaningful and purposeful.
CHAPTER I – INTRODUCTION
INTRODUCTION

India is a developing country. Nowadays many people are interested to invest in financial
markets especially on equities to get high returns, and to save tax in honest way. Equities are
playing a major role in contribution of capital to the business from the beginning. Since the
introduction of shares concept, large numbers of investors are showing interest to invest in
stock market. In an industry plagued with skepticism and a stock market increasingly difficult
to predict and contend with, if one looks hard enough there may still be a genuine aid for the
Day Trader and Short Term Investor.

The automotive industry in India is one of the largest in the world and one of the fastest
growing globally. India's passenger car and commercial vehicle manufacturing industry is the
seventh largest in the world, with an annual production of more than 3.7 million units in 2010.
According to recent reports, India is set to overtake Brazil to become the sixth largest passenger
vehicle producer in the world, growing 16-18 per cent to sell around three million units in the
course of 2011-12. In 2009, India emerged as Asia's fourth largest exporter of passenger cars,
behind Japan, South Korea, and Thailand.

As of 2010, India is home to 40 million passenger vehicles. More than 3.7 million automotive
vehicles were produced in India in 2010 (an increase of 33.9%), making the country the second
fastest growing automobile market in the world. According to the Society of Indian Automobile
Manufacturers, annual vehicle sales are projected to increase to 5 million by 2015 and more
than 9 million by 2020. By 2050, the country is expected to top the world in car volumes with
approximately 611 million vehicles on the nation's roads.

The majority of India's car manufacturing industry is based around three clusters in the south,
west and north. The southern cluster near Chennai is the biggest with 35% of the revenue share.
The western hub near Maharashtra is 33% of the market. The northern cluster is primarily
Haryana with 32%. Chennai, is also referred to as the "Detroit of India” with the India
operations of Ford, Hyundai, Renault and Nissan headquartered in the city and BMW having
an assembly plant on the outskirts. Chennai accounts for 60% of the country's automotive
exports. Gurgaon and Manesar in Haryana form the northern cluster where the country's largest
car manufacturer, Maruti Suzuki, is based. The Chakan corridor near Pune, Maharashtra is the
western cluster with companies like General Motors, Volkswagen, Skoda, Mahindra and
Mahindra, Tata Motors, Mercedes Benz, Land
Rover, Fiat and Force Motors having assembly plants in the area. Aurangabad with Audi, Skoda
and Volkswagen also forms part of the western cluster. Another emerging cluster is in the state
of Gujarat with manufacturing facility of General Motors in Halol and further planned for Tata
Nano at Sanand. Ford, Maruti Suzuki and Peugeot-Citroen plants are also set to come up in
Gujarat. Kolkata with Hindustan Motors, Noida with Honda and Bangalore with Toyota are
some of the other automotive manufacturing regions around the country

The price of a security represents a consensus. It is the price at which one person agrees to buy
and another agrees to sell. The price at which an investor is willing to buy or sell depends
primarily on his expectations. If he expects the security's price to rise, he will buy it; if the
investor expects the price to fall, he will sell it. These simple statements are the cause of a
major challenge in forecasting security prices, because they refer to human expectations. As
we all know first hand, humans expectations are neither easily quantifiable nor predictable. If
prices are based on investor expectations, then knowing what a security should sell for (i.e.,
fundamental analysis) becomes less important than knowing what other investors expect it to
sell for. That's not to say that knowing what a security should sell for isn't important--it is.

But there is usually a fairly strong consensus of a stock's future earnings that the average
investor cannot disprove Fundamental analysis and technical analysis can co-exist in peace and
complement each other. Since all the investors in the stock market want to make the maximum
profits possible, they just cannot afford to ignore either fundamental or technical analysis.
Overviews of Indian Automobile Industry
Indian automobile industry has demonstrated a phenomenal growth to this day. Today, the
Indian automobile industry presents a galaxy of varieties and models meeting all possible
expectations and globally established industry standards. Some of the leading names echoing
in the Indian automobile industry include Maruti Suzuki, Tata Motors, Mahindra and
Mahindra, Hyundai Motors, Hero Honda and Hindustan Motors in addition to a number of
others.

During the early stages of its development, Indian automobile industry heavily depended on
foreign technologies. However, over the years, the manufacturers in India have started using
their own technology evolved in the native soil. The thriving market place in the country has
attracted a number of automobile manufacturers including some of the reputed global leaders
to set their foot in the soil looking forward to enhance their profile and prospects to new heights.
Following a temporary setback on account of the global economic recession, the Indian
automobile market has once again picked up a remarkable momentum witnessing a buoyant
sale for the first time in its history in the month of September 2009.

The automobile sector of India is the seventh largest in the world. In a year, the country
manufactures about 2.6 million cars making up an identifiable chunk in the world’s annual
production of about 73 million cars in a year. The country is the largest manufacturer of
motorcycles and the fifth largest producer of commercial vehicles. Industry experts have
visualized an unbelievably huge increase in these figures over the immediate future. The figures
published by the Asia Economic Institute indicate that the Indian automobile sector is set to
emerge as the global leader by 2012. In the year 2009, India rose to be the fourth largest
exporter of automobiles following Japan, South Korea and Thailand. Experts state that in the
year 2050, India will top the car volumes of all the nations of the world with about 611 million
cars running on its roads.
At present, about 75 percent of India’s automobile industry is made up by small cars, with the
figure ranking the nation on top of any other country on the globe. Over the next two or three
years, the country is expecting the arrival of more than a dozen new brands making compact
car models. Recently, the automotive giants of India including General Motors (GM),
Volkswagen, Honda, and Hyundai, have declared significant expansion plans. On account of
its huge market potential, a very low base of car ownership in the country estimated at about
25 per 1,000 people, and a rapidly surging economy, the nation is firmly set on its way to
become an outsourcing platform for a number of global auto companies. Some of the upcoming
cars in the India soil comprise Maruti A-Star (Suzuki), Maruti Splash (Suzuki), VW Up and
VW Polo (Volkswagen), Bajaj small car (Bajai Auto), Jazz (Honda) and Cobalt, Aveo (GM)
in addition to several others.

History of the Automobile industry in India

The economic liberalization that dawned in

India in the year 1991 has succeeded in bringing about a sustained growth in the automotive
production sector triggered by enhanced competitiveness and relaxed restrictions prevailing in
the Indian soil. A number of Indian automobile manufacturers including Tata Motors, Maruti
Suzuki and Mahindra and Mahindra, have dramatically expanded both their domestic and
international operations. The country’s active economic growth has paved a solid road to the
further expansion of its domestic automobile market. This segment has in fact invited a huge
amount of India-specific investment by a number of multinational automobile manufacturers.
As a significant milestone in its progress, the monthly sales of passenger cars in India exceeded
100,000 units in February 2009.
The beginnings of automotive industry in India can be traced during 1940s. After the nation
became independent in the year 1947, the Indian Government and the private sector launched
their efforts to establish an automotive component manufacturing industry to meet the needs of
the automobile industry. The growth of this segment was however not so encouraging in the
initial stage and through the 1950s and 1960s on account of nationalization combined with the
license raj that was hampering the private sector in the country. However, the period that
followed 1970s, witnessed a sizeable growth contributed by tractors, scooters and commercial
vehicles. Even till those days, cars were something of a sort of a major luxury. Eventually, the
country saw the entry of Japanese manufacturers establishing Maruti Udyog.

During the period that followed, several foreign based companies started joint ventures with
Indian companies. During 1980s, several Japanese manufacturers started joint-ventures for
manufacturing motorcycles and light commercial-vehicles. After this, automotive component
and automobile manufacturing growth remarkably speed-up to meet the demands of domestic
and export needs.

Experts have an opinion that during the early stages the policies and the treatment by the Indian
government were not favorable to the development of the automobile industry. However, the
liberalization policy and various tax reliefs announced by the Indian government over the
recent past have pronounced a significantly encouraging impact on this industry segment.
Estimates reveal that owing to several boosting factors, Indian automobile industry has been
growing at a pace of about 18% per year. Therefore, global automobile giants like Volvo,
General Motors and Ford have started looking at India as a prospective hot destination to
establish and expand their operations.

Like many other nations India’s highly developed transportation system has played a very
important role in the development of the country’s economy over the past to this day. One can
say that the automobile industry in the country has occupied a solid space in the platform of
Indian economy. Empowered by its present growth, today the automobile industry in the
country can produce a diverse range of vehicles under three broad categories namely cars, two-
wheelers and heavy vehicles.
Exports of Automobile Industry

Today, India is among the world’s largest

producers of small cars. The New York Times has rated India as a very strong engineering base
with an incomparable expertise in the arena of manufacturing a number of low-cost, fuel-
efficient cars has encouraged the expansion plans of the manufacturing facilities of a number
of automobile leaders like Hyundai Motors, Nissan, Toyota, Volkswagen and Suzuki.

On 22 February 2010, Hyundai motors exported its 10,00,000th car, the feat which was
achieved by the firm in just over 10 years. Hyundai Motors is the largest passenger car exporter
and the second largest car manufacturer in the country. In the similar lines, General Motors has
announced its plans to export not less than 50,000 cars made in India by the year

2011. In yet another proposal, Ford Motors is to setup a manufacturing facility costing about
US$500 million in India with an annual capacity of 250,000 cars. The firm has stated that the
facility will play a major part in its strategic plan to make India a hub for its global production
business. In yet another significant move, Fiat motors has stated that it will source a big volume
of auto components from India worth about US$1 billion. In the year 2009 , India overtook
China by emerging as the fourth largest exporter of cars in Asia.

Various Segments of the Indian Automobile Industry

Motor cycles manufacture makes up the major share in the two-

wheeler segment of the Indian automobile industry. About 50% of the motorcylcles are
manufactured by Hero Honda. While Honda manufactures about 46% of the scooters, TVS
produces 82% of the mopeds running on the Indian roads.

About 40% of the three-wheelers manufactured in India are used for transporting goods with
Piaggio manufacturing 40% of the vehicles sold in the Indian market. On the other hand, Bajaj
has emerged as the leader in manufacturing three-wheelers used for passenger transport. The
firm produces about 68% percent of the three wheelers used for passenger transport in India.
The Indian passenger vehicle segment is dominated by cars which make up about 80% of it.
Maruti Suzuki manufactures about 52% of passenger cars while the firm enjoys a complete
monopoly in the manufacture of multi-purpose vehicles. In the utility vehicles segment
Mahindra makes up a 42% share.

Tata Motors is the leader in the Indian commercial vehicles market while it holds more than
60% share. Tata Motors also enjoys the credit of being the world’s fifth largest manufacturer
of medium and heavy commercial vehicles.

Potential of Indian Automobile Industry

There is a very stiff competition in the automobile industry segment in India. This has helped
many to realize their dreams of driving the most luxurious cars. During the recent past, a
number of overseas companies have started grabbing a big chunk of the market share in both
domestic and export sales. Every new day dawns in India with some new launches by active
players in the Indian automobile arena. By introducing some low cost cars, the industry had
made it possible for common men to buy cars for their personal use. With some innovative
strategies and by adopting some alternative remedial measures, the Indian automobile industry
has successfully come unaffected out of the global financial crisis.

