A REPORT

ON

“EQUITY RESEARCH AND RISK MANAGEMENT IN OIL AND

GAS INDUSTRY AT ADITYA BIRLA SUNLIFE INSURANCE
COMPANY LIMITED”

BY

SANAPATHI VENKATA PRUDHVI

ENROLLMENT NO.: 18BSPHH01C1106

ADITYA BIRLA SUNLIFE INSURANCE COMPANY LIMITED

i
 A REPORT
ON

“EQUITY RESEARCH AND RISK MANAGEMENT IN OIL AND

GAS INDUSTRY AT ADITYA BIRLA SUNLIFE INSURANCE
COMPANY LIMITED”
BY
SANAPATHI VENKATA PRUDHVI
ENROLLMENT NO.: 18BSPHH01C1106

ADITYA BIRLA SUNLIFE INSURANCE COMPANY LIMITED

A REPORT SUBMITTED IN PARTIAL FULFILLMENT OF THE

REQUIREMENTS OF

MBA PROGRAM OF
IBS HYDERABAD

DISTRIBUTION LIST:
FACULTY MENTOR: DR. RISHI DWESAR
COMPANY MENTOR: MR. NIKESH RUPAREL

DATE OF SUBMISSION: 13TH APRIL, 2019

ii
 ABSTRACT

The profile of this internship program provided by Aditya Birla Sunlife Insurance is in finance
area majorly concerned with Equity research and Risk management for a specific sector (Oil and
Gas) so that I can create a specific portfolio of fund belonging to that sector to invest by Aditya
Birla. This work is a detailed study of stock market and stocks, it’s about the ways in which
investors can invest in stock market. I have tried to explain the entire stock market in detail with
the help of live examples. All these calculations give a better insight to my work. This risk arises
due to number of reasons, which I have tried to put across. The focus in this project is on Equity
Analysis of Large Cap stocks belonging to Oil and Gas sector. The entire work has not been done
till date but the application of these ways to analyze stocks is 60% done. This project includes both
Fundamental and Technical analysis which is finding the growth and value picks by using the
financial ratios, funneling down the best stocks to do asset allocation, hedge the stocks further to
averse the risk and track the movement of the stocks through the charts and historical data of the
companies.

iii
 AUTHORISATION

This is to certify that this report is submitted in partial fulfillment of the requirements of MBA
program of ICFAI Business School (IBS), Hyderabad.

This report document titled: “Equity Research and Risk Management in Oil and Gas Industry is a
submission of work done by Sanapathi Venkata Prudhvi as a part of the completion of the study
at Aditya Birla Sunlife Insurance Company Limited during his internship program under the
guidance of Mr. Nikesh Ruparel.

This report has been formally submitted to Dr. Rishi Dwesar, IBS Hyderbad.

DATE: 12TH MAY 2019 SANAPATHI VENKATA PRUDHVI

iv
 ACKNOWLEDGEMENT

I would like to express my profound gratitude to all those who have been instrumental in the
preparations of my project report. To start with, I would like to thank Aditya Birla Capital for
providing me the chance to undertake this internship study and allowing me to explore the area of
Equity Research and risk management of Oil and Gas industry which was entirely new to me and
which will surely prove to be very beneficial to me in my future assignments, my studies and my
career ahead.

I wish to place on records, my deep sense of gratitude and sincere appreciation to my company
guide, Mr. Nikesh Ruparel, EAP, who suggested and helped me prepare the frame work of the
project.

I am deeply grateful, to my faculty guide Dr. Rishi Dwesar Sir for his invaluable suggestions,
comments, feedback and support throughout the internship. They have served as a beckon of light.
His patience and faith in my abilities always boosted my confidence.

SANAPATHI VENKATA PRUDHVI

v
 TABLE OF CONTENT
CONTENT PAGE NO.
Abstract iii
Authorisation iv
Acknowledgement v

Executive Summary 1

1. Introduction 2-5
1.1 About Aditya Birla Sunlife Insurance 2
1.2 About the Aditya Birla group 3
1.3 About the Sun Life Financial 3
1.4 About Oil and Gas Industry 4
1.5 Project Objectives 5
2. Summer Internship Program Project/s 6-31
2.1 Stock Market Index 6
2.2 Fundamental Analysis 7-17
2.2.1 Finding Sector PE 8-9
2.2.2 Analysis of overvalued & undervalued stocks 10
2.2.3 Finding Growth Picks 11-12
2.2.4 Finding Value Picks 13
2.2.5 Asset Allocation 14-17
2.3 Hedging of stocks in the portfolio 18-19
2.4 Technical Analysis 20-30
2.5 Recommendations 31
3. Findings and Conclusion 32-34
4. Suggestions and recommendations to the company 35
 EXECUTIVE SUMMARY

Report starts with the working of Aditya Birla Capital which is a financial institution that facilitates
the buying and selling of financial securities between a buyer and a seller. Firm serve a clientele
of investors who trade public stocks and other securities and trusted with the responsibility of
researching the markets to provide appropriate recommendations. They offer wide range of
products which ae mentioned in the report.

This report is research on Oil and Gas sector in respect to equity and potential growth with minimal
risk involvement. To research on this sector many factors come into picture such as economy
condition, effect of world circumstances on Indian market. Global factors that are driving market
like interest rates, OPEC supply and demand. It answer question such as what is current market
scenario. Is economic condition feasible to invest? Comparison of the condition of Indian market
over two consecutive years. The research has been taken forward in three parts, Fundamental
analysis, and Hedging and Technical analysis.

For fundamental analysis of stocks, research on Industry and companies is required where the
large-cap fund have been taken for the purpose of analyzing. A study has been undertaken to
analyze the large cap equity shares of companies of the industry. Initially it would be; Index
Formulation (of the large cap funds chosen from the sector) - this helps us in taking various
decision on based on the movement of the shares.

