A

PROJECT REPORT

ON

CAPITAL MARKET WHAT LIES AHEAD?

UNDERTAKEN AT
INDIA INFOLINE SECURITIES PVT. LTD

SUBMITTE BY
RAJESH N RAJ
(06MBA47)

SUBMITTED TO
Mr. PRASHANT JOSHI

MBA (2006-08)

SHRIMAD RAJCHANDRA INSTITUTE OF

MANAGEMENT AND COMPUTER APPLICATION
1.0 INTRODUCTION

Every business unit needs money to finance its activities. The

money is invested in physical resources, i.e. land and building, machines
and equipment, stock of raw material, etc., which are used by the
enterprise in production. All these resources together constitute ‘capital’.
Capital is often defined as “wealth used in the production of further
wealth.”

INTRODUCTION TO CAPITAL MARKET

Capital Market is the backbone of any country’s economy. It
facilitates conversion of savings to investment. In India the common
investors participating in the equity market is massive. The number of
companies offering equity through primary markets increased
continuously in the post independence period. The capital market is
actually reflecting what is happening in the economy and what is
expected to happen in the next few years.

2.0 RESEARCH METHODOLOGY

2.1 OBJECTIVES OF STUDY

1. To enhance the knowledge of the investors.

2. To devised investment strategies to investors this allows them to
apply concepts & skills using equities.
3. To provide the information to the prospective investors about the
auto companies of auto segment.
4.To understand the relation between stock market and Indian
economy in comparison with the world’s countries.
2.2 BENEFITS OF THE STUDY
The Study mainly emphasizes awareness and understanding of
simple investment strategies. Various tests and forecasting techniques
help a participant in applying various concepts and skills so as to diversify
and thus minimize risk and simultaneously earn maximum & stable
profits.
The Study Helps
1. Understanding the role of the stock market.
2. Understanding the India’s Strength in the World of Capital
Market.
3. Facilitating Large Investments
4. Understanding the Importance of Information in the Practical
World of Stocks.

2.3 METHOD OF ANALYSIS

Fundamental Analysis.
2.4 LITERATURE REVIEW
Secondary Data
• Industry Reports
• Internet
• Library

3.0 INDIAN CAPITAL MARKET SCENARIO

Date Event
1876 Birth of Bombay Stock Exchange (BSE).
27 Jun Notification issued by government under SC(R)A
1969 prohibiting forward or futures trading.
Jan 1983 Regulatory permissions obtained for badla trading, a
mechanism to carry forward positions.
2 Jan Computation of BSE ’sensitive’ index commenced.
 1986
12 Apr SEBI created.
1988
1992 Fixed income and equity markets scandal.
30 Jun Start of electronic debt trading at National Stock Exchange
1994 (NSE).
3 Nov Start of electronic equity trading at NSE.
1994
13 Dec Ban on badla.
1994
25 Jan SC(R)A amended to lift the ban on options trading.
1995
14 Mar Start of electronic trading on a few stocks at BSE.
1995
3 Jul 1995 Electronic trading of all stocks on BSE.
5 Oct Ban on badla reversed.
1995
Apr 1996 National Securities Clearing Corporation (NSCC)
commenced operations.
8 Nov National Securities Depository Ltd (NSDL) commenced
1996 operations.
1999 Securities law modified to enable derivatives trading.
12 Jun Start of equity index futures trading.
2000
4 Jun Start of equity index options trading.
2001
2 Jul 2001 Major stocks moved to rolling settlement; start of stock
options market.

3.1 CAPITAL MARKET AND INDIAN ECONOMY

A basic measure of the economy is Gross Domestic Product (GDP). It
is a measure of the economic health and strength of the economy. India’s
GDP growth forecast for 2006 is next only to China. A 9.31% growth
forecast will strengthen the equity market of India quite substantially.
 COMPARISON OF INFRASTRUCTURE SPENDING OF LAST SIX YEAR
Government too has lined up major infrastructure projects like the
golden quadrilateral, new power plants, airports, ports etc. The total
investment in the country is to increase from $ 120 billion (Rs. 5, 28, 000
crores) in 2004 to $ 208 billion (Rs. 9, 15, 200 crores) by 2007.
Government too has lined up major infrastructure projects like the
golden quadrilateral, new power plants, airports, ports etc. The total
investment in the country is to increase from $ 120 billion (Rs. 5, 28, 000
crores) in 2004 to $ 208 billion (Rs. 9, 15, 200 crores) by 2007.