While the automobile industry in India is the ninth largest in the world, the country emerged as
the fourth largest automobiles exporter on the globe following Japan, South Korea and
Thailand, in the year 2009. Over and above, a number of automobile manufacturers based in
India have expanded their operations around the globe also giving way for a number of reputed
MNCs to enthusiastically invest in the Indian automobile sector.

Nissan Motors has revealed its prospective plans to export 250,000 vehicles produced in its
India plant by the year 2011. General Motors has also come up with similar plans. During the
current fiscal year, the Indian automobile industry rode high on the resurgence of consumer
demand in the country as a result of the Government’s fiscal stimulus and attractively low
interest rates. As a result the total turnover of the domestic automobile industry increased by
about 27 per cent.

A reply produced in the Lok Sabha recently has quoted data from the Society of Indian
Automobile Manufacturers and has revealed that the total turnover of the Indian automobile
Industry in April-February 2009-10 was 1,62,708.77 crore. This is a remarkable achievement
compared with the total revenue of Rs 1,28,384.53 crore reported during the same period of
last fiscal year. Specifically, the segment of commercial vehicles witnessed the biggest jump
in revenues by 31 per cent by reporting Rs 38,845.09 crore. During the same period, the
passenger vehicle segment in the country witnessed a growth of 27 per cent over the last fiscal
year by reporting a total revenue of Rs 76,545.96 crores. These figures imply a highly
prospective road lying immediately ahead of the Indian automobile industry.

Predictions made by Ernst and Young have estimated that the Indian passenger car market will
have a growth rate of about 12 percent per annum over the next five years to reach the
production of 3.75 million units by the year 2014. The analysts have further stated that the
industry’s turnover will touch $155 billion by 2016. This achievement will succeed in
consolidating India’s position as the seventh largest automobiles manufacturer on the globe,
eventually surging forth to become the third largest by the year 2030 behind China and the US.

The Automotive Mission Plan launched by the Indian government has envisaged that the
country will emerge as the seventh largest car maker on the globe thereby contributing more
than 10 percent to the nation’s $1.2-trillion economy. Further, industry experts believe that the
nation will soon establish its stand as an automobile hub exporting about 2.75 million units and
selling about a million units to be operated on the domestic roads.
NEED OF THE STUDY

To start any business capital plays major role. Capital can be acquired in two ways by issuing
shares or by taking debt from financial institutions or borrowing money from financial
institutions. The owners of the company have to pay regular interest and principal amount at
the end. Stock is ownership in a company, with each share of stock representing a tiny piece of
ownership. The more shares you own, the more of the company you own. The more shares you
own, the more dividends you earn when the company makes a profit. In the financial world,
ownership is called “Equity”.

Advantages of selling stock:

➢ A company can raise more capital than it could borrow.

➢ A company does not have to make periodic interest payments to creditors.
➢ A company does not have to make principal payments

Stock/shares play a major role in acquiring capital to the business in return investors are paid
dividends to the shares they own. The more shares you own the more dividends you receive.
The role of equity analysis is to provide information to the market. An efficient market relies
on information: a lack of information creates inefficiencies that result in stocks being
misrepresented (over or under valued). This is valuable because it fills information gaps so that
each individual investor does not need to analyze every stock thereby making the markets more
efficient.
OBJECTIVES OF THE STUDY

The objective of this project is to deeply analyze our Indian Automobile Industry for investment
purpose by monitoring the growth rate and performance on the basis of historical data.

The main objectives of the Project study are:

➢ Detailed analysis of Automobile industry which is gearing towards international
standards

➢ Analyze the impact of qualitative factors on industry’s and company’s prospects

➢ Comparative analysis of three tough competitors TATA Motors, Maruti Suzuki and
Mahindra and Mahindra through fundamental analysis.

➢ Suggesting as to which company’s shares would be best for an investor to invest.

SCOPE OF THE STUDY

The scope of the study is identified after and during the study is conducted. The project is based
on tools like fundamental analysis and ratio analysis.

➢ The analysis is made by taking into consideration five companies i.e. TATA Motors,
Maruti Suzuki and Mahindra .

➢ The scope is limited to only the fundamental analysis of the chosen stocks.

RESEARCH METHODOLOGY OF THE STUDY

Research is often described as an active, diligent and systematic process of inquiry aimed at
discovering, interpreting and revising facts. This intellectual investigation produces a greater
understanding of events, behavior or theories and makes practical applications through laws
and theories. The term research is also used to describe a collection of information about a
particular subject, and is usually associated with science and scientific method.

Research design or research methodology is the procedure of collecting, analyzing and

interpreting the data to diagnose the problem and react to the opportunity in such a way where
the costs can be minimized and the desired level of accuracy can be achieved to arrive at a
particular conclusion. The methodology used in the study for the completion of the project and
the fulfillment of the project objectives.

The sample of the stocks for the purpose of collecting secondary data has been selected on the
basis of Random Sampling. The stocks are chosen in an unbiased manner and each stock is
chosen independent of the other stocks chosen. The stocks are chosen from the automobile
sector .The sample size for the number of stocks is taken as 3 for fundamental analysis of stocks
as fundamental analysis is very exhaustive and requires detailed study.

BASIC RESEARCH:
Basic research is also called as fundamental or pure research. Its primary objective is the
advancement of knowledge and the theoretical understanding of the relations among the
variables. It is exploratory and often driven by researcher’s curiosity or interest. It is conducted
without any practical end in mind. Basic research often lays down the foundation for further
applied research.

APPLIED RESEARCH:
Applied research is done to solve specific, practical questions. Its primary objective is not to
gain knowledge for its own sake. It is usually descriptive in nature. It is almost always done on
the basis of basic research. As far as equity research is concerned there are two types of research
methods that are followed:

➢ Fundamental analysis
➢ Technical analysis
Financial statement analysis is the biggest part of Fundamental analysis also known as
quantitative analysis, it involves looking at historical performance data to estimate the future
performance of stocks whereas Technical analysis does not care one bit about the value of the
company, it is only interested in the price movements of the company s share in the market.

This project deals with the fundamental analysis aspect of the equity research. The researcher
in this project has tried to look into the details of the financial statements of the companies, the
environment surrounding the telecom sector, the latest developments in this regard, the
management discussions on the part of every company and the government policies concerned
with the automobile sector.
DATA COLLECTION:
Primary data for a project is the first hand information regarding the project being
studied. In this regard the primary data for this project would be getting the necessary
information from the company management by an interview, telephonic conversation
or direct mail.

Secondary data for a project would be the collection of information that has a bearing
on the outcome of the project from secondary sources like news, press releases, internet
etc. The data collected for this project was from a secondary source. The data was
complied with the help of sources like News articles, Internet, Capitaline software. In
this research, primary data could not be gathered as the company officials could not be
contacted for a one to one interview or a telephonic interview

LIMITATIONS OF THE STUDY

➢ This study has been conducted purely to understand Equity analysis for investors.

➢ The study is restricted to three companies based on Fundamental analysis.

➢ The study is limited to the companies having equities.

➢ Detailed study of the topic was not possible due to limited size of the project.

➢ Suggestions and conclusions are based on the limited data of five years.
CHAPTER II - REVIEW OF LITERATURE
EQUITY ANALYSIS

Investment success is pretty much a matter of careful selection and timing of stock purchases
coupled with perfect matching to an individuals risk tolerance. In order to carry out selection,
timing and matching actions an investor must conduct deep security analysis.

Investors purchase equity shares with two basic objectives;

1 . To make capital profits by selling shares at higher prices.

2 . To earn dividend income.

These two factors are affected by a host of factors. An investor has to carefully understand and
analyze all these factors. There are basically two approaches to study security prices and
valuation i.e. fundamental analysis and technical analysis . The value of common stock is
determined in large measure by the performance of the firm that issued the stock. If the
company is healthy and can demonstrate strength and growth, the value of the stock will
increase. When values increase then prices follow and returns on an investment will increase.
However, just to keep the savvy investor on their toes, the mix is complicated by the risk factors
involved. Fundamental analysis examines all the dimensions of risk exposure and the
probabilities of return, and merges them with broader economic analysis and greater industry
analysis to formulate the valuation of a stock.

In Equity Analysis, anticipated growth and calculations are based on considered FACTS &
not on HOPE. Equity analysis is basically a combination of two independent analysis, namely
fundamental analysis & Technical analysis. The subject of Equity analysis, i.e. the attempt
to determine future share price movement & its reliability by references to historical data is a
vast one, covering many aspect from the calculating various FINANCIAL RATIOS, plotting
of CHARTS to extremely sophisticated indicators.
A general investor can apply the principles by using the simplest of tools: pocket calculator,
pencil, ruler, chart paper & your cautious mind, watchful attention. It should be pointed out
that, this equity analysis does not discuss how to buy & sell shares, but does discuss a method
which enables the investor to arrive at buying & selling decision

FUNDAMENTAL ANALYSIS

EQUITY ANALYSIS

FUNADAMENTAL ANALYSIS TECHNICAL ANALYSIS

ECONOMIC ANALYSIS INDUSTRY ANALYSIS COMPANY ANALYSIS

Fundamental analysis is a method of forecasting the future price

movements of a financial instrument based on economic,
political, environmental and other relevant factors and statistics
that will affect the basic supply and demand of whatever
underlies the financial instrument. It is the study of economic,
industry and company conditions in an effort to determine the
value of a company’s stock. Fundamental analysis typically
focuses on key statistics in company’s financial statements to determine if the stock price is
correctly valued. The term simply refers to the analysis of the economic well-being of a
financial entity as opposed to only its price movements. Fundamental analysis is the
cornerstone of investing. The basic philosophy underlying the fundamental analysis is that if
an investor invests in buying a share of a company, how much expected returns from this
investment he has .The fundamental analysis is to appraise the intrinsic value of a security. It
insists that no one should purchase or sell a share on the basis of tips and rumors. The
fundamental approach calls upon the investors to make his buy or sell decision on the basis of
a detailed analysis of the information about the company, about the industry, and the economy.
It is also known as “top-down approach”. This approach attempts to study the economic
scenario, industry position and the company expectations and is also known as “economic-
industry-company approach (EIC approach)” Thus the EIC approach involves three steps:
1 . Economic analysis

2. Industry analysis
3. Company analysis

1. ECONOMIC ANALYSIS
The level of economic activity has an impact on investment in many ways. If the economy
grows rapidly, the industry can also be expected to show rapid growth and vice versa. When
the level of economic activity is low, stock prices are low, and when the level of economic
activity is high, stock prices are high reflecting the prosperous outlook for sales and profits of
the firms. The analysis of macro economic environment is essential to understand the behavior
of the stock prices.

The commonly analyzed macro economic factors are as follows:

1. Gross Domestic Product (GDP): GDP indicates the rate of growth of the economy. It
represents the aggregate value of the goods and services produced in the economy. It
consists of personal consumption expenditure, gross private domestic investment and
government expenditure on goods and services and net exports of goods and services.
The growth rate of economy points out the prospects for the industrial sector and the
return investors can expect from investment in shares. The higher growth rate is more
favorable to the stock market.

2. Savings and investment: It is obvious that growth requires investment which in turn
requires substantial amount of domestic savings. Stock market is a channel through
 which the savings are made available to the corporate bodies. Savings are distributed
over various assets like equity shares, deposits, mutual funds, real estate and bullion.

