K.L.E.

S’S
INSTITUTE OF MANAGEMENT STUDIES AND RESEARCH,
HUBLI – 580031

MASTERS OF BUSINESS ADMINISTRATION

(Recognized by AICTE, New Delhi and Affiliated to Karnataka University, Dharwad)

A PROJECT REPORT ON
“A Study on Fundamental and Technical Analysis of
Common Shares”

Submitted By:
Shivaprasad N Abaloor
MBA 4th Semester
MBA06002076

Company guide: Institute guide:

Mr. Sadanand Hiremath Prof. Rahul Kavishwar
Manager Faculty
Karvey Phinophilis KLES’s IMSR
Dharwad Hubli

K.L.E.SOCIETY’S

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 INSTITUTE OF MANAGEMENT STUDIES AND RESEARCH
VIDYANAGAR
HUBLI-31
(Recognised by A.I.C.T.E, New Delhi and affiliated to Karnataka
University, Dharwad.)

Certificate
This is to certify that Mr. Shivaprasad N
Abaloor, K.U.D Examination No. MBA06002076
of MBA IV semester has successfully completed
his Major Concurrent Project.

Project Guide: Director:

Mr. Rahul Kavishwar Dr. M. M. Bagali
KLES’s IMSR Director, KLES’s IMSR
Hubli-31 Hubli-31

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 Declaration
I, Shivaprasad N Abaloor, hereby
declare that this project entitled “A STUDY ON
FUNDAMENTAL AND TECHNICAL ANALYSIS OF COMMON

SHARES”, has been prepared by me under the

valuable guidance and supervision of Mr.
Rahul Kavishwar, Faculty Member, KLES’s
Institute Of Management Studies And
Research, Hubli, in partial fulfillment of the
requirements for the award of the Master’s
Degree in Business Administration during
the academic year 2007-2008.

I also declare that this project report

has not been submitted to any other university
for the award of any other degree, fellowship,
associate ship or any other similar title.

Countersigned:-

Mr.Rahul Kavishwar Shivaprasad N Abaloor.

(Faculty Member) Register No. MBA06002076
(M.B.A. Student)

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DATE :
PLACE: Hubli

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 Acknowledgement
I would like to thank Dr. M.. M Bagali, Director of KLES’s
Institute Of Management Studies And Research, Hubli, for the guidance he
has given to me in the conduction of my project work.

I express my profound thanks to Mr Rahul Kavishwar, my

teacher and guide, who has been magnanimous in guiding, encouraging and
supporting me during this project and special thanks to himbecause who
guided me to choose this immensely productive topic and it was because of
his confidence in me that I have been able to carry out such a beautiful study
report..

My sincere thanks goes to Mr.Sadand Hiremath, Branch

Manager, Karvy Stock Broking Ltd, Dharwad, for giving me an opportunity
to do a project for their esteemed organisation and for extending his
valuable guidance and patient support throughout my project

Shivaprasad N. Abaloor

KLES’s IMSR , Hubli.

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 Contents

Sl. No Particulars Page no.

1 Executive summary 01

2 Objectives 05

3 About Indian stock market 07

4 About Karvy securities 12

5 Introduction to the topic 37

6 Company Analysis 59

7 Findings 93

8 Recommendation 94

9 Conclusion 95

10 Bibliography 96

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 EXECUTIVE SUMMARY:

TITLE OF THE PROJECT:

“A Study On Fundamental and Technical Analysis of Common Shares”

SCOPE OF THE STUDY:

This study is of utmost importance because of its utility in estimating the future
trends of the stock prices and to make a decent profit out of it. And security analysts are
much sought after chief economists in any DP and AMCs. The project is done taking
single equity stock, analysis and valuation of which can be a model for other common
shares valuation.
The stock exchange comes in the secondary market. Stock exchange performs
activities such as trading in share, securities, bonds, mutual fund & commodities. The
performance of benchmark Stock exchanges is directly influencing the prices of the
individual scrip. So the study has also not overlooked the analysis of stock market in fact
I have considered it as an integral part of security analysis. At the macro-level Broking
firms undertake this security analysis and also trading facility and trading advice. So is
the importance of Broking firms which (industry) is growing at an enormous rate, as more
and more people are attracted towards stock exchanges with the hope of making profits.