Further, Fundamental Analysis has been done where top line, bottom line, ratio analysis and ratio
ranking approach would be used for shortlisting ‘growth-pick and value-pick stocks’. Hedging
which basically means minimizing the risk or safeguarding the investment done in stocks
shortlisted, if a share is highly volatile then high per-cent of shares would be hedged to cover the
loss and vice versa. This would serve as the purpose of recommendation for the company working
for and for investors keen to invest in Oil and Gas industry. In this research I will formulate strategy
how to hedge equity market in order to maintain balance between profit and loss.

Finally, the research will be Technical Analysis which basically will reflect an idea that the
movement of share price follows a trend and the factors which affect the movement of price. Under
technical analysis we would forecast the future price movement of stocks on the basis of past price
movement of the stocks. The motto behind technical analysis is to know the trend and demand of
the stocks.

Hence, this research would help the investors with the right direction for investing their money.
Therefore, in order to achieve the goal of maximizing returns and minimizing risk, investors need
to consider both the risk factors as well as the return factors of various stocks of an industry. The
outcome we get would be used for the purpose of making decision regarding investment, asset
allocation and coverage of risk while investing and a fund sheet would be made accordingly.

1
 1. Introduction
1.1 Aditya Birla Sun Life Insurance, an Aditya Birla Capital Company

Aditya Birla Sun Life Insurance Company Limited (ABSLI), is a subsidiary of Aditya Birla Capital
Ltd (ABCL) is one of the leading private sector life insurance companies in India. ABSLI was
incorporated on August 4th, 2000 and commenced operations on January 17th, 2001. ABSLI is
ABSLI is a 51:49 a joint venture between the Aditya Birla Group and Sun Life Financial Inc., a
leading international financial services organization in Canada.

Formerly known as Birla Sun Life Insurance Company Limited, ABSLI is one of India's leading
life insurance companies offering a range of products across the customer's life cycle, including
children future plans, wealth protection plans, retirement and pension solutions, health plans,
traditional term plans and Unit Linked Insurance Plans ("ULIPs").

The Birla Sun Life Insurance business distribution network is national in nature covering more
than 1000 points across the country and made our entry in several tier I and tier II towns. It is
therefore very important for the brand to connect at the grass root level and create trust.

As of December 31st, 2018, total AUM of ABSLI stood at Rs.389,548 million. ABSLI recorded a
gross premium income of Rs.18,599 million in Q3 FY 2018-19 and registering a y-o-y growth of
68% in Individual First Year Premium and currently ranked 7th in Individual Business (Individual
FYP adjusted for 10% single premium) (Source: IRDAI reported Financials). ABSLI has a nation-
wide distribution presence through 425 branches, 9 banc assurance partners, 6 distribution
channels, over 83,000 direct selling agents, other Corporate Agents and Brokers and through its
website. The company has over 10,000 employees and more than 16 lac active customers.

The Company offers a complete range of protection solutions to help secure your family's future
and provide financial support for your child's education, wealth with protection solutions, health
and wellness solutions, retirement solutions and savings with protection solutions to help you stay
financially secure in the future with small disciplined savings at regular intervals. ABSLI puts
people's need first and aims to protect what is dear to the customer, with assurance. While, Life
Insurance cannot prevent risk, it can compensate financial losses arising from risk

Aditya Birla Capital Limited (ABCL), is the financial services platform of the Aditya Birla Group.
With a strong presence across the life insurance, asset management, private equity, corporate
lending, structured finance, project finance, general insurance broking, wealth management,
equity, currency and commodity broking, online personal finance management, housing finance,
pension fund management and health insurance business, ABCL is committed to serving the end-

2
to-end financial services needs of its retail and corporate customers. Anchored by more than
17,000 employees, ABCL has a nationwide reach and more than 2,00,000 agents / channel
partners.

Birla sun life Insurance is financial services for collecting the savings of public and providing them
with risk coverage. The main function of Birla sun life insurance is to provide the protection
against the possible chance generating losses. It eliminates the worries and miseries of losses by
destruction of property and death. It also provided the capital to society as the fund accumulated
to be invested in productive heads. 1

COMPANY OBJECTIVES:

 To determine and analyze the Market Potential of the Birla Sun Life Insurance Company.
 To determine whether the customers are satisfied with the policies of the company.
 To know the customer awareness regarding the Birla-sun life insurance and its products.
 To study and determine the competitor position in the market.
 To know the future plans of the people for buying the policies.
 Proper understanding and analysis of life insurance industry.

1.2 About the Aditya Birla Group

The Aditya Birla Group has a turnover close to Rs.38, 000 crore (as on 31 March 2008) and is one
of the largest business houses in India. It enjoys a leadership position in all the sectors in which it
operates. With over 75 business units spanning the South East Asian belt, Africa, Canada and the
UK among others, it is reckoned as India’s first multinational corporation. The group is anchored
by 72,000 employees and has seven lakh shareholders, with a market capitalization of Rs.53, 400
crore.

1.3 About Sun Life Financial

Sun Life Financial is a leading international financial services organization providing insurance,
wealth and asset management solutions to individual and corporate Clients. Sun Life Financial has
operations in a number of markets worldwide, including Canada, the United States, the United
Kingdom, Ireland, Hong Kong, the Philippines, Japan, Indonesia, India, China, Australia,
Singapore, Vietnam, Malaysia and Bermuda. As of September 30, 2018, Sun Life Financial had
total assets under management of CAD 984 billion.

1
https://lifeinsurance.adityabirlacapital.com/about-us/company-profile.aspx

3
It was the first player in the industry to sell its policies through the Bank assurance route and
through the internet. It was also the first private Sector player to introduce a pure term plan in the
Indian market.