The savings and investment patterns of the public affect the stock to a great extent.
3. Inflation: Along with the growth of GDP, if the inflation rate also increases, then the
real growth would be very little. The effects of inflation on capital markets are
numerous. An increase in the expected rate of inflation is expected to cause a nominal
rise in interest rates. Also, it increases uncertainty of future business and investment
decisions. As inflation increases, it results in extra costs to businesses, thereby
squeezing their profit margins and leading to real declines in profitability.

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. More money
is available at a lower interest rate for the brokers who are doing business with borrowed
money. Availability of cheap funds encourages speculation and rise in the price of
shares.

5. Tax structure: Every year in March, the business community eagerly awaits the
Government’s announcement regarding the tax policy. Concessions and incentives
given to a certain industry encourage investment in that particular industry. Tax relief’s
given to savings encourage savings. The type of tax exemption has impact on the
profitability of the industries.

6. Infrastructure facilities: Infrastructure facilities are essential for the growth of

industrial and agricultural sector. A wide network of communication system is a must
for the growth of the economy. Regular supply of power without any power cut would
boost the production. Banking and financial sectors also should be sound enough to
provide adequate support to the industry. Good infrastructure facilities affect the stock
market favorably.

2 . INDUSTRY ANALYSIS
An industry is a group of firms that have similar technological structure of production and
produce similar products and Industry analysis is a type of business research that focuses on
the status of an industry or an industrial sector (a broad industry classification, like
"manufacturing"). Irrespective of specific economic situations, some industries might be
expected to perform better, and share prices in these industries may not decline as much as in
other industries. This identification of economic and industry specific factors influencing share
prices will help investors to identify the shares that fit individual expectations.
Industry Life Cycle: The industry life cycle theory is generally attributed to Julius Groden
sky. The life cycle of the industry is separated into four well defined stages.

I. Pioneering stage: The prospective demand for the product is promising in this stage
and the technology of the product is low. The demand for the product attracts many
producers to produce the particular product. There would be severe competition and
only fittest companies survive this stage. The producers try to develop brand name,
differentiate the product and create a product image. In this situation, it is difficult to
select companies for investment because the survival rate is unknown.
II. Rapid growth stage: This stage starts with the appearance of surviving firms from the
pioneering stage. The companies that have withstood the competition grow strongly in
market share and financial performance. The technology of the production would have
improved resulting in low cost of production and good quality products. The companies
 have stable growth rate in this stage and they declare dividend to the shareholders. It is
advisable to invest in the shares of these companies.

III. Maturity and stabilization stage: the growth rate tends to moderate and the rate of
growth would be more or less equal to the industrial growth rate or the gross domestic
product growth rate. Symptoms of obsolescence may appear in the technology. To keep
going, technological innovations in the production process and products should be
introduced. The investors have to closely monitor the events that take place in the
maturity stage of the industry.

IV. Decline stage: demand for the particular product and the earnings of the companies in
the industry decline. It is better to avoid investing in the shares of the low growth
industry even in the boom period. Investment in the shares of these types of companies
leads to erosion of capital.

Growth of the industry: The historical performance of the industry in terms of growth
and profitability should be analyzed. The past variability in return and growth in reaction to
macro economic factors provide an insight into the future.

Nature of competition: Nature of competition is an essential factor that determines the

demand for the particular product, its profitability and the price of the concerned company
scrips. The companies' ability to withstand the local as well as the multinational competition
counts much. If too many firms are present in the organized sector, the competition would be
severe. The competition would lead to a decline in the price of the product. The investor before
investing in the scrip of a company should analyze the market share of the particular company's
product and should compare it with the top five companies.
SWOT analysis: SWOT analysis represents the strength, weakness, opportunity and threat
for an industry. Every investor should carry out a SWOT analysis for the chosen industry. Take
for instance, increase in demand for the industry’s product becomes its strength, presence of
numerous players in the market, i.e. competition becomes the threat to a particular company.
The progress in R & D in that industry is an opportunity and entry of multinationals in the
industry is a threat. In this way the factors are to be arranged and analyzed.
3. COMPANY ANALYSIS
In the company analysis the investor assimilates the several bits of information related to the
company and evaluates the present and future values of the stock. The risk and return associated
with the purchase of the stock is analyzed to take better investment decisions. The present and
future values are affected by a number of factors.

A. Competitive edge of the company: Major industries in India are composed of

hundreds of individual companies. Though the number of companies is large, only few
companies control the major market share. The competitiveness of the company can be
studied with the help of the following.

B. Market share: The market share of the annual sales helps to determine a company’s
relative competitive position within the industry. If the market share is high, the
company would be able to meet the competition successfully. The companies in the
market should be compared with like product groups otherwise, the results will be
misleading.

C. Growth of sales: The rapid growth in sales would keep the shareholder in a better
position than one with stagnant growth rate. Investors generally prefer size and growth
in sales because the larger size companies may be able to withstand the business cycle
rather than the company of smaller size.

D. Stability of sales: If a firm has stable sales revenue, it will have more stable earnings.
The fall in the market share indicates the declining trend of company, even if the sales
are stable. Hence the stability of sales should be compared with its market share and
the competitor’s market share.

E. Earnings of the company: Sales alone do not increase the earnings but the costs and
expenses of the company also influence the earnings. Further, earnings do not always
increase with increase in sales. The company’s sales might have increased but its
earnings per share may decline due to rise in costs. Hence, the investor should not only
depend on the sales, but should analyze the earnings of the company.

Financial analysis: The best source of financial information about a company is its own
financial statements. This is a primary source of information for evaluating the investment
prospects in the particular company’s stock. Financial statement analysis is the study of a
company’s financial statement from various viewpoints. The statement gives the historical and
current information about the company’s operations. Historical financial statement helps to
predict the future and the current information aids to analyze the present status of the company.
The two main statements used in the analysis are Balance sheet and Profit and Loss Account.

The balance sheet is one of the financial statements that companies prepare every year for their
shareholders. It is like a financial snapshot, the company's financial situation at a moment in
time. It is prepared at the year end, listing the company's current assets and liabilities. It helps
to study the capital structure of the company. It is better for the investor to avoid a company
with excessive debt component in its capital structure. From the balance sheet, liquidity
position of the company can also be assessed with the information on current assets and current
liabilities.

Ratio analysis: Ratio is a relationship between two figures expressed mathematically.

Financial ratios provide numerical relationship between two relevant financial data. Financial
ratios are calculated from the balance sheet and profit and loss account. The relationship can
be either expressed as a percent or as a quotient. Ratios summarize the data for easy
understanding, comparison and interpretations.
Ratios for investment purposes can be classified into profitability ratios, turnover ratios, and
leverage ratios. Profitability ratios are the most popular ratios since investors prefer to measure
the present profit performance and use this information to forecast the future strength of the
company. The most often used profitability ratios are return on assets, price earnings multiplier,
price to book value, price to cash flow, and price to sales, dividend yield, return on equity,
present value of cash flows, and profit margins.

a) Return on Assets (ROA)

ROA is computed as the product of the net profit margin and the total asset turnover ratios.
ROA = (Net Profit/Total income) x (Total income/Total Assets)
This ratio indicates the firm's strategic success. Companies can have one of two strategies: cost
leadership, or product differentiation. ROA should be rising or keeping pace with the
company's competitors if the company is successfully pursuing either of these strategies, but
how ROA rises will depend on the company's strategy. ROA should rise with a successful cost
leadership strategy because the company’s increasing operating efficiency. An example is an
increasing, total asset, turnover ratio as the company expands into new markets, increasing its
market share. The company may achieve leadership by using its assets more efficiently. With
a successful product differentiation strategy, ROA will rise because of a rising profit margin.

b) Return on Investment (ROI)

ROI is the return on capital invested in business, i.e., if an investment Rs 1 crore in men,
machines, land and material is made to generate Rs. 25 lakhs of net profit, then the ROI is 25
%. The computation of return on investment is as follows :

Return on Investment (ROI) = (Net profit/Equity investments) x 100

As this ratio reveals how well the resources of a firm are being used, higher the ratio, better are
the results. The return on shareholder’s investment should be compared with the return of other
similar firms in the same industry. The inert-firm comparison of this ratio determines whether
the investments in the firm are attractive or not as the investors would like to invest only where
the return is higher.

c) Return on Equity
Return on equity measures how much an equity shareholder's investment is actually earning.
The return on equity tells the investor how much the invested rupee is earning from the
company. The higher the number, the better is the performance of the company and suggests
the usefulness of the projects the company has invested in. The computation of return on equity
is as follows:

Return on equity = (Net profit to owners/value of the specific owner's

Contribution to the business) x 100
The ratio is more meaningful to the equity shareholders who are invested to know profits
earned by the company and those profits which can be made available to pay dividend to
them.

d) Earnings per Share (EPS)

This ratio determines what the company is earning for every share. For many investors,
earnings are the most important tool. EPS is calculated by dividing the earnings (net profit) by
the total number of equity shares. The computation of EPS is as follows:

Earnings per share = Net profit/Number of shares outstanding

The EPS is a good measure of profitability and when compared with EPS of similar other
companies, it gives a view of the comparative earnings or earnings power of a firm. EPS
calculated for a number of years indicates whether or not earning power of the company has
increased.

e) Dividend per Share (DPS)

The extent of payment of dividend to the shareholders is measured in the form of dividend per
share. The dividend per share gives the amount of cash flow from the company to the owners
and is calculated as follows:
Dividend per share = Total dividend payment / Number of shares outstanding
The payment of dividend can have several interpretations to the shareholder. The distribution
of dividend could be thought of as the distribution of excess profits/abnormal profits by the
company. On the other hand, it could also be negatively interpreted as lack of investment
opportunities. In all, dividend payout gives the extent of inflows to the shareholders from the
company.

f) Dividend Payout Ratio

From the profits of each company a cash flow called dividend is distributed among its
shareholders. This is the continuous stream of cash flow to the owners of shares, apart from the
price differentials (capital gains) in the market. The return to the shareholders, in the form of
dividend, out of the company's profit is measured through the payout ratio. The payout ratio is
computed as follows:

Payout Ratio = (Dividend per share / Earnings per share) * 100

The percentage of payout ratio can also be used to compute the percentage of retained earnings.
The profits available for distribution are either paid as dividends or retained internally for
business growth opportunities. Hence, when dividends are not declared, the entire profit is
ploughed back into the business for its future investments.

g) Dividend Yield
Dividend yield is computed by relating the dividend per share to the market price of the share.
The market place provides opportunities for the investor to buy the company's share at any
point of time. The price at which the share has been bought from the market is the actual cost
of the investment to the shareholder. The market price is to be taken as the cumdividend price.
Dividend yield relates the actual cost to the cash flows received from the company. The
computation of dividend yield is as follows

Dividend yield = (Dividend per share / Market price per share) * 100
High dividend yield ratios are usually interpreted as undervalued companies in the market.
The market price is a measure of future discounted values, while the dividend per share is the
present return from the investment. Hence, a high dividend yield implies that the share has been
under priced in the market. On the other hand a low dividend yield need not be interpreted as
overvaluation of shares. A company that does not pay out dividends will not have a dividend
yield and the real measure of the market price will be in terms of earnings per share and not
through the dividend payments.

h) Price/Earnings Ratio (P/E)

The P/E multiplier or the price earnings ratio relates the current market price of the share to the
earnings per share. This is computed as follows:

Price/earnings ratio = Current market price / Earnings per share

This ratio is calculated to make an estimate of appreciation in the value of a share of a company
and is widely used by investors to decide whether or not to buy shares in a particular company.
Many investors prefer to buy the company's shares at a low P/E ratio since the general
interpretation is that the market is undervaluing the share and there will be a correction in the
market price sooner or later. A very high P/E ratio on the other hand implies that the company's
shares are overvalued and the investor can benefit by selling the shares at this high market
price.

i) Debt-to-Equity Ratio
Debt-Equity ratio is used to measure the claims of outsiders and the owners against the firm’s
assets.