INDUSTRY:
The equity stock (Indian Hotels) selected is from hotel industry. Hotel Industry in India
has witnessed tremendous boom in recent years. Hotel Industry is inextricably linked to
the tourism industry and the growth in the Indian tourism industry has fuelled the growth
of Indian hotel industry. The thriving economy and increased business opportunities in
India have acted as a boon for Indian hotel industry. The arrival of low cost airlines and
the associated price wars have given domestic tourists a host of options. The 'Incredible
India' destination campaign and the recently launched 'Atithi Devo Bhavah' (ADB)
campaign have also helped in the growth of domestic and international tourism and
consequently the hotel industry.

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According to a report, Hotel Industry in India currently has supply of 110,000 rooms and
there is a shortage of 150,000 rooms fueling hotel room rates across India. According to
estimates demand is going to exceed supply by at least 100% over the next 2 years. Five-
star hotels in metro cities allot same room, more than once a day to different guests,
receiving almost 24-hour rates from both guests against 6-8 hours usage. With demand-
supply disparity, hotel rates in India are likely to rise by 25% annually and occupancy by
80%, over the next two years. This will affect the competitiveness of India as a cost-
effective tourist destination.

PROJECT:

Fundamental analysis
The approach of evaluating the information contained in financial statements, industry
reports, and economic factors to determine the intrinsic value of a firm and its stock.

Technical analysis is the examination of past price movements to forecast future price
movements. Technical analysts are sometimes referred to as chartists because they rely
almost exclusively on charts for their analysis.

FINDINGS

For stock:
• First, the projected MPS using fundamental approach for the stock for next three
years are 144,163 and 176 rupees.
• Short term support for scrip: 130-140; Next support has been established at 110-
115
• Long term resistance for scrip: 160-165
• Long term support is at 65 level;
• Now the scrip is slightly on the down trend(short term) and settling down to the
intermediate support of 110-115

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 • Long term target by technical analysis is 225 but this is unlikely to happen in the
medium term because short term trend has been bearish and long term trend has
been flat and undergoing long consolidation.
For market:
• Short term support or intermediate support: 4500-4600; next long term support
lies at3100-3150
• Resistance for Nifty is at present is at 6000
• Short term and intermediate trend has been bearish and long term trend is still
bullish

• Long term nifty target is a 6980- 7020.

Conclusion

• Technical analysis can be used as a reliable tool for investing in to stocks.

• Technical analysis is more useful in identifying the identification of buying points

and selling points.

• Combination of both approaches will give a investor right guidance in taking

decisions regarding buying and selling points.

Recommendations

• The long term investors should buy the scrip at key support levels at which the

price is lower or almost equal to the fair value found out by fundamental

approach.

• Short term investors (traders) need not be worried about the fundamentals of the

company but should have a close eye on various supports and resistances of scrip

and market to buy/ sell and book the profit.

• Short term traders should buy or sell whenever there is break outs from the

various levels of resistance and support with expansion in volume. But the same

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 does not apply to long term investors unless the break out is from key

support/resistance levels.

• Market is very much sentiment driven, so investors are advised to concentrate

more on technicals then being worried about fundamentals which is very difficult

some times.

• So investors are advised to try to discount every happening or news which affects

market and stock before they see its effect on the market or stock so that they get

more benefit out of it.

OBJECTIVES OF THE STUDY:

Objectives
• To forecast the future price movements (2-3 years) of selected common share.

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 • To identify right ‘entry’ and ‘exit’ (buy and sell points) points for both long term
and short term perspective.
• Trying to forecast the performance of market (Nifty).

Sub Objectives
• To determine the key support and resistance levels for the market as well as
selected scrip, and hence exit and entry levels.
• To determine short-term and long-term trends for both market and selected stocks.
• To arrive at fair values for these scrip in future (for 1st, 2nd and 3rd year) using
fundamental approach.

DURATION OF THE PROJECT:

The project was done for duration of eight weeks.

METHODOLOGY:

.
• We have two approaches fundamental (EIC) and Technical analysis combined
together to arrive at future price targets.
• In fundamental analysis we have in tern adopted Top-Down approach, wherein
macro-economic analysis is followed by industry analysis (hotel) and finally
company analysis.
• In technical analysis we have charting for short term and long term time period.
• The tools used in the technical analysis are Moving averages (SMA & EMA),
oscillators (Relative Strength Index).
• Identification of trends and simple equation of resistance and support are used as
barometers in technical analysis.

Data collection
Primary data is collected through direct interactions with the clients of Karvy Securities.

The Secondary data is collected from the annual reports of the company, relevant text
books on the subject matter and company’s official website.