1.4 About Oil and Gas Industry

The oil and gas sector is among the eight core industries in India and plays a major role in
influencing decision making for all the other important sections of the economy.
India’s economic growth is closely related to energy demand; therefore the need for oil and gas is
projected to grow more, thereby making the sector quite conducive for investment.

The Oil and Gas Industry is majorly divide into three categories i.e.

1) Upstream: Companies belonging to this category are mainly induced in the exploration
works i.e. extraction of crude oil from lands.
2) Midstream: Companies belonging to this category are mainly induced in refining the crude
oil which is being extracted from the lands.
3) Downstream: Companies belonging to this category are mainly induced in marketing and
transportation of the refined oil to the markets.

The topline of this industry is the turnover being done in a year (in million barrels) and the bottom
line is the profit that is obtained by selling each barrel of crude oil (in Gross Refining Margin).
Govt. imposes 100% tax in this sector which make the consumer get each unit of Oil at double
price.The government has allowed 100 per cent Foreign Direct Investment (FDI) in many
segments of the sector, including natural gas, petroleum products, and refineries, among others.
Today, it attracts both domestic and foreign investment, as attested by the presence of Reliance
Industries Ltd (RIL) and Cairn India.

Market Size:
India is expected to be one of the largest contributors to non-OECD petroleum consumption
growth globally. Oil imports rose sharply to US$ 87.37 billion in 2017-18 from US$ 70.72 billion
in 2016-17. India retained its spot as the third largest consumer of oil in the world in 2017 with
consumption of 4.69 mbpd of oil in 2017, compared to 4.56 mbpd in 2016. India was the fourth-
largest Liquefied Natural Gas (LNG) importer in 2017 after Japan, South Korea and China. LNG
imports increased to 26.11 bcm in 2017-18 from 24.48 bcm in 2016-17. Gas pipeline infrastructure
in the country stood at 16,771 km at the beginning of September 2018.

Investments:
According to data released by the Department of Industrial Policy and Promotion (DIPP), the
petroleum and natural gas sector attracted FDI worth US$ 7.00 billion between April 2000 and
June 2018.2

2
https://www.ibef.org/industry/oil-gas-india.aspx

4
1.5 Project Objectives:

 To evaluate the performance of selected equity shares in terms of risk and future
returns that are anticipated by the investors.
 To evaluate the share’s pattern based on the technical analysis performed.
 To help the company by making a portfolio of the stocks that have been shortlisted
after the analysis.
 To suggest investment decision by providing the proper proportion of shares to be
bought by the investor.
 To suggest hedging strategy to minimize the risk and maximize the return for the
investment made.
 To track the movement and factors affecting the stock and hence help with the
interest of the investment decision wisely.3

The project follows the flow which is mentioned below step by step:

•To study the Oil and Gas industry for the purpose of investing the capital aaccumulated
and selecting large-cap funds of sector on the basis of market capitalization.
1
•After selecting stocks on the basis of market cap we move to calculate index on daily
basis for the trading purposes and track the share price trend. The fundamental analysis is
where the top line and bottom line approach was considered to find the value picks and
2 growth pick stocks by doing peer to peer comparision and asset allocation.

•Further, the research would be analysing the risk associated with the stocks selected for
investment and formulate strategy to minimise the risk through hedging.
3

•Finally, it would be technical analysis to analyse the price movement of stock selected
and various trends and factors which affect the share price.
4

3
https://www.myaccountingcourse.com/accounting-dictionary/equity-research

5
 2. Summer Internship Program Project/s
2.1 Stock market index
I have measured the value of a section of a country’s stock market via weighted average of selected
stocks. These indexes help investors and analyst describe the market and compare different
investments so that they can track these indexes and can provide suggestions in which stock to
invest etc.
So, I first learnt how an index moves. How Sensex, nifty and another index fluctuates.
Then, I was instructed to create an index based on a chosen sector and keep a track of it.
Like- my sector is Oil and Gas, and I took 1000 as a base to start my index and then keeping a
watch on index and updating it daily.

So, my sector consists of only large cap companies i.e. companies which have market
capitalization of more than $5 billion. Tracking the movement of the shares over time will let me
know how each movement is affecting the stock market and with further notice to the company
about the index they would be able to know whether the sector is going forward or not and whether
it’s good to invest or not.

Based on our respective sector, we were taught about fundamental and technical analysis which
gives us understanding in which stocks we need to invest and in which we shouldn’t. It also tells
us which stocks are hidden gems which can give good returns. Based on the fundamental analysis,
we will see that which stocks can grow and can fetch us return, according to that, we will do asset
allocation.

6
2.2 Fundamental Analysis
This is a method I have opted because I will be able to evaluate securities by attempting to measure
intrinsic value of a stock by analyzing business financial statements, health, competitor and
market.

It also includes overall state of economy and factors including interest rates, production, GDP,
employment, earnings, manufacturing etc.

It is basically conducted to see the factors that affect the well-being of an economy, industry and
companies. The goal of most analysis is to forecast and to see the profit movement of price. At
company level, it involves examining the financial data, management, business concept etc. At
industry level, we see the demand and supply of products. For economy, this analysis focuses on
economic data to assess the present and future growth of the economy.

To forecast future stock prices, fundamental analysis focuses on economy, company and industry
analysis to derive stock’s current fair price and forecast future of stock.

The outcome observed by performing fundamental analysis is to produce a value that an investor
can compare with the security’s current price, with the aim of figuring out what sort of position to
take with that security (underpriced= buy, overpriced= sell or short)

So, basically there are four steps to do fundamental analysis:

1. Finding Sector Price-to-earnings ratio (PE)

2. Analysis of overvalued and undervalued stocks
3. Finding growth picks
4. Finding value picks
With completion of Fundamental Analysis, 40% of the equity research has been completed, rest
of the research will be based on hedging and technical analysis of the sector and further the
company will be having complete equity research on Oil and Gas sector submitted by me.