3.3 PROBLEMS IN INDIAN CAPITAL MARKET

-Lack of Knowledge & Tendency
-Absence of Genuine Investors
-Presence of Price-Rigging
-Prevalence of Insider Trading
-High Volatility of Stock Market
-Dominance of Financial Institutions
-FIIs Control over the Market

4.0 GLOBAL SCENARIO

INTERNATIONAL COMPARISON
(End December 2006)
Particulars USA UK Japan Germany Singapore Hongkong China India
No. of 7,651 1945 2,470 933 355 695 950 9,871
listed
Companie
s
Market 16,635114, 2,933,280 4,546,937 1,432,190 198,407 609,090 330,703 280,619
Cap.
($mn)
Market 210 232 111 66 208 385 36 85
Cap.Ratio
Turnover 18,574,100 1,377,859 1,849,228 1,357,841 97,985 244,886 377,099 486,360
($mn)
Turnover 124 52 53 108 67 51 134.2 245
Ratio (%)

4.1 INDIAN STOCK MARKET AND GLOBALIZATION

Indian Stock market has witnessed drastic changes during the past
decade due to the broad stock market liberalization measures.
Dematerialization of shares and setting up clearing houses has virtually
eliminated the risks involved in trading. Similarly rapid strides were made
in settlement procedures, corporate governance standards, introduction
of derivative products etc.

GLOBAL INVESTMENT
India embarked on economic reforms to transform the controlled
economy into market driven one. This included the financial liberalization
strategies like dismantling of capital controls, reforms in trade and
investment policies and so on to integrate the Indian Financial Markets
with the global financial markets. All these reforms opened the floodgates
to foreign capital flows into the country. The total net capital flows have
risen to US $ 12.1 billion in 2005-06 from US $ 7.1 billion in 1990-91.

COMPOSITION OF CAPITAL FLOWS TO INDIA

(US $ Million)
 Debt
FDI Portfolio Creatin
Flow Equity g Others*
Total net
Year as a flows Flows As a % of
Capital flow
% of As a % of as a TCF
TCF TCF % of
TCF
1990-91 7056 1.4 0.1 83.3 15.2
1999-00 10444 20.7 29.0 23.1 27.2
2000-01 10018 40.2 27.6 59.4 -27.2
2006-07 12638 36.9 7.7 -6.6 62.0

FII INVESTMENT IN INDIA

(US $ million)
Total FII GDRs Offshor
Year Portfolio Investmen / e
flows t ADRs* funds
1992-
244 1 240 3
93
1999-
3026 2135 768 123
00
2000-
2760 1847 831 82
01
2001-
2021 1505 477 39
02
2006-
979 377 600 2
07

The portfolio flows have been one of the major forces that have
changed the quantum and nature of international capital flows to India.
Portfolio flows include the investment in ADRs /GDRs and offshore funds in
addition to investment by Foreign Institutional Investors (FIIs). Foreign
portfolio investments have been allowed in India on the basis of the
recommendations of the Narasimham committee.

TRENDS IN FII INVESTMENT

Period Gross Gross Net Net Cumulative

Purchase Sales Investme Investme Net
s (Rs.cror nt nt** (US Investment
(Rs.crore) e) (Rs.crore) $million) ** (US
$million)
1994 7631 2835 4796 1528 3167
1996 15554 6979 8575 2432 7634
1998 16115 17699 -1584 -386 8898
2000 74051 64116 9934 2160 13396
2004 47060 44371 2689 562 15804
2007 144858 99094 45765 9949 25754

The FIIs have been the largest shareholder in Housing Development

Finance Corporation and followed by the others:
Housing Development Finance Corporation 64.26%
Satyam Computer Services 53.90%
ICICI Bank 45.24%
SB&T International 40.34%
Infosys Technologies 39.61%
Zee Telefilms 38.96%

5.0 EFFICIENT MARKET HYPOTHESIS

 A market is efficient with respect to a particular set of information if
it is impossible to make abnormal profits (other than by chance) by using
this set of information to formulate buying and selling decisions.
In an efficient market, investors should expect to make normal
profits by earning a normal rate of return on their investments. However,
most individuals who buy and sell securities do so under the assumption
that the securities they are buying are worth more than the price they are
paying, while securities that they are selling are worth less than the
selling price.
Three Important Classifications of EMH

(a) Weak Form

(b) Semi Strong Form
(c) Strong Form

5.1 TESTING THE EMH

To determine if markets actually are perfectly efficient, reasonably

efficient or not efficient at all, there are multitude of methodologies
available, of which following three stand out:-
(A)Event Studies
(B) Looking for Patterns
(C) Examining Performance

6.0 INDIAN AUTOMOBILE INDUSTRY

• The Indian two-wheeler Industry is one of the largest in the world,

and is expected to maintain robust growth in the future
• India offers a distinct technological and cost-competitive advantage,
which global Original Equipment Manufacturers (OEMs) and
automotive suppliers are leveraging for both manufacturing and
research facilities
BENEFIT FOR INDIA
Competitive Cost Advantage
The Indian automotive industry has a significant labor cost
advantage. India’s automotive sector has the world’s second largest
pool of skilled labor. The country with its high education levels also
provides the world’s largest pool of qualified engineers.