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LIMITATIONS OF THE STUDY:

1. The study (valuation) is done for only one scrip and sector.
2. Here, an attempt is made to predict the future movement of stock. It contains an
element of guess work.
3. No agjact timing is mentioned while giving target price for scrip using technical
analysis.
4. Here, I have used only 2 Technical tools to predict the movement of Scrip’s.
They are moving averages and relative strength index.

Sample used

Both for market and company I have used 2 and half to 3 years data to do technical
analysis.

OVERVIEW OF EQUITY MARKET IN INDIA

(STOCK MARKET)
With over 20 million shareholders, India has the third largest investor base in the
world after the USA and Japan. Over 9,000 companies are listed on the stock exchanges,

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which are serviced by approximately 7,500 stockbrokers. The Indian capital market is
significant in terms of the degree of development, volume of trading and its tremendous
growth potential.
There are 23 recognized stock exchanges in India, including the Over the Counter
Exchange of India (OTCEI) for small and new companies and the National Stock
Exchange (NSE) which was set up as a model exchange to provide nation-wide services
to investors. NSE, which in the recent past has accounted for the largest trading volumes,
has a fully automated screen based system that operates in the wholesale debt market
segment as well as the capital market segment.
India's market capitalization was amongst the highest among the emerging markets. Total
market capitalization of the BSE as on July 31, 1997 was Rs 5,573.07 billion growing by
18 percent over a period of twelve months and as of August 2005 was over $500 billion
(about Rs 22 lakh crores).

BSE (Bombay Stock Exchange)

SENSEX - THE BAROMETER OF INDIAN CAPITAL MARKETS

Introduction:

For the premier Stock Exchange that pioneered the stock broking activity in India,
128 years of experience seems to be a proud milestone. A lot has changed since 1875
when 318 persons became members of what today is called "The Stock Exchange,
Mumbai" by paying a princely amount of Re1.Since then, the country's capital markets
have passed through both good and bad periods.

In 1956, the BSE obtained permanent recognition from the Government of India -- the
first stock exchange to do so -- under the Securities Contracts (Regulation) Act, 1956.

JOURNEY OF SENSEX FROM 1K TO 16K:

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 Robust portfolio investments and heavy fund buying lifted the Bombay Stock
Exchange's benchmark 30-share Sensex past the magical 12,000 mark. The Sensex finally
closed at an all-time high of 12,040 points.

This is the fastest 1,000-point gain by the Sensex. It only took 15 trading sessions
for the index to cross from 11,000 to 12,000. Interestingly, the Sensex has taken only 10
months to gain 5,000 points!

The unprecedented Bull Run started on May 6, 2003 when the Sensex was at
3,001.21 level. In took just 67 trading sessions to cross the 4,000-mark and touch
4,026.27 points on August 19, 2003.

Thereafter, it pierced through the 6,000 mark on January 2, 2004 in another 43

trading sessions. The market then seemed to pause for breath as it took a whopping 370
trading sessions to cross the 7,000 mark, at 7001.55 on June 20, 2005.

From 7,000-mark, the sentiment turned distinctly firm following good liquidity
that played a significant role to determine the market direction and Sensex crossed 8,000-
mark in just 55 trading sessions at 8, 060.26 on September 8, 2005 and 54 trading days to
cross 9,000-mark at 9, 005.63 on November 28, 2005.

From 9K to 10K, it took just 48 trading sessions. The index crossed 10,000-mark
on February 6, 2006 at 10,002.83.
Then mostly it’s the robust Indian economic growth, liberalized norms, upliftment
of FDI and FII limits in almost all sectors which made the Sensex to sore to the level of
16000.
The journey from 16000 to 2000 and sudden fall from that peak is one of the heart
rending mile stone in the history of stock market. The US sub prime crisis and issue of P-
notes and also slow down in IIP and soaring inflation are directly attributed to this slump.

NSE (NATIONAL STOCK EXCHANGE)

The Organization:

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 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 (FIs) 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 tax-paying
company unlike other stock exchanges 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.

With the liberalization of the Indian economy, it was found inevitable to lift the Indian
stock market trading system on par with the international standards. On the basis of the
recommendations of high powered Pherwani Committee, the National Stock Exchange
was incorporated in 1992 by Industrial Development Bank of India, Industrial Credit and
Investment Corporation of India, Industrial Finance Corporation of India, all Insurance
Corporations, selected commercial banks and others.