7
2.2.1 Finding Sector PE
I have taken the price to earnings ratio because it will help me tell the amount the investor is willing
to pay for every single rupee of earning that is given by the company. The prices and earning of
the shares have been taken from a trusted webpage.4 It shows whether a company’s stock price is
overvalued or undervalued.

So, PE can be calculated as= (market price of share/ EPS)

Sector PE will be the average of all stock’s PE.

Stock Share Price EPS P/E Ratio

Guj state Petro 179.9 14.16 12.7048

Mahanagar gas 1014.05 52.41 19.34841

Petronet LNG 246.65 14.92 16.5315

MRPL 73.7 3.17 23.24921

Gujarat gas 145.7 5.32 27.38722

BPCL 389.3 30.8 12.63961

HPCL 282.55 31.54 8.958465

OIL INDIA 182.8 33.8 5.408284

IGL 301.5 10.51 28.68696

IOC 159.45 17.01 9.373898

ONGC 157.8 22.28 7.082585

GAIL 356.35 26.27 13.5649

184.9359

4
https://www.moneycontrol.com/

8
 Industry
Average 15.41132

If stock PE will be more than sector PE, it will be a overvalue stock and if it will be less than
sector PE, it would be considered as undervalue stock.

Undervalued Stocks Overvalued Stocks

• Gujarat State Petronet • Mahanagar Gas

• BPCL • Petronet LNG
• HPCL • MRPL
• Oil India • Gujarat Gas
• IOC • IGL
• ONGC
• GAIL

Now, we have found undervalued and overvalued stocks. Based on this we will analyze which
stocks are meant to keep in our portfolio and which needs to discard.

9
2.2.2 Analysis of overvalued and undervalued stocks

We will analyse overvalue We will analyse undervalue

stocks by PEG ratio i.e. Price stocks by assessing their top
to earnings growth ratio and line and bottom line and
the stock which would be those stocks will be value
selected will be growth picks picks.

Top line (Sales)

If PEG ratio>1, we
will discard the stock Bottom line (Profit)
and if it is less than 1
or equal to1 we will
keep it.

If both sales and If both top line and

profit is increasing bottom line are
or either one is decreasing i.e. sales
increasing, we will and profit, we will
keep it. discard the stock.

10
2.2.3 Finding Growth picks
We will find Growth pick by PEG Ratio. (Price to earnings growth)

I have taken PEG ratio because I can determine whether the company will be expecting earnings
growth while the stock value is being determined and this would give me more glance at the stocks
that have been shortlisted using P/E ratio.

PEG ratio of 1 gives a perfect correlation between the company's market value and its unfavorable,
telling a stock is overvalued. If it is in between 0-1 the stock is having a scope to perform well
though it is overvalued.

PEG Ratio= Price to Earnings Ratio/ EPS Growth.

EPS Growth rate

Overvalued Stocks P/E Ratio PEG Ratio
(in %)

Mahanagar gas 19.34840679 21.466 % 0.901

Petronet LNG 16.53150134 Negative -

MRPL 23.24921136 Negative -

Gujarat gas 27.38721805 32.74 % 0.837

IGL 28.6869648 Negative -

*EPS Growth will be calculated by taking this year’s EPS and last year’s EPS and then we
will see the growth rate.

11
• PEG ratio = (P/E ratio)/EPS Growth Rate

• EPS Growth rate = {(Current year EPS – Previous year EPS)/Previous year EPS}*100

• If EPS growth rate is negative, then the PEG ratio is N/A

For eg: Gujarat Gas Ltd (values taken from trusted source5)

EPS for 2017= 15.94

EPS for 2018= 21.466

EPS Growth= ((21.466-15.94)/15.94)*100

= 32.74%

PEG Ratio= 27.39/32.74

= 0.8367

The PEG ratio is between 0-1, so we select this as our growth pick. Similarly Mahanagar Gas
Ltd is also our growth pick and rest of the overvalued stocks are discarded.

5
https://www.moneycontrol.com/

12
2.2.4 Finding Value picks
We are doing this analysis to see:
 Is the company’s revenue growing?
 Is the company making profit?
 Can the company beat its competitors in future?
 And finally, will the company’s stock a good investment?

Stocks Sales (Cr.) Profit (Cr.)

2017 2018 (Inc./Dec.) 2017 2018 (Inc./Dec.)

Guj State 1,100.56 1,331.75 Increase 496.64 668.43 Increase

Petronet

BPCL 202,210.57 236,313.10 Increase 8,039.30 7,919.34 Decrease

HPCL 187,023.71 219,332.60 Increase 6,208.80 6,357.07 Increase

OIL India 9,510.39 10,656.47 Increase 1,548.68 2,667.93 Increase

IOC 359,873.16 424,038.70 Increase 19,106.40 21,346.12 Increase

ONGC 77,907.73 85,004.10 Increase 17,899.97 19,945.26 Increase

GAIL 48,148.85 53,661.15 Increase 3,502.91 4,618.41 Increase

So, by the above analysis, we can say that all the stocks revenue and profit is growing or either is
increasing.

So, above are 7 value picks we have in our fund.

By this, we can interpret that although the above stocks are undervalued but they can fetch good
returns in the future as these are hidden gem and this is the time when we should buy it and we
can say that these stocks are a good investment for an investor.

Therefore, we have 7 value picks in our fund and there are 2 growth picks.

So, by doing fundamental analysis, we saw the stocks which are good for our fund and by using
industry specific ratios, we will do asset allocation i.e. we will allocate the fund.