Attracted Numerous Players in the Passenger Car

Segment
The early 1990s witnessed several reforms initiated by the Indian
Government aimed at encouraging private and foreign investment
through delicensing, government-decontrol and deregulation of various
sectors of the economy. In June 1993, a new automobile policy was
formulated allowing foreign investment in the automobile sector, abolition
of licenses and a reduction in duties across the board to enable the sector
to become globally competitive. This resulted in several new players
entering the Indian automobile industry, including General Motors, Ford,
Hyundai, Honda, and several others.

Two-Wheelers Market, One of the Largest in the World

and Still Growing
India represents one of the largest two-wheeler markets in the
world, with an estimated size of 5.4 million units a year. Two-wheelers are
used extensively in the country, both at the rural and semi-urban level.
India is the two-wheeler capital of Asia with an average of 27 two-
wheelers per thousand people, compared to China’s 8 two-wheelers per
thousand people .
6.1 BAJAJ AUTO
-Company Description
-Key Investment Arguments
-Key Investment Risks
-Recent Developments
-Sector View

Volume Growth: Riding on Motorcycles

In 4QFY07, motorcycles continued to lead the growth. Overall
volumes grew by 22% YoY, led by a 51% growth in motorcycle. Three
wheelers witnessed the second consecutive quarter of de-growth, with
sales dropping 11% YoY. Exports grew by 38% YoY, once again led by a
64% growth in motorcycles.

6.2 MAHINDRA & MAHINDRA

-Company Description
-Key Investment Arguments
-Key Investment Risks
-Recent Developments
-Sector View

M&M’s net revenues increased 27% YoY to Rs 19.1b in 4QFY07 on

the back of 19% volume growth. Tractors, UVs, and three-wheelers
witnessed 12%, 17% and 35% YoY growth, respectively. LCVs saw a 6%
decline over the same period. Net realization increased 5.5% on a YoY
basis.

Strong Performance in FY07:

M&M’s net revenues increased 34% YoY to Rs 66.6b in FY07 on the
back of a 26% volume growth. Tractors, UVs, three wheelers and LCVs
witnessed 32%, 23%, 13% and 32% YoY growth, respectively. Net
realizations increased 9% YoY. EBITDA margin expanded 60bp to 11.6%
driven by strong cost management, robust volume growth and savings in
staff and other expenses. M&M witnessed margin expansion of 280bp
over FY05-07 due to a 26% CAGR in volumes. We expect margins to
expand by 60bp in FY08 on the back of a 15% volume growth.

7.0 RECOMMENDATION
1. Focus on Companies not on Stocks
2. Be Careful with the Power of the Market
3. Know Your Time Limit
4. Avoid Big Mistakes and Losses
5. Get the Proper Information
6. Recognize Your Limitations
7. Be Different
8. Investor should invest in Bajaj Auto Company based on
performance.

CONCLUSION

• After the few years the India become the larger force in the world
economy.
• The growth of the Indian economy is become the high which leads
to the higher returns in the capital market.
• India’s constantly increasing growth attracting the FIIs interest in
the Indian markets.
• There will be more and more capital flow from the developed
countries in India through FIIs and FDI.
 • India becomes the very powerful in the automobile sector because
of the high growth in the automobile sector.
• From the suggestion the investors should be very cautious in terms
of investing the money.

BIBLIOGRAPHY
REFERENCE BOOKS

1. Cooper & Schindler “RESEARCH METHODOLOFY” Tata McGraw

Hill, Eighth Edition.

2. I.M.Pandey “FINANCIAL MANAGEMENT” Vikas Publications, Ninth

Edition.

3. V. K. Bhalla, “INVESTMENT MANAGEMENT” Seventh Edision.

WEB SITES

 www.nseindia.com
 www.bseindia.com
 www.indinfoline.com
 www.moneycontrol.com
 www.business-standard.com
 www.rbi.org
 www.sebi.org