Trading at NSE can be classified under two broad categories:

(a) Wholesale debt market and
(b) Capital market.
Wholesale debt market operations are similar to money market operations - institutions
and corporate bodies enter into high value transactions in financial instruments such as
government securities, treasury bills, public sector unit bonds, commercial paper,
certificate of deposit, etc.

There are two kinds of players in NSE:

(a) Trading members and
(b) Participants.

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Recognized members of NSE are called trading members who trade on behalf of
themselves and their clients. Participants include trading members and large players like
banks who take direct settlement responsibility.
Trading at NSE takes place through a fully automated screen-based trading mechanism
which adopts the principle of an order-driven market. Trading members can stay at their
offices and execute the trading, since they are linked through a communication network.
The prices at which the buyer and seller are willing to transact will appear on the screen.
When the prices match the transaction will be completed and a confirmation slip will be
printed at the office of the trading member.
NSE has several advantages over the traditional trading exchanges. They are as
follows:
• NSE brings an integrated stock market trading network across the nation.
• Investors can trade at the same price from anywhere in the country since inter-
market operations are streamlined coupled with the countrywide access to the securities.
• Delays in communication, late payments and the malpractice’s prevailing in the
traditional trading mechanism can be done away with greater operational efficiency and
informational transparency in the stock market operations, with the support of total
computerized network.
Unless stock markets provide professionalized service, small investors and foreign
investors will not be interested in capital market operations. And capital market being one
of the major sources of long-term finance for industrial projects, India cannot afford to
damage the capital market path. In this regard NSE gains vital importance in the Indian
capital market system.

NIFTY:

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 The Nifty is relatively a new comer in the Indian market. S&P CNX Nifty is a 50
stock index accounting for 23 sectors of the economy. It is used for purposes such as
benchmarking fund portfolios; index based derivatives and index funds.

The base period selected for Nifty is the close of prices on November 3, 1995,
which marked the completion of one-year of operations of NSE's capital market segment.
The base value of index was set at 1000.

S&P CNX Nifty is owned and managed by India Index Services and Products Ltd.
(IISL), which is a joint venture between NSE and CRISIL. IISL is a specialized company
focused upon the index as a core product. IISL have a consulting and licensing agreement
with Standard & Poor's (S&P), who are world leaders in index services.

About KARVY

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The Karvy group was formed in 1983 at Hyderabad, India. Karvy ranks among the top
player in almost all the fields it operates. Karvy Computer share Limited is India’s largest
Registrar and Transfer Agent with a client base of nearly 500 blue chip corporate,
managing over 2 crore accounts. Karvy Stock Brokers Limited, member of National
Stock Exchange of India and the Bombay Stock Exchange, ranks among the top 5 stock
brokers in India. With over 6, 00,000 active accounts, it ranks among the top 5 Depositary
Participant in India, registered with NSDL and CDSL. Karvy COM trade, Member of
NCDEX and MCX ranks among the top 3 commodity brokers in the country. Karvy
Insurance Brokers is registered as a Broker with IRDA and ranks among the top 5
insurance agent in the country. Registered with AMFI as a corporate Agent, Karvy is also
among the top Mutual Fund mobilizer with over Rs. 5,000 crores under management.
Karvy Realty Services, which started in 2006, has quickly established itself as a broker
who adds value, in the realty sector. Karvy Global offers niche off shoring services to
clients in the US.
Karvy has 575 offices over 375 locations across India and overseas at Dubai and New
York. Over 9,000 highly qualified people staff Karvy.

Karvy – Early Days

Karvy the name comes from the names of the directors:

K - Mr. V. Kutumba Rao

A - Mr. K Ajay Kumar
R - Mr. M S Ramakrishna
V - Mr. Vikram Singh
Y - Mr. M Yugandhar

The birth of Karvy was on a modest scale in 1979. It began with the vision and enterprise
of a small group of practicing Chartered Accountants who founded the flagship company
…Karvy Consultants Limited. Karvy started with consulting and financial accounting
automation, and carved inroads into the field of registry and share accounting by 1985.
Since then, Karvy have utilized its experience and superlative expertise to go from
strength to strength…to better its services, to provide new ones, to innovate, diversify and

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in the process, evolved Karvy as one of India’s premier integrated financial service
enterprise.