13
2.2.5 Asset allocation
Asset allocation is an investment strategy that aims to balance risk and return by apportioning a
portfolio's assets according to an individual's goals, risk and investment horizon.

So, according to my industry, there are main 5 ratios which will have an impact on asset allocation
decision:

1. Price to Book Value Ratio: This ratio has been picked because it tells how to compare firm’s
market to book value by dividing price per share by book value per share (BVPS). Value if
lying between 1-3, the better it is.
P/B Ratio= Market price per share/ Book value per share
Book value per share= (total assets - total liabilities) / number of shares outstanding

2. Market Capitalization to Sales Ratio: This ratio has been picked because it tells how the
company’s turnover and revenue is affecting its share price in the market. The lower the P/S
ratio, the more attractive the investment. Price-to-sales provides a useful measure for sizing up
stocks. Lower, the better it is.
Mkt Cap/ Sales Ratio= No. of Outstanding Shares/ Total Sales (in a year)

3. Inventory turnover ratio: This ratio has been picked because it tells how many times a
company has sold and replaced inventory during a given period. Calculating this ratio can help
me make better decisions on knowing how much money need to be invested. Higher, the
better it is.
Inventory Turnover Ratio= Sales/ Average Inventory
Average Inventory= beginning inventory + ending inventory/2

4. Enterprise Value/ EBITDA ratio: This ratio has been picked because it tells how to compare
the value of a company, debt included, to the company’s cash earnings less non-cash expenses.
This ratio helps me as it doesn’t include the capital structure part of the firm and makes me
easy to choose the right stock. Typically, EV/EBITDA values below 10 are seen as healthy.

EV = market capitalization + preferred shares + minority interest + debt - total cash

5. Enterprise Value/ Net Operating Revenue ratio: This ratio has been picked because it tells
how to value a business by its enterprise value (equity plus debt minus cash), its annual revenue.
Lower, the better it is.
Now, using above ratios the comparison between the companies in the sector has been done.

14
 First. I had ranked the ratios and based on that I have taken out the total rank and then did the
asset allocation.

Stock Inventory Turnover Rank Price/Book Value Ratio ( Rank

Ratio (more the better) more the better)

BPCL 11.32 6 2.46 3

HPCL 11.91 5 2.19 4

OIL India 9.88 8 0.58 9

IOC 6.49 9 1.52 7

ONGC 12.71 4 1.18 8

Guj State Petronet Ltd 10.79 7 2.09 5

Mahanagar Gas Ltd 93.04 2 4.54 2

Gujarat Gas Ltd 108.74 1 6.19 1

GAIL 27.96 3 1.84 6

Stock Market Cap/Sales Ratio Rank EV/EBITDA Ratio (less Rank

(less the better) the better)

BPCL 0.36 2 7.28 5

HPCL 0.24 1 5.66 4

OIL India 1.53 5 3.81 1

IOC 0.39 3 5.17 2

ONGC 2.68 7 5.63 3

Guj State Petronet Ltd 7.97 9 9.83 7

Mahanagar Gas Ltd 4.26 8 11.24 8

Gujarat Gas Ltd 1.85 6 14.51 9

GAIL 1.38 4 8.42 6

15
 Stock EV/ Net Operating Revenue Rank Overall
Ratio (less the better) Rank

BPCL 0.45 2 2
HPCL 0.32 1 1
OIL India 1.93 5
6
IOC 0.52 3 5
ONGC 2.97 7 8
Guj State Petronet Ltd 9.01 9 9
Mahanagar Gas Ltd 4.22 8
7
Gujarat Gas Ltd 2.19 6 3
GAIL 1.35 4 4

So, based on the rank, we will allocate the fund. The stock with least overall rank is said to be the
best.

For e.g.: the highest rank is of Guj State Petronet Ltd i.e. 9, so less fund will be allocated to this
stock and so on.

We have taken AUM as 10 Crore. Now, we will allocate it keeping in mind the total rank.

16
 % of Fund
S.No Stocks Share Price No. of shares Fund Amount
allocated

1 HPCL 19.44 260.6 74597 19439978.2

2 BPCL 16.66 364.35 45726 16660268.1

3 Gujarat Gas 13.88 145.65 95297 13880008.05

4 GAIL 13.88 356.35 38951 13880188.85

5 IOC 11.11 153.75 72260 11109975

6 OIL India 8.33 181.35 45934 8330130.9

7 ONGC 8.33 155.65 53518 8330076.7

8 Mahanagar Gas 5.55 997 5566 5549302

9 Gujarat State Petronet 2.82 178.8 15772 2820033.6

99999961.4

Cash in Hand 38.59999998

AUM 100000000

So, by doing fundamental analysis we analyzed the stocks and then allocated the funds
accordingly.

17
 2.3 Hedging of Stocks in the Portfolio
Further, the research would be analyzing the risk associated with the stocks selected for
investment and formulate strategy to minimize the risk through hedging.

I have hedged the stocks against investment risk which means strategically using instruments
in the market to offset the risk of any adverse price movements. In other words, I am hedging
one investment by making another. I have made the hedging for stocks in my portfolio with
negative correlations. Below are the tables which show the hedging of each stock.