Debt-to-equity ratio = Outsiders Funds / Shareholders Funds

The debt-equity ratio is calculated to measure the extent to which debt financing has been used
in a business. It indicates the proportionate claims of owners and the outsiders against the firm’s
assets. The purpose is to get an idea of the cushion available to outsiders on the liquidation of
the firm.
Technical analysis:

Technical analysis refers to the study of market generated data like prices and volume to
determine the future direction of prices movements. Technical analysis mainly seeks to predict
the short-term price travels. It is important criteria for selecting the company to invest. It also
provides the base for decision-making in investment. It is one of the most frequently used
yardstick to check and analyze underlying price progress. For that matter a variety of tools are
used.

The Technical analysis is helpful to general investor in many ways. It provides important &
vital information regarding the current price position of the company. Technical analysis
involves the use of various methods for charting, calculating and interpreting graph & chart to
assess the performances & status of the price. It is the tool of financial analysis, which not only
studies but also reflecting the numerical & graphical relationship between the important
financial factors. The focus of technical analysis is mainly on the internal market data, i.e.
prices & volume data. It appeals mainly to short term traders. It is the oldest approach to equity
investment dating back to the late 19th century.
 CHAPTER III - INDUSTRY PROFILE
FINANCIAL MARKETS
Finance is the pre-requisite for modern business and financial institutions play a vital role in
the economic system. It is through financial markets and institutions that the financial system
of an economy works. Financial markets refer to the institutional arrangements for dealing in
financial assets and credit instruments of different types such as currency, cheques, bank
deposits, bills, bonds, equities, etc. Financial market is a broad term describing any marketplace
where buyers and sellers participate in the trade of assets such as equities, bonds, currencies
and derivatives.

They are typically defined by having transparent pricing, basic regulations on trading, costs
and fees and market forces determining the prices of securities that trade. Generally, there is
no specific place or location to indicate a financial market. Wherever a financial transaction
takes place, it is deemed to have taken place in the financial market. Hence financial markets
are pervasive in nature since financial transactions are themselves very pervasive throughout
the economic system. For instance, issue of equity shares, granting of loan by term lending
institutions, deposit of money into a bank, purchase of debentures, sale of shares and so on. In
a nutshell, financial markets are the credit markets catering to the various needs of the
individuals, firms and institutions by facilitating buying and selling of financial assets, claims
and services.
CLASSIFICATION OF FINANCIAL MARKETS

Long-term loan
market

Financial markets

Organized markets
Unorganized markets

Money Lenders,
Capital Markets Money Markets
Indigenuos Bankers

Industrial Securities
Call Money Market
Market

Primary Market Commercial Bill

Market

Secondary market
Treasury Bill Market

Government
Securities Market
Capital Market

The capital market is a market for financial assets which have a long or indefinite maturity.
Generally, it deals with long term securities which have a period of above one year. In the
widest sense, it consists of a series of channels through which the savings of the community
are made available for industrial and commercial enterprises and public authorities. As a whole,
capital market facilitates raising of capital. The major functions performed by a capital market
are:

1. Mobilization of financial resources on a nation-wide scale.

2. Securing the foreign capital and know-how to fill up deficit in the required resources for
economic growth at a faster rate.

3. Effective allocation of the mobilized financial resources, by directing the same to projects
yielding highest yield or to the projects needed to promote balanced economic development.

Capital market consists of primary market and secondary market.

1. Primary market: Primary market is a market for new issues or new financial claims.
Hence it is also called as New Issue Market. It basically deals with those securities
which are issued to the public for the first time. The market, therefore, makes available
a new block of securities for public subscription. In other words, it deals with raising
of fresh capital by companies either for cash or for consideration other than cash. The
best example could be Initial Public Offering (IPO) where a firm offers shares to the
public for the first time.

2. Secondary market: Secondary market is a market where existing securities are traded.
In other words, securities which have already passed through new issue market are
traded in this market. Generally, such securities are quoted in the stock exchange and it
provides a continuous and regular market for buying and selling of securities. This
market consists of all stock exchanges recognized by the government of India.

Money Market

Money markets are the markets for short-term, highly liquid debt securities. Money market
securities are generally very safe investments which return relatively low interest rate that is
most appropriate for temporary cash storage or short term time needs. It consists of a number
of sub-markets which collectively constitute the money market namely call money market,
commercial bills market, acceptance market, and Treasury bill market.

Derivatives Market

The derivatives market is the financial market for derivatives, financial instruments like futures
contracts or options, which are derived from other forms of assets. A derivative is a security
whose price is dependent upon or derived from one or more underlying assets. The derivative
itself is merely a contract between two or more parties. Its value is determined by fluctuations
in the underlying asset. The most common underlying assets include stocks, bonds,
commodities, currencies, interest rates and market indexes. The important financial derivatives
are the following:

Forwards: Forwards are the oldest of all the derivatives. A forward contract refers to an
agreement between two parties to exchange an agreed quantity of an asset for cash at a certain
date in future at a predetermined price specified in that agreement. The promised asset may be
currency, commodity, instrument etc.

Futures: Future contract is very similar to a forward contract in all respects excepting the
fact that it is completely a standardized one. It is nothing but a standardized forward contract
which is legally enforceable and always traded on an organized exchange.

Options: A financial derivative that represents a contract sold by one party (option writer) to
another party (option holder). The contract offers the buyer the right, but not the obligation, to
buy (call) or sell (put) a security or other financial asset at an agreed-upon price (the strike
price) during a certain period of time or on a specific date (exercise date). Call options give the
option to buy at certain price, so the buyer would want the stock to go up. Put options give the
option to sell at a certain price, so the buyer would want the stock to go down.

Swaps: It is yet another exciting trading instrument. Infact, it is the combination of forwards
by two counterparties. It is arranged to reap the benefits arising from the fluctuations in the
market – either currency market or interest rate market or any other market for that matter.
Foreign Exchange Market

It is a market in which participants are able to buy, sell, exchange and speculate on currencies.
Foreign exchange markets are made up of banks, commercial companies, central banks,
investment management firms, hedge funds, and retail forex brokers and investors. The forex
market is considered to be the largest financial market in the world. It is a worldwide
decentralized over-the-counter financial market for the trading of currencies. Because the
currency markets are large and liquid, they are believed to be the most efficient financial
markets. It is important to realize that the foreign exchange market is not a single exchange,
but is constructed of a global network of computers that connects participants from all parts of
the world.

Commodities Market

It is a physical or virtual marketplace for buying, selling and trading raw or primary products.
For investors' purposes there are currently about 50 major commodity markets worldwide that
facilitate investment trade in nearly 100 primary commodities. Commodities are split into two
types: hard and soft commodities. Hard commodities are typically natural resources that must
be mined or extracted (gold, rubber, oil, etc.), whereas soft commodities are agricultural
products or livestock (corn, wheat, coffee, sugar, soybeans, pork, etc.)

INDIAN FINANCIAL MARKETS

India Financial market is one of the oldest in the world and is considered to be the fastest
growing and best among all the markets of the emerging economies. The history of Indian
capital markets dates back 200 years toward the end of the 18th century when India was under
the rule of the East India Company. The development of the capital market in India
concentrated around Mumbai where no less than 200 to 250 securities brokers were active
during the second half of the 19th century.

The financial market in India today is more developed than many other sectors because it was
organized long before with the securities exchanges of Mumbai, Ahmadabad and Kolkata were
established as early as the 19th century. By the early 1960s the total number of securities
exchanges in India rose to eight, including Mumbai, Ahmadabad and Kolkata apart from
Madras, Kanpur, Delhi, Bangalore and Pune. Today there are 21 regional securities exchanges
in India in addition to the centralized NSE (National Stock Exchange) and OTCEI (Over the
Counter Exchange of India). However the stock markets in India remained stagnant due to
stringent controls on the market economy that allowed only a handful of monopolies to
dominate their respective sectors. The corporate sector wasn't allowed into many industry
segments, which were dominated by the state controlled public sector resulting in stagnation
of the economy right up to the early 1990s. Thereafter when the Indian economy began
liberalizing and the controls began to be dismantled or eased out; the securities markets
witnessed a flurry of IPO’s that were launched. This resulted in many new companies across
different industry segments to come up with newer products and services.

A remarkable feature of the growth of the Indian economy in recent years has been the role
played by its securities markets in assisting and fuelling that growth with money rose within
the economy. This was in marked contrast to the initial phase of growth in many of the fast
growing economies of East Asia that witnessed huge doses of FDI (Foreign Direct Investment)
spurring growth in their initial days of market decontrol.

During this phase in India much of the organized sector has been affected by high growth as
the financial markets played an all-inclusive role in sustaining financial resource mobilization.
Many PSUs (Public Sector Undertakings) that decided to offload part of their equity were also
helped by the well-organized securities market in India.

The launch of the NSE (National Stock Exchange) and the OTCEI (Over the Counter Exchange
of India) during the mid 1990s by the government of India was meant to usher in an easier and
more transparent form of trading in securities. The NSE was conceived as the market for trading
in the securities of companies from the large-scale sector and the OTCEI for those from the
small-scale sector. While the NSE has not just done well to grow and evolve into the virtual
backbone of capital markets in India the OTCEI struggled and is yet to show any sign of growth
and development. The integration of IT into the capital market infrastructure has been
particularly smooth in India due to the country’s world class IT industry. This has pushed up
the operational efficiency of the Indian stock market to global standards and as a result the
country has been able to capitalize on its high growth and attract foreign capital like never
before.
The regulating authority for capital markets in India is the SEBI (Securities and Exchange
Board of India). SEBI came into prominence in the 1990s after the capital markets experienced
some turbulence. It had to take drastic measures to plug many loopholes that were exploited by
certain market forces to advance their vested interests. After this initial phase of struggle SEBI
has grown in strength as the regulator of India’s capital markets and as one of the country’s
most important institutions.

FINANCIAL MARKET REGULATIONS

Regulations are an absolute necessity in the face of the growing importance of capital markets
throughout the world. The development of a market economy is dependent on the development
of the capital market. The regulation of a capital market involves the regulation of securities;
these rules enable the capital market to function more efficiently and impartially.

A well regulated market has the potential to encourage additional investors to partake, and
contribute in, furthering the development of the economy. The chief capital market regulatory
authority is Securities and Exchange Board of India (SEBI).

SEBI is the regulator for the securities market in India. It is the apex body to develop and
regulate the stock market in India It was formed officially by the Government of India in 1992
with SEBI Act 1992 being passed by the Indian Parliament. Chaired by C B Bhave, SEBI is
headquartered in the popular business district of Bandra-Kurla complex in Mumbai, and has
Northern, Eastern, Southern and Western regional offices in New Delhi, Kolkata, Chennai and
Ahmedabad. In place of Government Control, a statutory and autonomous regulatory board
with defined responsibilities, to cover both development & regulation of the market, and
independent powers has been set up.