GROWTH AND DEVELOPMENT OF KARVY

Over the last 20 years Karvy has traveled the success route, towards building a reputation
as an integrated financial services provider, offering a wide spectrum of services. And
Karvy have made this journey by taking the route of quality service, path breaking
innovations in service, versatility in service and finally…totality in service. Karvy’s
highly qualified manpower, cutting-edge technology, comprehensive infrastructure and
total customer-focus has secured for Karvy the position of an emerging financial services
giant enjoying the confidence and support of an enviable clientele across diverse fields in
the financial world.
Karvy’s values and vision of attaining total competence in its servicing has served as the
building block for creating a great financial enterprise, which stands solid on its fortresses
of financial strength - its various companies.
With the experience of years of holistic financial servicing behind it and years of
complete expertise in the industry to look forward to, Karvy have now emerged as a
premier integrated financial services provider.
And today, Karvy can look with pride at the fruits of its mastery and experience
comprehensive financial services that are competently segregated to service and manage a
diverse range of customer requirements.

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KARVY-Milestones

AT PRESENT STATUS OF KARVY

Presently Karvy is a member of National Stock Exchange (NSE), the Bombay Stock
Exchange (BSE), and The Hyderabad Stock Exchange (HSE). Market analysis and
market predictions are done by professional management team.

KARVY is covering the entire spectrum of financial services such as Stock Broking
Services, Advisory Services, Stock broking, Depository Participants, Distribution of
financial products - mutual funds, bonds, fixed deposit, equities, Insurance Broking,
Commodities Broking, Personal Finance Advisory Services, Merchant Banking &
Corporate Finance, placement of equity, IPOs, among others.
It is the largest mobiliser of funds as per PRIME DATABASE. It is among the top 5
stock brokers in India (4% of NSE volumes). India's No. 1 Registrar & Securities
Transfer Agents (Ranked as “The Most Admired Registrar" by MARG). Among the top 3
Depository Participants. Largest Network of Branches & Business Associates. First ISO -
9002 Certified Registrar in India. Among top 10 Investment bankers. Largest Distributor
of Financial Products are --
The Finapolis, monthly magazine & Karvy Bazaar Baatein, a weekly report cover stock
market analysis and other financial matters.

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Every 50th Indian is serviced by KARVY Every 20th trade in stock market is done
through KARVY. Every 6th Investor in India invests through KARVY India's No.1
Registrars and Transfer agent : KARVY Every 10th Demat Account is held at KARVY.

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ORGANISATION STRUCTURE OF KARVY

LEVEL-I

Board of
Directors

CMD, MD, & other Directors

Karvy Karvy
Karvy Karvy Global
Stock Investor
Consultants Service
Broking Service
Limited Limited
Limited Limited

Karvy
Karvy
Karvy Insurance
Karvy Commodities
Computershare Broking
Inc. Broking Private
Pvt. Limited Private
Limited
Limited

Karvy Regional
HQs / Branches

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Level-II

Regional Branch Head

ISO CELL

Operations Support
Branches
Divisions Functions

ACCOUNTS
RIS

SYSTEM
FPD

HRD
BROKING

ADMN,
DP
PURCHASE,
& STORES

BRANCHES

Operations Support
Divisions Functions

STUDY OF COMPANY PROFILE WITH RESPECT TO

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Mc KINSEY’S 7S MODEL

STRATEGY:
In modern times the word strategy has found its way into the management field. In the
context of a business concern, strategy indicates specific program of action for achieving
the organization objectives by employing the firm’s resources efficiently and
economically. It involves preparing oneself for meeting unforeseen factor. It is also
concerned with meeting the challenges posed by the policies and actions of other
competitors in the market.

Quality Policy
To achieve and retain leadership, Karvy shall aim for complete customer satisfaction, by
combining its human and technological resources, to provide superior quality financial
services. In the process, Karvy will strive to exceed Customer's expectations.

Quality Objectives are to:

• Build in-house processes that will ensure transparent and harmonious
relationships with its clients and investors to provide high quality of services.

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 • Establish a partner relationship with its investor service agents and vendors that
will help in keeping up its commitments to the customers.
• Provide high quality of work life for all its employees and equip them with
adequate knowledge & skills so as to respond to customer's needs.
• Continue to uphold the values of honesty & integrity and strive to establish
unparalleled standards in business ethics.
• Use state-of-the art information technology in developing new and innovative
financial products and services to meet the changing needs of investors and
clients.
• Strive to be a reliable source of value-added financial products and services and
constantly guide the individuals and institutions in making a judicious choice of
same.
• Strive to keep all stake-holders (shareholders, clients, investors, employees,
suppliers and regulatory authorities) proud and satisfied.