No. of
Company Price LotSize Hedged share No. of Lots
shares
GAIL 351.6 38951 2667 5334 14.6048
1
Price if goes Price if goes
Difference Price Difference
down up
350 357.5 355
Portfolio Shares(Long) 13632850 13924983 13827605
Hedged Shares( Short) 933450 1906905 1893570
Loss/Profit -12699400 11934035

No. of No. of
Company Price LotSize Hedged share
shares Lots
BPCL 357.5 45726 1800 5400 25.40333
3
Price if goes Price if goes
Difference Price Difference
down up
350 357.5 360
Portfolio Shares(Long) 16004100 16347045 16461360
Hedged Shares( Short) 1890000 1930500 1944000
Loss/Profit -14571360 14517360

No. of
Company Price LotSize Hedged share No. of Lots
shares
IOC 155.7 72260 3500 7000 20.64571
2
Price if goes Price if goes
Difference Price Difference
down up
150 155.7 160
Portfolio Shares(Long) 10839000 11250882 11561600
Hedged Shares( Short) 1050000 1089900 1120000
Loss/Profit -10511600 10441600

18
 No. of No. of
Company Price LotSize Hedged share
shares Lots
OIL 179.45 45934 3399 3399 13.51397
1
Price if goes Price if goes
Difference Price Difference
down up
170 179.45 185
Portfolio Shares(Long) 7808780 8242856.3 8497790
Hedged Shares( Short) 577830 609950.55 628815
Loss/Profit -7919960 7868975

No. of No. of
Company Price LotSize Hedged share
shares Lots
ONGC 160.45 53518 3750 7500 14.27147
1
Price if goes Price if goes
Difference Price Difference
down up
155 160.45 165
Portfolio Shares(Long) 8295290 8586963.1 8830470
Hedged Shares( Short) 1162500 1203375 1237500
Loss/Profit -7667970 7592970

No. of No. of
Company Price LotSize Hedged share
shares Lots
MGL 1020.4 5566 600 600 9.276667
1
Price if goes Price if goes
Difference Price Difference
down up
1000 1020.4 1040
Portfolio Shares(Long) 5566000 5679546.4 5788640
Hedged Shares( Short) 600000 612240 624000
Loss/Profit -5188640 5164640

No. of No. of
Company Price LotSize Hedged share
shares Lots
HPCL 264.45 74597 2100 8400 35.52238
4
Price if goes Price if goes
Difference Price Difference
down up
260 264.45 270
Portfolio Shares(Long) 19395220 19727177 20141190
Hedged Shares( Short) 2184000 2221380 2268000
Loss/Profit -17957190 17873190

19
2.4 Technical Analysis
This is the second method I have opted because I will be able to evaluate investment by attempting
to reflect the price moves in a trend that are determined by the changing attitude of investor’s
towards various economic, monetary and political forces.

This method helps me in identifying a trend reversal at a relatively early stage and move on that
trend until the movement shows or proves the trend has reversed.

In this method I will be evaluating the securities by analyzing the statistics generated by the market
activity, such as past price and volume. I will be using 5 years harts of each stock from my asset
allocation table and identify patterns that can suggest future activity. This method is more inclined
towards price movement which helps me understand the chart easily by the standard tools.

There few assumptions when we opt this method, which can happen at any time:
 The market discounts everything
 Price moves in trends
 History tends to repeat itself

The outcome observed by performing technical analysis is to produce a call that an investor can
take with the security’s current trend, with the aim of figuring out whether he/she needs to invest
more into that stock or just hold on the shares that have already been purchased.

So, basically there are four steps to do fundamental analysis:

1. Find the standard pattern in the 5 year chart of the stock

2. Draw the trend line and find out the Buy/Sell point
3. Find breakthrough point at the end of the trend line
4. Anticipate the future trend and provide a recommendation
Types of trends:
1. Up Trends
2. Down Trends
3. Sideways/Horizontal Trends

Types of Patterns:

1. Rounding Bottom – Sideways to up

2. Cup with handle – sideways to up
3. Bump and Run Reversal – Up to down/sideways
4. Double Top – Sideways to Down

20
 5. Double Bottom – Sideways to up
6. Head & Shoulders – Sideways to up/down
7. Triple Top – Sideways to down
8. Triple Bottom – Sideways to up

*All these patterns are reversal patterns

These few basic trends and pattern names which you should know while moving further into the
report to understand the analysis given to each stock

With completion of Technical Analysis, the equity research of the sector has been completed,
further the company will be having complete equity research on Oil and Gas sector submitted by
me. So now let us see the analysis of each stock in the report further.

21
HPCL:

Analysis: The pattern which I identified is DOUBLE TOP which is a reversal pattern where the
trend of the share goes down. We generally have to sell our shares when we see trend like these as
there will be a down trend in future. So with intersection of trend line (in blue) and double top
pattern I have found the sell point where I need to sell the shares so that I wouldn’t incur any loss.
But almost at the end of the trend line (in blue) the share price starts rising up showing a positive
note and this can be identified as a breakthrough point which can be right time to buy the shares
and invest money. In the long term we can anticipate this share price to shoot up. So, call for the
HPCL stock that as per the trend, is Investor can BUY it.

6
https://kite.zerodha.com/chart/ext/ciq/NSE/HINDPETRO/359937

22
BPCL:

Analysis: The pattern which I identified is TRIPLE TOP which is a reversal pattern where the
trend of the share goes down. At start of 2018, we generally have to sell our shares when we see
trend like these as there will be a down trend in future. So with intersection of trend line (in blue)
and double top pattern I have found the sell point where I need to sell the shares if I am having any
so that I wouldn’t incur any loss. But almost at the end of the trend line (in blue) the share price
starts rising up showing a positive note and this can be identified as a breakthrough point which
can be right time to buy the shares and invest money. In the long term we can anticipate this share
price to shoot up. So, call for the BPCL stock that as per the trend, is Investor can BUY it and
I assume the share price will again be hitting the 490 mark over the current financial year.