The basic objectives of the Board were identified as:

➢ to protect the interests of investors in securities;

➢ to promote the development of Securities Market;
➢ to regulate the securities market and
➢ For matters connected therewith or incidental thereto.

Since its inception SEBI has been working targeting the securities and is attending to the
fulfillment of its objectives with commendable zeal and dexterity. The improvements in the
securities markets like capitalization requirements, margining, establishment of clearing
corporations etc. reduced the risk of credit and also reduced the market.

SEBI has introduced the comprehensive regulatory measures, prescribed registration norms,
the eligibility criteria, the code of obligations and the code of conduct for different
intermediaries like, bankers to issue, merchant bankers, brokers and subbrokers, registrars,
portfolio managers, credit rating agencies, underwriters and others. It has framed bye-laws,
risk identification and risk management systems for Clearing houses of stock exchanges,
surveillance system etc. which has made dealing in securities both safe and transparent to the
end investor.

Another significant event is the approval of trading in stock indices (like S&P CNX Nifty &
Sensex) in 2000. A market Index is a convenient and effective product because of the following
reasons:

➢ It acts as a barometer for market behavior;

➢ It is used to benchmark portfolio performance;
➢ It is used in derivative instruments like index futures and index options; ➢It
can be used for passive fund management as in case of Index Funds.

Two broad approaches of SEBI is to integrate the securities market at the national level, and
also to diversify the trading products, so that there is an increase in number of traders including
banks, financial institutions, insurance companies, mutual funds, primary dealers etc. to
transact through the Exchanges. In this context the introduction of derivatives trading through
Indian Stock Exchanges permitted by SEBI in 2000 AD is a real landmark.
SEBI has enjoyed success as a regulator by pushing systemic reforms aggressively and
successively (e.g. the quick movement towards making the markets electronic and paperless
rolling settlement on T+2 bases). SEBI has been active in setting up the regulations as required
under law.

STOCK EXCHANGES IN INDIA

Stock Exchanges are an organized marketplace, either corporation or mutual organization,

where members of the organization gather to trade company stocks or other securities. The
members may act either as agents for their customers, or as principals for their own accounts.

As per the Securities Contracts Regulation Act, 1956 a stock exchange is an association,
organization or body of individuals whether incorporated or not, established for the purpose of
assisting, regulating and controlling business in buying, selling and dealing in securities.
Stock exchanges facilitate for the issue and redemption of securities and other financial
instruments including the payment of income and dividends. The record keeping is central but
trade is linked to such physical place because modern markets are computerized. The trade on
an exchange is only by members and stock broker do have a seat on the exchange.

List of Stock Exchanges in India

➢ Bombay Stock Exchange

➢ National Stock Exchange
➢ OTC Exchange of India

BOMBAY STOCK EXCHANGE

A very common name for all traders in the stock market, BSE, stands for Bombay Stock
Exchange. It is the oldest market not only in the country, but also in Asia. In the early days,
BSE was known as "The Native Share & Stock Brokers Association." It was established in the
year 1875 and became the first stock exchange in the country to be recognized by the
government. In 1956, BSE obtained a permanent recognition from the Government of India
under the Securities Contracts (Regulation) Act, 1956. In the past and even now, it plays a
pivotal role in the development of the country's capital market. This is recognized worldwide
and its index, SENSEX, is also tracked worldwide. Earlier it was an Association of Persons
(AOP), but now it is a demutualised and corporatised entity incorporated under the provisions
of the Companies Act, 1956, pursuant to the BSE (Corporatisation and Demutualization)
Scheme, 2005 notified by the Securities and Exchange Board of India ( SEBI ).
BSE Vision

The vision of the Bombay Stock Exchange is to "Emerge as the premier Indian stock exchange
by establishing global benchmarks."

BSE Management

Bombay Stock Exchange is managed professionally by Board of Directors. It comprises of

eminent professionals, representatives of Trading Members and the Managing Director. The
Board is an inclusive one and is shaped to benefit from the market intermediaries participation.
The Board exercises complete control and formulates larger policy issues. The dayto- day
operations of BSE are managed by the Managing Director and its school of professional as a
management team.

BSE Network

The Exchange reaches physically to 417 cities and towns in the country. The framework of it
has been designed to safeguard market integrity and to operate with transparency. It provides
an efficient market for the trading in equity, debt instruments and derivatives. Its online trading
system, popularly known as BOLT, is a proprietary system and it is BS 7799-2-2002 certified.
The BOLT network was expanded, nationwide, in 1997. The surveillance and clearing &
settlement functions of the Exchange are ISO 9001:2000 certified.

BSE Facts

BSE as a brand is synonymous with capital markets in India. The BSE SENSEX is the
benchmark equity index that reflects the robustness of the economy and finance. It was the –

➢ First in India to introduce Equity Derivatives

➢ First in India to launch a Free Float Index
➢ First in India to launch US$ version of BSE Sensex
➢ First in India to launch Exchange Enabled Internet Trading Platform
➢ First in India to obtain ISO certification for Surveillance, Clearing &
Settlement

'BSE On-Line Trading System’ (BOLT) has been awarded the globally recognized the
Information Security Management System standard BS7799-2:2002.
 ➢ First to have an exclusive facility for financial training
➢ Moved from Open Outcry to Electronic Trading within just 50 days

BSE with its long history of capital market development is fully geared to continue its
contributions to further the growth of the securities markets of the country, thus helping
India increases its sphere of influence in international financial markets.

NATIONAL STOCK EXCHANGE OF INDIA LIMITED

The National Stock Exchange of India Limited has genesis in the report of the High Powered
Study Group on Establishment of New Stock Exchanges, which recommended promotion of a
National Stock Exchange by financial institutions (FI’s) to provide access to investors from all
across the country on an equal footing. Based on the recommendations, NSE was promoted by
leading Financial Institutions at the behest of the Government of India and was incorporated in
November 1992 as a taxpaying company unlike other stock Exchange in the country.

On its recognition as a stock exchange under the Securities Contracts (Regulation) Act, 1956
in April 1993, NSE commenced operations in the Wholesale Debt Market (WDM) segment in
June 1994. The Capital Market (Equities) segment commenced operations in November 1994
and operations in Derivatives segment commenced in June 2000.

NSE GROUP
National Securities Clearing Corporation Ltd. (NSCCL)

It is a wholly owned subsidiary, which was incorporated in August 1995 and commenced
clearing operations in April 1996. It was formed to build confidence in clearing and settlement
of securities, to promote and maintain the short and consistent settlement cycles, to provide a
counter-party risk guarantee and to operate a tight risk containment system.

NSE.IT Ltd.

It is also a wholly owned subsidiary of NSE and is its IT arm. This arm of the NSE is uniquely
positioned to provide products, services and solutions for the securities industry. NSE.IT
primarily focuses on in the area of trading, broker front-end and back-office, clearing and
settlement, web-based, insurance, etc. Along with this, it also provides consultancy and
implementation services in Data Warehousing, Business Continuity Plans, Site Maintenance
and Backups, Stratus Mainframe Facility Management, Real Time Market Analysis &
Financial News.

India Index Services & Products Ltd. (IISL)

It is a joint venture between NSE and CRISIL Ltd. to provide a variety of indices and index
related services and products for the Indian Capital markets. It was set up in May 1998. IISL
has a consulting and licensing agreement with the Standard and Poor's (S&P), world's leading
provider of investible equity indices, for co-branding equity indices.

National Securities Depository Ltd. (NSDL)

NSE joined hands with IDBI and UTI to promote dematerialization of securities. This step was
taken to solve problems related to trading in physical securities. It commenced operations in
November 1996.

NSE Facts
➢ It uses satellite communication technology to energize participation from
around 400 cities in India.

➢ NSE can handle up to 1 million trades per day.

➢ It is one of the largest interactive VSAT based stock exchanges in the world.
➢ The NSE- network is the largest private wide area network in India and the first
extended C- Band VSAT network in the world.

➢ Presently more than 9000 users are trading on the real time-online NSE
application.

Today, NSE is one of the largest exchanges in the world and still forging ahead. At NSE, we
are constantly working towards creating a more transparent, vibrant and innovative capital
market.
OVER THE COUNTER EXCHANGE OF INDIA

OTCEI was incorporated in 1990 as a section 25 company under the companies Act 1956 and
is recognized as a stock exchange under section 4 of the securities Contracts Regulation Act,
1956. The exchange was set up to aid enterprising promotes in raising finance for new projects
in a cost effective manner and to provide investors with a transparent and efficient mode of
trading Modeled along the lines of the NASDAQ market of USA, OTCEI introduced many
novel concepts to the Indian capital markets such as screen-based nationwide trading,
sponsorship of companies, market making and scrip less trading. As a measure of success of
these efforts, the Exchange today has 115 listings and has assisted in providing capital for
enterprises that have gone on to build successful brands for themselves like VIP Advanta,
Sonora Tiles & Brilliant mineral water, etc.

Need for OTCEI:

Studies by NASSCOM, software technology parks of India, the venture capitals funds and the
government’s IT tasks Force, as well as rising interest in IT, Pharmaceutical, Biotechnology
and Media shares have repeatedly emphasized the need for a national stock market for
innovation and high growth companies. Innovative companies are critical to developing
economics like India, which is undergoing a major technological revolution. With their abilities
to generate employment opportunities and contribute to the economy, it is essential that these
companies not only expand existing operations but also set up new units. The key issue for
these companies is raising timely, cost effective and long term capital to sustain their operations
and enhance growth. Such companies, particularly those that have been in operation for a short
time, are unable to raise funds through the traditional financing methods, because they have
not yet been evaluated by the financial world.
 CHAPTER IV DATA ANALYSIS & INTERPRETATIONS
ANALYSIS OF AUTOMOBILE INDUSTRY
Over a period of more than two decades the Indian Automobile industry has been driving its
own growth through phases. With comparatively higher rate of economic growth rate index
against that of great global powers, India has become a hub of domestic and exports business.
The automobile sector has been contributing its share to the shining economic performance of
India in the recent years. To understand this industry for the purpose of investment we need to
analyze it by the following approach: Fundamental Analysis ( E.I.C Approach )

a. Economy analysis

b. Industry analysis

c. Company analysis

Fundamental Analysis

Fundamental analysis is the study of economic, industry and company conditions in an effort
to determine the value of a company s stock. Fundamental analysis typically focuses on key
statistics in company s financial statements to determine if the stock price is correctly valued.
Most fundamental information focuses on economic, industry and company statistics. The
typical approach to analyzing a company involves three basic steps:

1. Determine the condition of the general economy.

2. Determine the condition of the industry.

3. Determine the condition of the company.

1 . ECONOMY ANALYSIS
Economic analysis is the analysis of forces operating the overall economy a country. Economic
analysis is a process whereby strengths and weaknesses of an economy are analyzed. Economic
analysis is important in order to understand exact condition of an economy.
GDP and Automobile Industry

In absolute terms, India is 16th in the world in terms of nominal factory output. The service

sector is growing rapidly in the past few years. This is the pie- chart showing contributions of

different sectors in Indian economy.