STRUCTURE:

Board of Directors
Mr. C Parthasarathy (Chairman and Managing Director), Mr. M Yugandhar (Managing
Director ), Mr. M S Ramakrishna (Director ), Mr. Prasad V Potluri (Director), William
Stuart Crosby (Chairman – Karvy Computershare Pvt Ltd.), Chandra
Balaraman(Director– Karvy Computershare Pvt Ltd.), Mark Davis(Director– Karvy
Computershare Pvt Ltd.), Mr. Uday Raval(Director - Karvy Inc. )

Karvy’s organization structure can be viewed as accomplishing departments Operations

Divisions and Support Function Division.

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Below the Operations Divisions there are sub divisions namely Registry and Investor
Services (RIS), Depository Participant (DP), Broking Services, Financial Product
Distribution (FPD).

Below the Support Functions, there are sub divisions namely Accounts, System, Human
Resource Development, and Administration, Purchase & Stores.
These department heads controls the day-to-day affairs of the company. These
department heads are directly reports to the director. Board of Directors directly appoints
department heads. The departmental heads does locations of responsibilities among
various positions.

In Karvy Departments are inter related. Majority of decisions are taken by the top
management. While taking important decision the department managers are also
consulted and their suggestions are also considered. Hence Participative style of
management is followed in Karvy.

SYSTEM:
KARVY covers the entire spectrum of financial services such as Stock broking,
Depository Participants, Distribution of financial products - mutual funds, bonds, fixed
deposit, equities, Insurance Broking, Commodities Broking, Personal Finance Advisory
Services, Merchant Banking & Corporate Finance, placement of equity, IPOs.

A link called ‘Resource Center’, devoted solely to research. Karvy’s highly skilled
research team, comprising of technical analysts as well as fundamental specialists, secure
result-oriented information on market trends, market analysis and market predictions.
This crucial information is given as a constant feedback to its customers, through daily
reports delivered thrice daily; The Pre-session Report, where market scenario for the day
is predicted, The Mid-session Report, timed to arrive during lunch break, where the
market forecast for the rest of the day is given and The Post-session Report, the final
report for the day, where the market and the report itself is reviewed. To add to this
repository of information, Karvy publish a monthly magazine The Finapolis, which
analyzes the latest stock market trends and takes a close look at the various investment
options, and products available in the market, while a weekly report, called Karvy Bazaar

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Baatein, gives more information on the immediate trends in the stock market. In addition,
its specific industry reports give comprehensive information on various industries.

Karvy’s Stock Broking services are widely networked across India, with the number of
trading terminals providing retail stock broking facilities. To empower the investor
further Karvy have made serious efforts to ensure that its research calls are disseminated
systematically to all our stock broking clients through various delivery channels like
email, chat, SMS, phone calls etc.

STYLE:
An activity like forecasting and planning are made by top level managers. Major policies
and plans are made by top management and it is implemented and administered by
employees. In the organization the style of informal communication and meetings with
employees has created workers to a friendly environment.

STAFF:
The term staff refers to manpower planning, recruitment, performance appraisal,
motivation and morale.

SKILLS:
The managers and workers in each department are skilled to the extent of functions they
perform. Directors of the company are skilled in every activities and disciplines of
organization.
A 1600 team of highly qualified and dedicated professionals drawn from the best of
academic and professional backgrounds are committed to maintaining high levels of
client service delivery. This has propelled Karvy to a position among the top distributors
for equity and debt issues with an estimated market share of 15% in terms of applications
mobilized, besides being established as the leading procurer in all public issues.
A link called ‘Resource Center’, devoted solely to research. Karvy’s highly skilled
research team, comprising of technical analysts as well as fundamental specialists, secure
result-oriented information on market trends, market analysis and market predictions.
Achievements
• Largest mobiliser of funds as per PRIME DATABASE

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 • Among the top 5 stock brokers in India (4% of NSE volumes)
• India's No. 1 Registrar & Securities Transfer Agents (Ranked as " The Most
Admired Registrar" by MARG)
• A Category- I -Merchant banker.
• Among the to top 3 Depository Participants
• Largest Network of Branches & Business Associates
• First ISO - 9002 Certified Registrar in India
• Among top 10 Investment bankers
• Largest Distributor of Financial Products
• Full Fledged IT driven operations
• Handled the largest- ever Public Issue - IDBI
• Handled over 500 Public issues as Registrars.
• Handling the Reliance Account which accounts for nearly 10 million account
holders

Major issues managed as arrangers

• Kerala State Electricity Board.