7
https://kite.zerodha.com/chart/ext/ciq/NSE/BPCL/134657

23
Gujarat Gas Ltd:

Analysis: The pattern which I identified is HEAD & SHOULDERS which is a reversal pattern
where the trend of the share goes down. Around February 2018 I am able to plot this pattern, we
generally have to sell our shares when we see pattern like these as there will be a down trend in
future. So with intersection of trend line (in blue) and double top pattern I have found the sell point
where I need to sell the shares if I am having any so that I wouldn’t incur any loss. But almost at
the end of the trend line (in blue) the share price starts rising up showing a positive note and this
can be identified as a breakthrough point which can be right time to buy the shares and invest
money. In the long term we can anticipate this share price to shoot up. So, call for the Gujarat
Gas Ltd stock as per the trend, is Investor can BUY it and I assume the share price will again
be hitting the market high price over the current financial year.

8
https://kite.zerodha.com/chart/ext/ciq/NSE/GUJGASLTD/2713345

24
GAIL:

Analysis: The pattern which I identified is DOUBLE BOTTOM which is not a reversal pattern
where the trend of the share goes up. Around July 2017 I am able to plot this pattern, we generally
have to buy more shares when we see pattern like these as there will be an uptrend in future. So
with intersection of trend line (in blue) and double bottom pattern I have found the buy point where
I need to buy the shares if I am having any intention of investment. But almost at the end of the
trend line (in blue) the share price starts going into a trend which is said to be sideways where the
share price generally fluctuates in a specific range. This pattern is seen over a year so it isn’t a
right time to either buy or sell shares. In the long term we can anticipate this share price to either
shoot up or down. According to my analysis, call for the GAIL stock as per the trend, is Investor
should HOLD the shares if they have any and shouldn’t buy any extra shares.

9
https://kite.zerodha.com/chart/ext/ciq/NSE/GAIL/1207553

25
IOC:

10

Analysis: The pattern which I identified is DOUBLE TOP which is a reversal pattern where the
trend of the share goes down. Around first quarter of 2017, we generally have to sell our shares
when we see trend like these as there will be a down trend in future. So with intersection of trend
line (in blue) and double top pattern I have found the sell point where I need to sell the shares if I
am having any so that I wouldn’t incur any loss. But almost at the end of the trend line (in blue)
the share price starts rising up showing a positive note and this can be identified as a breakthrough
point which can be right time to buy the shares and invest money. In the long term we can anticipate
this share price to shoot up. So, call for the IOC stock as per the trend, is Investor can BUY it
and I assume the share price will again be hitting the 225 and above mark over the current financial
year.

10
https://kite.zerodha.com/chart/ext/ciq/NSE/IOC/415745

26
OIL India Ltd:

11

Analysis: The pattern which I identified is DOUBLE TOP which is a reversal pattern where the
trend of the share goes down. Around 2016, I have identified a down trend and again at the start
of 2018 the down trend has been occurring. We generally have to sell our shares when we see trend
like these as there will be a down trend in future. So with intersection of trend line (in blue) and
double top pattern I have found the sell point where I need to sell the shares if I am having any so
that I wouldn’t incur any loss. But almost at the end of the trend line (in blue) the share price starts
to settle in a specific range which is leading to a sideways trend which can be right time to hold
the shares and not invest money. In the long term we can anticipate this share price to shoot up or
go down. So, call for the Oil India Ltd stock as per the trend, is Investor should HOLD the
shares if they have any and shouldn’t buy any extra shares.

11
https://kite.zerodha.com/chart/ext/ciq/NSE/OIL/4464129

27
ONGC:

12

Analysis: The pattern which I identified is DOUBLE TOP which is a reversal pattern where the
trend of the share goes down. Around the start of 2015, I have identified a down trend and it goes
on till first quarter of 2016. We generally have to sell our shares when we see trend like these as
there will be a down trend in future. So with intersection of trend line (in blue) and double top
pattern I have found the sell point where I need to sell the shares if I am having any so that I
wouldn’t incur any loss. But almost at the end of the trend line (in blue) the share price starts to
settle in a specific range which is leading to a sideways trend which can be right time to hold the
shares and not invest money. In the long term we can anticipate this share price to shoot up or go
down. So, call for the ONGC stock as per the trend, is Investor should HOLD the shares if
they have any and shouldn’t buy any extra shares.

12
https://kite.zerodha.com/chart/ext/ciq/NSE/ONGC/633601

28
MGL:

13

Analysis: The pattern which I identified is ROUNDING BOTTOM which is a reversal pattern
where the trend of the share goes up. Around mid-2016, I have identified an uptrend and it goes
on till last quarter of 2017. We generally have to buy shares when we see trend like these as there
will be an uptrend in future. So with intersection of trend line (in blue) and rounding bottom pattern
I have found the buy point where I need to buy the shares. But almost at the end of the trend line
(in blue) the share price starts to settle in a specific range which is leading to a sideways trend
which can be right time to hold the shares and not invest money. The company is just two and half
years old so there are high chances of uncertainty. In the long term we can anticipate this share
price to shoot up or go down. So, call for the MGL stock as per the trend, is Investor should
HOLD the shares if they have any and shouldn’t buy any extra shares.

13
https://kite.zerodha.com/chart/ext/ciq/NSE/MGL/4488705

29
Gujarat State Petronet Ltd:

14

Analysis: The pattern which I identified is HEAD & SHOULDERS which is a reversal pattern
where the trend of the share goes down. Around end of February 2018, I am able to plot this
pattern, we generally have to sell our shares when we see pattern like these as there will be a down
trend in future. So with intersection of trend line (in blue) and double top pattern I have found the
sell point where I need to sell the shares if I am having any so that I wouldn’t incur any loss. But
almost at the end of the trend line (in blue) the share price starts rising up showing a positive note
and this can be identified as a breakthrough point which can be right time to buy the shares and
invest money. In the long term we can anticipate this share price to shoot up. So, call for the
Gujarat State Petronet Ltd stock as per the trend, is Investor can BUY it and I assume the
share price will again be hitting the market high price over the current financial year.