Today, automobile sector in India is one of the key sectors of the economy in terms of the
employment. Directly and indirectly it employs more than 10 million people and if we add the
number of people employed in the auto-component and auto ancillary industry then the number
goes even higher. As the world economy slipped into recession hitting the demand hard and
the banking sector takes conservative approach towards lending to corporate sector. The Gross
Domestic Product (GDP) in India expanded 6.9 percent in the third quarter of

2011 over the previous quarter. Historically, from 2000 until 2011, India's average quarterly
GDP Growth was 7.45 percent reaching an historical high of 11.80 percent in December of
2003 and a record low of 1.60 percent in December of 2002. India's diverse economy
encompasses traditional village farming, modern agriculture, handicrafts, a wide range of
modern industries, and a multitude of services. Services are the major source of economic
growth, accounting for more than half of India's output with less than one third of its labor
force. The economy has posted an average growth rate of more than 7% in the decade since
1997, reducing poverty by about 10 percentage points.

The market value of Automobile Industry is more than US$8 bl. and Contribution in Indian
GDP is near about 5% and will be double by 2016. The automotive industry in India grew at a
computed annual growth rate (CAGR) of 11.5 percent over the past five years, but growth rate
in last FY2008-09 was only 0.7% with passenger car sales shows 1.31% growth while
Commercial Vehicles segment slumped 21.7%.

Recession

Auto industry in India had been hit hard by ongoing global financial recession. But it is in a
good shape now. Much of this optimism resulted from renewed interest being shown in India
auto industry by reputed overseas car makers. Nissan Motors which is a well known Japanese
car making company regarded India automobile market as a global car manufacturing hub for
future and invested huge amount in our market.

There are some other automobile companies of world who have shown interest in India auto
market. Major names among these are General Motors, Skoda Auto and Mercedes-Benz. These
companies have major plans lined up for India auto industry. These are few signs of the
revolutionized auto industry after recession. All the major auto companies enjoyed the high
growth ride till the mid 2008. But at the end of the year, industry had to face the hard truth and
witnessed the fall in sales compared to last year. In December 2008, overall production fell by
22 % over the same month last year. Global recession has hit the Indian auto industry, India is
strong and growing industry but the impact of recession is evident now on industry as sales &
growth of automobile companies have declined. Passenger Vehicles segment registered
negative growth.
One of its supporting facts is that the sales in December 2008 for passenger vehicles fell by
13.86% over December 2007 Two Wheelers registered minor growth of 1.85 % during April –
December 2008. However, Two Wheelers sales recorded 15.43 percent fall in December 2008
over the same month last year. Although the sector was hit by economic slowdown, overall
production (passenger vehicles, commercial vehicles, two wheelers and three wheelers)
increased from 10.85 million vehicles in 2007-08 to 11.17 million vehicles in 2008-09.
Passenger vehicles increased marginally from 1.77 million to 1.83 million while two-wheelers
increased from 8.02 million to 8.41 million. Total number of vehicles sold including passenger
vehicles, commercial vehicles, two-wheelers and three-wheelers in 2008-09 was 9.72 million
as compared to 9.65 million in 2007-08.

Inflation

The rise in inflation will have adverse impact on the industry that will not only see interest rates
getting further hardened but also a drop in demand due to the squeeze in purchasing power.
The effect of inflation has affected every sector which is related to car manufacturing and
production. The increase in the price of fuel and the steel due to inflation has led to a slower
growth rate of the car industry in India.

Despite of negative inflation these days (-.21% on 22-Aug-09) we saw an increasing trend of
sales in auto sector. A moderate amount of inflation is important for the proper growth of an
economy like India because it attracts more private investment. The fall in wholesale prices
from a year earlier is mainly due to a statistical base effect and doesn’t suggest contraction in
demand, the Reserve Bank of India said few week back, while revising its inflation forecast for
the FY through March to around 5% from 4%.

In last FY despite of skyrocketing oil prices (crude oil price has already up to $130 compared
to $20 per barrel five years back), Indian automobile Industry was not as much affected and
experts think that Indian automobile industry will continue to grow this year despite all
obstacles- oil price hike, higher interest rates. The effect of inflation has taken the rise in the
price rate of the cars by 3-4% which in turn suffices the need to meet the rise in price of the
raw materials to build a car. The car market and the car industry witnessed a fall of 8-9%.
Foreign Direct Investment

The automobile sector in the Indian industry is one of the high performing sectors of the Indian
economy. This has contributed largely in making India a prime destination for many
international players in the automobile industry who wish to set up their businesses in India.
Automatic approval for foreign equity investment up to 100 per cent of manufacture of
automobiles and component is permitted.

Exports

Despite recession, the Indian automobile market continues to perform better than most of the
other industries in the economy in coming future; more and more MNC’s coming in India to
setup their ventures which clearly shows the scope of expansion. During April-January 2010,
overall automobile exports registered a growth rate of 13.24 percent.

2. INDUSTRY ANALYSIS ( AUTOMOBILE )

The automobile industry in India is the ninth largest in the world with an annual production of
over 2.3 million units in 2008. In 2009, India emerged as Asia's fourth largest exporter of
automobiles, behind Japan, South Korea and Thailand. The Automobile Industry is one of the
fastest growing sectors in India. The increase in the demand for cars, and other vehicles,
powered by the increase in the income is the primary growth driver of the automobile industry
in India. In 2009, estimated rate of growth of India Auto industry is going to be 9% .The Indian
automobile sector is far from being saturated, leaving ample opportunity for volume growth.

Segmentation of Automobile Industry

The automobile industry comprises of Heavy vehicles (trucks, buses, tempos, tractors);
passenger cars; Two-wheelers; Commercial Vehicles; and Three-wheelers. Following is the
segmentation that how much each sector comprises of whole Indian Automobile Industry.

Industry life cycle

The industrial life cycle is a term used for classifying industry life over time. Industry life cycle
classification generally groups industries into one of four stages: pioneer, growth, maturity and
decline. In the pioneer phase, the product has not been widely accepted or adopted. Business
strategies are developing, and there is high risk of failure. However, successful companies can
grow at extraordinary rates. The Indian automobile sector has passed this stage quite
successfully. The industry is growing rapidly, often at an accelerating rate of sales and earnings
growth. Indian Automotive Industry is booming with a growth rate of around 15 % annually.
The growth rate of the automobile industry in India is greater than the GDP growth rate of the
economy, so the automobile sector can be very well be said to be in the growth phase.

Swot analysis:

A scan of the internal and external environment is an important part of the strategic planning
process. Environmental factors internal to the firm usually can be classified as strengths (S) or
weaknesses (W), and those external to the firm can be classified as opportunities (O) or threats
(T). Such an analysis of the strategic environment is referred to as a SWOT analysis.

SWOT analysis of the Indian automobile sector gives the following points:

1. Strengths 2 .
Weaknesses
➢ Large domestic market Low labor productivity
➢
➢ Sustainable labor cost advantage High interest costs and high
➢ overheads make the
➢ Competitive auto component vendor
base production uncompetitive

➢ Government incentives for Various forms of taxes push up

➢
manufacturing plants the cost of production

➢ Strong engineering skills in design etc ➢ Low investment in Research

and Development
 ➢ Infrastructure bottleneck

3. Opportunities 4 . Threats

➢ Increasing ➢ Ignorance of Research &

challenges in consumer development
demands, technology
➢ Rising interest rates
development, and
➢ Cut throat competition
globalization.

➢ Heavy thrust on
mining and construction

activity
➢ Increase in the
income level
➢ Cut in excise
duties

3 . COMPANY ANALYSIS

The company analysis shows the long-term strenght of the company that what is the financial
position of the company in the market, where it stands among its competitors and who are the
key drivers of the company, what are the future plans of the company, what are the policies of
government towards the company and how the stake of the company divested among different
groups of people.

Here, I have taken three companies namely TATA Motors, Maruti Suzuki and Mahindra and
Mahindra for the purpose of fundamental analysis.

Tata Motors Limited is India's largest automobile company, with consolidated revenues of Rs.
92,519 crores (USD 20 billion) in 2009-10. It is the leader in commercial vehicles in each
segment, and among the top three in passenger vehicles with winning products in the compact,
midsize car and utility vehicle segments. The company is the world's fourth largest truck
manufacturer, and the world's second largest bus manufacturer.

Tata Motors Limited is India’s largest automobile company, reported gross revenue
(standalone) of Rs.28599.27 crores (2007-08: Rs.33093.93 crores) in 2008-09, a year marked
by severe demand contraction in the automobile industry. Revenues (net of excise) for the year
were Rs. 25660.79 crores compared to Rs.28739.41 crores in 2007-08, a decline of 10.7%. The
Profit before Tax was Rs.1013.76 crores compared to Rs.2576.47 crores in 2007-08, a decline
of 60.7%. The Profit after Tax for the year was Rs.1001.26 crores compared to Rs.2028.92
crores, a decline of 50.7%. It is the leader in commercial vehicles in each segment, and among
the top three in passenger vehicles with winning products in the compact, midsize car and utility
vehicle segments. The company is the world’s fourth largest truck manufacturer, and the
world’s second largest bus manufacturer.

Maruti Suzuki is a subsidiary of Suzuki Motor Corporation Japan. More than half the numbers
of cars sold in India wear Maruti Suzuki badge. They offer a full range of cars – from entry
level Maruti 800 & Alto to stylish hatchback Ritz, A star, Swift, Wagon R, Estillo and sedans
Dzire, SX4 and Sports Utility Vehicle Grand Vitara. Since inception, it has produced and sold
over 7.5 million vehicles in India and exported over 500,000 units to Europe and other
countries. Its turnover for the fiscal 2008-09 stood at Rs. 203,583 Million & Profit after Tax at
Rs. 12,187 Million.

Maruti Suzuki is one of India's leading automobile manufacturers and the market leader in the
car segment, both in terms of volume of vehicles sold and revenue earned. Until recently,
18.28% of the company was owned by the Indian government, and 54.2% by Suzuki of Japan.
As of May 10, 2007, Govt. of India sold its complete share to Indian financial institutions. With
this, Govt. of India no longer has stake in Maruti Udyog. Maruti Suzuki India Ltd. has sold a
total of 84,808 vehicles in August 2009, an increase of 41.6%, compared to 59,908 vehicles in
the same period of 2008. The company's domestic sales in August 2009 increased 29.3% to
69,961 vehicles, compared to 54,113 vehicles in August 2008. Total passenger car sales in
August 2009 increased 30.5% to 69,629 units, compared to 53,351 units in August 2008 The
company's exports increased 156.2% to 14,847 units, compared to 5,795 units in August 2008.
The Mahindra Group’s Automotive Sector is in the business of manufacturing and marketing
utility vehicles and light commercial vehicles, including three-wheelers. It is the market leader
in utility vehicles in India since inception, and currently accounts for about half of India’s
market for utility vehicles. The Automotive Sector continues to be a leader in the utility vehicle
segment with a diverse portfolio that includes mass transport as well as new generation vehicles
like Scorpio, Bolero and the recently launched Xylo.