• Power Finance Corporation
• A.P. Water Resources Development Corporation.
• A.P. Roads Development Corporation.
• A.P. State Electricity Board.
• Haldia Petrochemicals Ltd.

Major issues managed as Co-Managers

• IndusInd Bank Ltd

• ICICI Bonds – March 97
• ICICI Bonds – Dec 97

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 • ICICI Safety Bonds March 98
• ICICI Safety Bonds – April 98. July 98, Oct 98, Dec 98, Jan 99.
• The Jammu and Kashmir Bank Ltd

Major issue handled as Registrars to Issues

• IDBI Equity
• Morgan Stanley Mutual Fund
• Bank of Baroda
• Bank of Punjab Ltd
• Corporation Bank
• IndusInd Bank Ltd
• Jammu and Kashmir Bank Ltd
• Housing and Urban Development Corporation (HUDCO) Ltd
• Madras Refineries Ltd
• Tamil Nadu Newsprint & Paper Ltd
• BPL Ltd
• Birla 3M Ltd
• Essar Shipping Ltd
• Essar Steels Ltd.
• Hindustan Petroleum Corporation Ltd.
• Infosys Technologies Ltd.
• Jindal Vijayanagar Steels Ltd.
• Nagarjuna Fertilizers & Chemicals Ltd.
• Rajshree Polyfil Ltd.

Karvy Securities Ltd.

Karvy has secured over Rs. 500 crore in the following debt issues.

• Andhra Pradesh Road Development Corporation Ltd

• ICICI Bonds ( Private Placement)

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 • ICICI Bonds – 96
• ICICI Bonds – 97- I
• ICICI Bonds – 97 – II
• ICICI Safety Bonds March 98.
• IDBI Bonds 96.
• IDBI Flexi Bonds I
• IDBI Flexi Bonds II
• IDBI Flexi Bonds III
• Kerala State Electricity Board
• Krishna Bhagya Jala Nigam Ltd
• Power Finance Corporation Ltd
• Andhra Pradesh Water Resources Development Corporation
• Andhra Pradesh State Electricity Board

SHARED VALUES:
Employees at each level of organization are conscious about delivering customer value
for his money. Each and every employee understands the mission and vision of the
company. Employees of company are committed towards the quality aspects in service.
The employees of Karvy themselves put forward in fulfilling the organizational principles
for betterment of organization.

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STUDY OF FUNCTIONAL DEPARTMENTS OF KARVY

In Karvy the functions are mainly divided into two parts namely Operational Functions
and the Supporting Functions.

OPERATING FUNCTIONS:

Registry and Investor Services (RIS) in which Karvy carry out functions as Registrar &
transfer Agent (RTA), and Registrar to the Issues. Financial Product Distribution
(FPD), Here financial products include Mutual Funds, Fixed income securities, bonds,
fixed deposits, Tax-saving Products, Insurance, etc. Stock Broking Services and
Depository Participant (DP), which are explained in Service Profile of the Karvy group
of companies.

SUPPORTING FUNCTIONS:

2.61 Administration - Purchase and Stores Department

HOD

Assistant HOD

Administration
Team

Responsibilities
• To ensure preventive breakdown of equipment/accessories including computer
hardware
• To ensure speedy breakdown maintenance
• To ensure that the maintenance status of all equipment/ accessories is entered in
the service

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 • To ensure that the maintenance is carried out efficiently

Maintenance includes preventive, breakdown and general maintenance. Preventive

maintenance shall be done as per the prefixed time schedule by the subcontractors for the
purpose. The administration incharge shall make necessary arrangements for this purpose.
In Breakdown / General maintenance admi9nistration team receive information
regarding any breakdown or general repairs. On receipt of the same, the administrative
team shall maintain a record of all maintenance done.

The Procedure involves identification of subcontractors which will be done through

Newspaper, advertisements, word of mouth. Both the parties meet to their requirements
and enter into agreement. Subcontractors are appointed for providing services Preventive
maintenance, Breakdown maintenance, Courier services and any other services.

2.62 Accounts Department

Finance operations in Karvy are centralized at the Head Office Account. Periodic fund
requirement at the regional level will be sort as and when required. But all cheques and
such instruments would be signed by the local regional manager.