14
https://kite.zerodha.com/chart/ext/ciq/NSE/GSPL/3378433

30
2.5 Recommendations:
Considering the outcome of technical analysis and fundamental analysis for the selected stocks in
the fund and following recommendations are made:

Companies Recommendations

HPCL BUY

BPCL BUY

Gujarat Gas Ltd BUY

GAIL HOLD

IOC BUY

Oil India Ltd HOLD

ONGC HOLD

MGL HOLD

Gujarat State Petronet Ltd BUY

These recommendations are purely result of the analysis and interpretation of the technical charts,
financial statement and some relevant ratios.

*BUY: buy more shares of that stock

*HOLD: hold on to the shares that the investor already have

31
 3. Findings and Conclusion:

The findings from the project will be about the results and performance of the asset allocation that
I did initially as a part of fundamental analysis and further determining whether the stocks should
be bought or kept on hold through technical analysis. The asset allocation and Index has been done
on 3rd April 2019 and I have been updating it on every official working by adding the current share
prices and weightages of the stocks of that particular day.

Below is the table which tabulates the INDEX and NAV results of each official working day of
stock exchanges:

Date INDEX NAV

3/4/2019 10 10
4/4/2019 9.711149 9.930865
5/4/2019 9.831655 10.07621
8/4/2019 9.7109 9.900318
9/4/2019 9.777316 9.99566
10/4/2019 9.769101 9.952956
11/4/2019 9.849401 10.0659
12/4/2019 9.864856 10.13957
15/4/2019 9.809529 10.07325
16/4/2019 9.932288 10.18616
18/4/2019 9.950634 10.21672
22/4/2019 9.656504 9.859397
23/4/2019 9.759278 9.886003
24/4/2019 10.00773 10.12179
25/4/2019 10.04445 10.1954
26/4/2019 10.1336 10.3605
30/4/2019 10.29491 10.52333
2/5/2019 10.24215 10.44007
3/5/2019 10.22042 10.42561
6/5/2019 10.26891 10.52624
7/5/2019 10.18461 10.39065
8/5/2019 10.07797 10.29333
9/5/2019 10.02721 10.24511
10/5/2019 9.898409 10.11655

In a general scenario, if asset allocation is proper distributed by me i.e. the money has been
properly invested into the shares/stocks then the NAV value should be more than the index value.
So here is the line graph which tells the comparison of the INDEX and NAV values from the above
table.

32
 Comparision of INDEX & NAV
10.6
10.4
10.2
10
9.8
9.6
9.4
9.2
3/4/2019
4/4/2019
5/4/2019
8/4/2019
9/4/2019

2/5/2019
3/5/2019
6/5/2019
7/5/2019
8/5/2019
9/5/2019
10/4/2019
11/4/2019
12/4/2019
15/4/2019
16/4/2019
18/4/2019
22/4/2019
23/4/2019
24/4/2019
25/4/2019
26/4/2019
30/4/2019

10/5/2019
INDEX NAV

From the above line graph we can clearly see that the NAV (in red) is above the INDEX (in blue)
which says that my NAV values are beating the INDEX values. This concludes that though my
INDEX starts to fall because of the fall in share price, my asset allocation would still be having
good value. This is because of the proportion of amount I have allocated for different stocks and
can also say the fundamental and technical analysis performed by me are up to the mark and will
be fetching long term appreciation of the fund that investor will be investing.

The overall performance of the HPCL, BPCL, Gujarat Gas Ltd, IOC, and Gujarat State
Petronet Ltd on the basis of analysis done predicts that the investment in these stocks will be
profitable, thus investors are suggested to buy these stocks. Whereas the performance of rest
of the stocks is steady i.e. neither increasing nor decreasing on a long term basis due to reasons
like weak asset quality, poor profitability or some other insider reason, therefore for the time being
investors are suggested to hold these stocks as they don’t seem to be a profitable investment.

Equity markets are volatile due to its direct relation with many other local, economic and global
dynamics involved. Thus a better understanding by means of equity research will allow investor
to have better insight over the fluctuations of the equity market and aid in the process of achieving
financial objectives. Thus equity research is of priority and the findings by research analysts are
carefully followed up by all the stakeholders from large companies to individual investors who
invest a part of their capital in the equity market.

This equity research report on the Oil and Gas sector provides a clear picture to the investors, who
are willing to invest in this sector, regarding their investment decision and finding an opportunity
to make profit.

33
Fund Fact sheet:

34
 4. Suggestions and Recommendations to the company:

Following are the suggestions made based on study with reference to the performance of the
sector, data analysis and findings:

1. In Oil and Gas sector, the volatility of product is so high so the inventory of the company
gets sold so quickly and the returns will be obtained as per the operating cycle. This can
be the primary reason why the company should look into this sector for investment.

2. The companies/stocks that are picked by me for the research belong to the large cap of
the sector which gives an added advantage of having large turnover and quick growth.
The proportion in which the investment has been made by me gives an edge of not
making loss and having less risk. So this research of mine, would help in easing the effort
and helps in making the portfolio of the sector quickly.

3. Equity market is growing, if company clients’ invest more money in stocks the returns
will be good than F.D and real estate. Company analysts should also add the companies
belonging into this sector in their portfolio.

4. For clients’ of the company I would suggest to invest money on research reports and
broker advice, then the chances of risk is low and chance of return will be high.

5. It is always better to invest money on long term basis than intraday because inraay is
nothing but speculation.

6. If the company considers both i.e. fundamental and technical analysis then it will be
better than speculation.

7. Currently Exploration segment (upstream) of Oil and Gas sector is in boom so it is better
to invest money in that segment. The marketing/distribution segment (downstream) is
being effected by price hikes and sanction imposed by foreign nations so my suggestion
is not to invest in that segment.

35