The Company operates in nine segments: automotive segment comprises of sales of

automobiles, spare parts and related services; farm equipment segment comprises of sales of
tractors, spare parts and related services; information technology (IT) services comprises of
services rendered for IT and telecom; financial services comprise of services relating to
financing, leasing and hire purchase of automobiles and tractors; steel trading and processing
comprises of trading and processing of steel; infrastructure comprise of operating of
commercial complexes, project management and development; hospitality segment comprises
of sale of timeshare; Systech segment comprises of automotive components and other related
products and services, and its others segment comprise of logistics, aftermarket, two wheelers
and investment. During the fiscal year ended March 31, 2011, the Company acquired a 70%
stake in Ssangyong Motor Company Limited.
TATA MOTORS

Balance Sheet of Tata Motors ------------------ in Rs. Cr. -------------------

Mar '11 Mar '10 Mar '09 Mar '08 Mar '07

Sources Of Funds
Total Share Capital 634.65 570.60 514.05 385.54 385.41

Equity Share Capital 634.65 570.60 514.05 385.54 385.41

Share Application Money 3.06 0.00 0.00 0.00 0.00

Preference Share Capital 0.00 0.00 0.00 0.00 0.00

19,351.4
Reserves 14,208.55 11,855.15 7,428.45 6,458.39
0

Revaluation Reserves 24.19 24.63 25.07 25.51 25.95

 20,013.3
Networth 14,803.78 12,394.27 7,839.50 6,869.75
0

Secured Loans 7,766.05 7,742.60 5,251.65 2,461.99 2,022.04

Unsecured Loans 8,132.70 8,883.31 7,913.91 3,818.53 1,987.10

15,898.7
Total Debt 16,625.91 13,165.56 6,280.52 4,009.14
5

35,912.0 10,878.8
Total Liabilities 5 31,429.69 25,559.83 14,120.02 9
Application Of Funds

Gross Block 21,883.3 18,416.81 13,905.17 10,830.83 8,775.80

2

Less: Accum. Depreciation 8,466.25 7,212.92 6,259.90 5,443.52 4,894.54

13,417.0
Net Block 11,203.89 7,645.27 5,387.31 3,881.26
7

Capital Work in Progress 4,058.56 5,232.15 6,954.04 5,064.96 2,513.32

22,624.2
Investments 22,336.90 12,968.13 4,910.27 2,477.00
1

Inventories 3,891.39 2,935.59 2,229.81 2,421.83 2,500.95

Sundry Debtors 2,602.88 2,391.92 1,555.20 1,130.73 782.18

Cash and Bank Balance 638.79 612.16 638.17 750.14 535.78

Total Current Assets 7,133.06 5,939.67 4,423.18 4,302.70 3,818.91

Loans and Advances 5,852.42 5,248.71 5,909.75 4,831.36 6,208.53

Fixed Deposits 1,790.13 1,141.10 503.65 1,647.17 290.98

14,775.6 10,318.4
Total CA, Loans & Advances 12,329.48 10,836.58 10,781.23
1 2

Deffered Credit 0.00 0.00 0.00 0.00 0.00

 15,740.6
Current Liabilities 16,909.30 10,968.95 10,040.37 6,956.88
9

Provisions 3,222.71 2,763.43 1,877.26 1,989.43 1,364.32

Total CL & Provisions 18,963.4 19,672.73 12,846.21 12,029.80 8,321.20

0

Net Current Assets -4,187.79 -7,343.25 -2,009.63 -1,248.57 1,997.22

Miscellaneous Expenses 0.00 0.00 2.02 6.05 10.09

35,912.0
10,878.8
Total Assets 31,429.69 25,559.83 14,120.02
5 9

Contingent Liabilities 4,798.83 3,708.33 5,433.07 5,590.83 5,196.07

Book Value (Rs) 314.93 259.03 240.64 202.70 177.59

Profit & Loss account of Tata
------------------ in Rs. Cr. -------------------
Motors
Mar '11 Mar '10 Mar '09 Mar '08 Mar '07

Income
52,067.8
Sales Turnover 38,173.39 28,538.20 33,123.54 31,089.69
7

Excise Duty 4,110.63 2,800.10 2,877.53 4,355.63 4,425.44

47,957.2
Net Sales 35,373.29 25,660.67 28,767.91 26,664.25
4

Other Income 341.53 1,220.86 921.29 734.17 1,114.38

Stock Adjustments 354.22 606.63 -238.04 -40.48 349.68

48,652.9 37,200.78 26,343.92 29,461.60 28,128.31
Total Income 9

Expenditure
35,047.0
Raw Materials 25,366.12 18,801.37 20,891.33 19,879.56
5

Power & Fuel Cost 471.28 362.62 304.94 325.19 327.41

Employee Cost 2,294.02 1,836.13 1,551.39 1,544.57 1,367.83

Other Manufacturing Expenses 1,753.46 1,289.60 866.65 904.95 872.95

Selling and Admin Expenses 2,790.19 2,126.10 1,652.31 2,197.49 1,505.23

Miscellaneous Expenses 2,067.42 1,707.06 1,438.89 964.78 1,051.49

Preoperative Exp Capitalised -817.68 -740.54 -916.02 -1,131.40 -577.05

43,605.7
Total Expenses 31,947.09 23,699.53 25,696.91 24,427.42
4

Mar '11 Mar '10 Mar '09 Mar '08 Mar '07

Operating Profit 4,705.72 4,032.83 1,723.10 3,030.52 2,586.51

PBDIT 5,047.25 5,253.69 2,644.39 3,764.69 3,700.89

Interest 1,383.79 1,246.25 704.92 471.56 455.75

PBDT 3,663.46 4,007.44 1,939.47 3,293.13 3,245.14

Depreciation 1,360.77 1,033.87 874.54 652.31 586.29

Other Written Off 106.17 144.03 51.17 64.35 85.02

Profit Before Tax 2,196.52 2,829.54 1,013.76 2,576.47 2,573.83

Extra-ordinary items 0.00 0.00 15.29 0.00 -0.07

PBT (Post Extra-ord Items) 2,196.52 2,829.54 1,029.05 2,576.47 2,573.76

Tax 384.70 589.46 12.50 547.55 660.37

Reported Net Profit 1,811.82 2,240.08 1,001.26 2,028.92 1,913.46

Total Value Addition 8,558.69 6,580.97 4,898.16 4,805.58 4,547.86

Preference Dividend 0.00 0.00 0.00 0.00 0.00

Equity Dividend 1,274.23 859.05 311.61 578.43 578.07

Corporate Dividend Tax 192.80 132.89 34.09 81.25 98.25

Per share data (annualised)
Shares in issue (lakhs) 6,346.14 5,705.58 5,140.08 3,855.04 3,853.74

Earning Per Share (Rs) 28.55 39.26 19.48 52.63 49.65

Equity Dividend (%) 200.00 150.00 60.00 150.00 150.00

Book Value (Rs) 314.93 259.03 240.64 202.70 177.59

MARUTI SUZUKI

Balance Sheet of Maruti Suzuki India ------------------ in Rs. Cr. -------------------

Mar Mar '09 Mar '08 Mar '07

Mar '10 '11

Sources Of Funds
Total Share Capital 144.50 144.50 144.50 144.50 144.50

Equity Share Capital 144.50 144.50 144.50 144.50 144.50

Share Application Money 0.00 0.00 0.00 0.00 0.00

Preference Share Capital 0.00 0.00 0.00 0.00 0.00

13,723.
Reserves 9,200.40 8,270.90 6,709.40
11,690.60 00

Revaluation Reserves 0.00 0.00 0.00 0.00 0.00

13,867 11,835.1 8,415.4 6,853.9

Networth 9,344.90
.50 0 0 0

Secured Loans 31.20 26.50 0.10 0.10 63.50

Unsecured Loans 278.10 794.90 698.80 900.10 567.30

Total Debt 309.30 821.40 698.90 900.20 630.80

14,176 12,656.5 10,043.8 9,315.6 7,484.7

Total Liabilities
.80 0 0 0 0
Mar Mar '09 Mar '08 Mar '07
Mar '10 '11

Application Of Funds
11,737.
Gross Block 8,720.60 7,285.30 6,146.80
10,406.70 70

6,208.3
Less: Accum. Depreciation 4,649.80 3,988.80 3,487.10
5,382.00 0

5,529. 3,296.5 2,659.7

Net Block 4,070.80
5,024.70 40 0 0

1,428.6
Capital Work in Progress 861.30 736.30 238.90
387.60 0

5,106. 5,180.7 3,409.2

Investments 3,173.30
7,176.60 70 0 0

1,415.0
Inventories 902.30 1,038.00 713.20
1,208.80 0

Sundry Debtors 893.30 809.90 918.90 655.50 747.40

Cash and Bank Balance 95.50 98.20 239.00 324.00 114.80

2,403.8
Total Current Assets 2,060.20 2,017.50 1,575.40
2,116.90 0

1,626.3
Loans and Advances 1,809.80 1,173.00 1,072.60
1,739.10 0
 2,413.0
0.00
Fixed Deposits 0 1,700.00 0.00 1,308.00
Total CA, Loans & Advances 6,443.1 5,570.00 3,190.50 3,956.00
3,856.00
0
Deffered Credit 0.00 0.00 0.00 0.00 0.00

3,805.2
Current Liabilities 3,250.90 2,718.90 2,288.60
3,160.00 0

Provisions 525.80 628.40 380.70 369.50 490.50

4,331.0
Total CL & Provisions 3,631.60 3,088.40 2,779.10
3,788.40 0

2,112. 1,176.9
Net Current Assets 1,938.40 102.10
67.60 10 0

Miscellaneous Expenses 0.00 0.00 0.00 0.00 0.00

14,176 12,656.5 10,043.8 9,315.6 7,484.7

Total Assets .80 0 0 0 0
5,450.6
Contingent Liabilities 3,657.20 0 1,901.70 2,734.20 2,094.60

Book Value (Rs) 479.99 409.65 323.45 291.28 237.23

Profit & Loss account of Maruti
------------------ in Rs. Cr. -------------------
Suzuki India
Mar '11 Mar '10 Mar '09 Mar '08 Mar '07

Income
32,174.1 23,381.5 21,200.4 17,358.4
Sales Turnover 40,865.50
0 0 0 0

Excise Duty 4,304.00 2,856.40 2,652.10 3,133.60 2,552.00

29,317.7 20,729.4 18,066.8 14,806.4

Net Sales 36,561.50
0 0 0 0

Other Income 784.60 662.00 491.70 494.00 338.10

Stock Adjustments 73.20 200.90 -356.60 336.30 -200.70

 37,419.30 30,180.6 20,864.5 18,897.1 14,943.8
Total Income 0 0 0 0

Expenditure
22,636.3 15,983.2 13,958.3 10,863.0
Raw Materials 28,880.00
0 0 0 0

Power & Fuel Cost 210.20 216.60 193.60 147.30 97.40

Employee Cost 703.60 545.60 471.10 356.20 288.40

Other Manufacturing
1,949.40 1,061.60 716.10 523.30 392.40
Expenses
Selling and Admin Expenses 1,153.87 1,032.17 817.66 521.48 483.26

Miscellaneous Expenses 289.73 201.73 236.84 287.62 239.44

Preoperative Exp Capitalised -25.70 0.00 -22.30 -19.80 -14.30

RATIO ANALYSIS OF TATA MOTORS, MARUTI SUZUKI
AND MAHINDRA & MAHINDRA

EARNINGS PER SHARE

Mar '11 Mar '10 Mar '09 Mar '08 Mar '07
Tata Motors 28.55 39.26 19.48 52.63 49.65
Maruti 79.21 86.45 42.18 59.91 54.07
Mahindra 45.33 36.89 30.69 46.15 44.88

Interpretations

EPS measures the profit available to the equity shareholders per share, that is the amount that
they can get on every share held. Till 2010 TATA and Maruti had a rising EPS but in 2011
both of them fall and the effect is more on Tata motors because of the slump in domestic and
international markets and sharp fall in sales and net profits which resulted in low EPS.
Mahindra is not much affected as its sales have increased from the previous year. But as trend
shows Mahindra motors has potential so a shareholder can expect better in future.

SALES

Mar '11 Mar '10 Mar '09 Mar '08 Mar '07
Tata Motors 52,067.87 38,173.39 28,538.20 33,123.54 31,089.69

Maruti 40,865.50 32,174.10 23,381.50 21,200.40 17,358.40

Mahindra 25,569.55 20,323.63 14,668.13 12,894.94 11,231.99

Interpretations

Maruti and Mahindra show a positive trend in sales over the past five years. Though slowdown
in the economy brought hurdles but these companies have potential to grow in future as lots of
products are still to add in their portfolio. Moreover increased demand in foreign market also
seems to be a positive signal for better future. TATA has witnessed a decline in sales of each
segment. Maruti and Mahindra are going swiftly.

DIVIDEND PER SHARE

Mar '11 Mar '10 Mar '09 Mar '08 Mar '07

Tata Motors 20 15 6 15 15

Maruti 7.5 6 3.5 5 4.5

Mahindra 11.5 9.5 10 11.5 11.5

Interpretations
Tata motors and Maruti Suzuki both the companies showed a positive trend in paying dividends
till 2008, but the scenario changed in 2009 as both the company’s dividend

per share fell but again raised from 2010 . According to graph Tata’s dividend has fallen
drastically while Maruti stick to below 5 per share. Mahindra has made a slight reduction from
rs.11.5 per share in 2008 to rs.10 per share this year. Therefore Mahindra would be the best
option for an investor.
 RETURN ON INVESTMENT (ROI)
Mar '11 Mar '10 Mar '09 Mar '08 Mar '07

Tata 9.06 15.15 8.09 25.98 28

Motors
Maruti 16.5 21.1 13.04 20.56 22.79

Mahindra 25.92 26.74 16.03 25.51 30.18

Interpretations

ROI is one of the most important ratios used for measuring the overall efficiency of a firm
and determines whether the investments in the firms are attractive or not. According the
graph, ROI of TATA has declined to a large extent in 2009, making it a quite risky
investment. Maruti’s ROI has also declined but Mahindra’s ROI is showing a higher rate
compared to TATA and Maruti in 2009. As the investors would like to invest only where the
return is higher, Mahindra would be attractive for investment.
DIVIDEND PAYOUT RATIO

Mar '11 Mar '10 Mar '09 Mar '08 Mar '07

Tata 80.96 44.28 34.52 32.51 35.34

Motors
Maruti 11 8.09 9.7 9.78 9.72

Mahindra 30.15 29.87 37.29 29.1 30.39

Interpretations

Dividend payout ratio is the percentage of earnings paid to shareholders in dividends. It

provides an idea to an investor of how well earnings support the dividend payments. Maruti
has maintained a stable payout ratio. Both TATA and Mahindra have increased their payout
ratio in which Mahindra shows a higher payout ratio.
 CHAPTER V

FINDINGS, SUGGESTIONS & CONCLUSION FINDINGS

From the data analysis and interpretations of the ratios of three companies’ viz. Tata Motors,
Maruti Suzuki and Mahindra and Mahindra, the following findings have been given:

➢ The three companies were performing well till 2008 with a positive trend in the earnings
per share. But there was a downward trend in 2009 but again from 2010 it was upward.
Especially, TATA has witnessed a steep fall in the year 2009.

➢ The sales trend has been upward and positive in case of all the three companies. The
sales growth looks positive but in the year 2009, TATA’s sales have declined whereas
Maruti and Mahindra have maintained the same upward positive trend.

➢ In case of dividend per share, there were fluctuations during the period 2007- 2011.
Due to recession, the dividends per share have declined in all the three companies.
Tata’s dividend has fallen drastically while Maruti stick to below 5 per share. Mahindra
has made a slight reduction from rs.11.5 per share in 2008 to rs.10 per share this year.

➢ The return on investment has been fluctuating since 2007 and the year 2011 witnessed
low returns in case of all the companies amongst which TATA has the least rate of
return. Compared to the three companies, Mahindra has the highest ROI in 2009.

➢ Maruti had a stable dividend payout ratio since 2007. TATA and Mahindra have
increased their payout ratio in which Mahindra shows a higher payout ratio.

By analyzing the current trend of Indian Economy and Automobile Industry I have found that
being a developing economy there is lot of scope for growth and this industry still has to cross
many levels so there are huge opportunities to invest in and this is being proved as more and
more foreign companies are setting up there ventures in India. Increase in income level,
increase in consumer demand, technology development, globalization, foreign investments are
few of the opportunities which the industry has to explore for developing the economy.
 SUGGESTIONS

By analyzing the automobile industry with the help of fundamental analysis, it has been
revealed that this industry has a lot of potential to grow. So recommending investing in
Automobile industry with no doubt is going to be a good and smart option because this industry
is booming like never before not only in India but all over the world. The three giants of Indian
Automobile industry viz. TATA Motors, Maruti Suzuki and Mahindra and Mahindra have
outperformed in the industry.

From the company analysis, we can know that Mahindra would be a better option for an
investor compared to TATA and Maruti. In view of the slump in the domestic and international
market, TATA has recorded a slowdown in sales and income level. Its Earnings per share has
also declined drastically. It has reduced its dividend per share from rs.15 in the previous year
to rs.6 in 2009. The return on investment is also very low. In view of all these, TATA is not a
better option for an investor.

The global turmoil in financial markets has affected Maruti also. The company is maintaining
a stable position. Its sales have grown over past five years. Inspite of the general economic
slowdown, the sales of Maruti Suzuki increased from Rs 21200 Crore to Rs 23381 Crore. As
it is maintaining a stable position, it can be recommended that for now Maruti share price shows
that it’s a time to hold the position or buy more shares as there is scope of further rise in share
prices. Despite the challenging business environment, Mahindra has maintained its upward
sales level. Its Return on Investment is much higher compared to TATA and Maruti. The
dividend per share is rs.10 which is higher amongst the three companies. The company has
potential to grow.

It would be the best option for the investor. Investing in Maruti Suzuki for long time could be
a good option whereas in TATA motors there is a chance of getting correction, as it already
went on high side in a very short period of time and is experiencing a downfall from 2008.
Holding the shares for long time could be a wrong step and at this point of time those who
invested earlier can book their profits. As Mahindra’s shares are undervalued, the investor can
buy these shares. This is because a relatively lower P/E would save investors from paying a
very high price that does not justify the value of an investment.
Few Suggestions for “Right Stock Selection”

There are three factors which an investor must consider for selecting the right stocks.

Business: An investor must look into what kind of business the company is doing, visibility
of the business, its past track record, capital needs of the company for expansion etc.

Balance Sheet: The investor must focus on its key financial ratios such as earnings per share,
price-earning ratio; debt-equity ratio, dividends per share etc and he must also check whether
the company is generating cash flows.

Bargaining: This is the most important factor which shows the true worth of the company.
An investor needs to choose valuation parameters which suit its business.

Investment rules

➢ Invest for long term in equity markets

➢ Align your thought process with the business cycle of the company.
➢ Set the purpose for investment.
➢ Long term goals should be the objective of equity investment.
➢ Disciplined investment during market volatility helps attains profits.
➢ Planning, Knowledge and Discipline are very crucial for investment.
RECOMMENTATION

By analyzing the industry on various parameters Automobile Industry have no doubt is going
to be a good and smart option because this industry is booming like never before not only in
India but all around the world. The numbers which came out in the end of financial year 2009
prove that even in the period of recession the overall sales went up is sufficient to support to
this fact. Investing in Maruti Suzuki for long time could be a good option whereas in TATA
motors there is a chance of getting correction, as it already went on high side in a very short
period of time so holding the shares for long time could be a wrong step, so at this point of time
those who invested earlier can book their profit or new investors can buy now and sell with in
short period of time by earning profit in short period of time.
 CONCLUSION

The collapse in market place witnessed unprecedented turbulence in the wake of global
financial meltdown. A runaway inflation touching a high point of 12% early in the year, the
tight monetary policies followed by the authorities for most of the year to control inflation with
the consequent high interest rates and weak consumer demand, have collectively had a
devastating effect on the automotive sector. During the financial year 2008-09 the there is
downfall in the growth of the company. The main reason behind this downfall is because of the
global recession. The downfall of net profit during the financial year 2008-09 is 29.6% over
the financial year 2007-2008.

TATA Motors, which was trying to consolidate its leadership position in the market, also had
to face the impact of global meltdown. Amid the crippling economic crisis, Tata purchased
Britain’s Jaguar Land Rover (JLR) from Ford Motor Company. Acquiring JLR saddled Tata
with some tough losses. Dividends and earnings remain low.

Inspite of it being a tough year for all the companies across the globe and in India, Mahindra
has given a satisfactory performance. At present its shares are undervalued giving it a potential
for growth. Global recession had a dampener effect on the growth of automobile industry but
it was a short term phenomenon. The industry is bouncing back. One factor favoring this point
is that India has become a hot destination for companies of diverse nature to invest in. Cut
throat competition among top companies, lots of new car and vehicle model launches at regular
intervals keeps the Indian auto sector moving.

A continuous effort at cost cutting and improving productivity will help the companies in
making reasonable profits despite the impact of higher commodity prices and weaker rupee.
The analysis gives an optimistic view about the industry and its growth which recommends the
investors to keep a good watch on the major players to benefit in terms of returns on their
investments.
Indian Automobile Industry is in the growth phase and the expected growth rate is 9-10% for
FY2009-10 compare to last year growth rate which was just 0.7% and the above facts and
figures in our study also support this truth. Indian Automobile has a lot of scope for both two
wheelers and four wheelers due to development in infrastructure of the country and especially
the rural sector in which demand of two wheeler has increased even in recession. According
to Indian Statistical Organization the per capita income (Rs.38000) is increasing and national
income at the rate of 14.4% which shows potential to buy vehicle in auto industry. The growth
rate of Indian Automobile is so fast that by 2016 Indian Industry will be world 7 largest
manufacturer in all sections.

The Indian auto market is still untapped the majority of the people in country don’t own a four
wheeler and all the major auto companies are trying to increase their sales by several moves.
Like TATA has launch NANO the people’s car and now TATA motors is also planning to
come out with an electric car as well as hybrid car, moreover in two wheeler segment many
companies like Mahindra and Mahindra grow even more than expectations.

By analyzing the current trend of Indian Economy and Automobile Industry we can say that
being a developing economy there is lot of scope for growth and this industry still have to cross
many levels so there is huge opportunities to invest in and this is proving as more and more
foreign Companies setting up there ventures in India.
 BIBLIOGRAPHY

➢ www.nseindia.com
➢ www.bseindia.com
➢ www.investopedia.com
➢ www.moneycontrol.com
➢ www.indiainfoline.com
➢ www.sebi.gov.in
➢ www.tatamotors.com
➢ www.marutisuzuki.com
➢ www.mahindra.com
➢ www.yahoofinance.com