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2.63 System Administration Department

Dy. General Manager

Dy.Manager

Asst. Manager

In this department the functions include Trouble shooting, desktop queries, Network
problems, Software and Hardware problems, Installation of new systems, creating new
networks.

2.64 Human resource Department

The human resource Department (HRD) caters to the entire recruitment and employee
upbringing in the company.

The HR functions and practices, which are practiced at the Karvy, are:
Manpower Planning: The departmental heads are entrusted with the responsibility of
assessing the present and the future manpower requirement in their departments.
Manpower planning is being done in the company in order to secure a confidence and
capability

Recruitment: Advertising in newspaper and other media, private employment agencies,

personal contacts, colleges and universities are the sources used by Karvy.

Training: The personnel department gives training for all new employees.

Performance Appraisal: The HOD of the department, to which the employees belongs,
presents a report of the employees, to be appraised. In addition to that other managers to
whom the employee is associated is also evaluating the performance of the employee.

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Motivation: The Company provides both extrinsic and intrinsic motivation to the
employees. Extrinsic motivation is considered with external motivators which employees
get through pay, promotion, fringe benefits, holiday’s etc. Intrinsic motivation is
concerned with the feeling of having accomplished something worthwhile i.e. the
satisfaction one gets after doing one’s work well, praise, responsibility, recognition,
participation are the examples. Job rotation is undertaken to reduce the monitoring and
burden of the employees.

Morale: For improving employee’s morale positive measures like job rotation, building
responsibility into job etc are introduced. Both upward and downward communication
takes place within the company. Participation is the key to commitment.

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 SERVICE PROFILE OF THE
KARVY GROUP OF COMPANIES

Karvy Stock Broking Limited

Member - National Stock Exchange (NSE), the Bombay Stock Exchange (BSE), and the
Hyderabad Stock Exchange (HSE). Karvy Stock Broking Limited, one of the
cornerstones of the Karvy edifice, flows freely towards attaining diverse goals of the
customer through varied services.

Stock Broking Services

It is an undisputed fact that the stock market is unpredictable and yet enjoys a high
success rate as a wealth management and wealth accumulation option. The difference
between unpredictability and a safety anchor in the market is provided by in-depth
knowledge of market functioning and changing trends, planning with foresight and
choosing one & other options with care. Karvy offer trading on a vast platform; National
Stock Exchange, Bombay Stock Exchange and Hyderabad Stock Exchange. Karvy’s
highly skilled research team, comprising of technical analysts as well as fundamental
specialists, secure result-oriented information on market trends, market analysis and
market predictions. This crucial information is given as a constant feedback to its
customers, through daily reports delivered thrice daily; The Pre-session Report, where
market scenario for the day is predicted, The Mid-session Report, timed to arrive during
lunch break, where the market forecast for the rest of the day is given and The Post-
session Report, the final report for the day, where the market and the report itself is
reviewed. To add to this repository of information, Karvy publish a monthly magazine
The Finapolis, which analyzes the latest stock market trends and takes a close look at the
various investment options, and products available in the market, while a weekly report,
called Karvy Bazaar Baatein, gives more information on the immediate trends in the stock
market. In addition, it’s specific industry reports give comprehensive information on

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various industries. Karvy’s Stock Broking services are widely networked across India,
with the number of trading terminals providing retail stock broking facilities.

To empower the investor further Karvy have made serious efforts to ensure that its
research calls are disseminated systematically to all our stock broking clients through
various delivery channels like email, chat, SMS, phone calls etc.

Depository Participants
The onset of the technology revolution in financial services Industry saw the emergence
of Karvy as an electronic custodian registered with National Securities Depository Ltd
(NSDL) and Central Securities Depository Ltd (CSDL) in 1998. Karvy set standards
enabling further comfort to the investor by promoting paperless trading across the country
and emerged as the top 3
Depository Participants in the country in terms of customer serviced. Offering a wide
trading platform with a dual membership at both NSDL and CDSL, Karvy have
established live DPMs, Internet access to accounts and an easier transaction process in
order to offer more convenience to individual and corporate investors. A wide national
network makes its efficiencies accessible to all.

Distribution of Financial Products

A 1600 team of highly qualified and dedicated professionals drawn from the best of
academic and professional backgrounds are committed to maintaining high levels of
client service delivery. This has propelled Karvy to a position among the top distributors
for equity and debt issues with an estimated market share of 15% in terms of applications
mobilized, besides being established as the leading procurer in all public issues.
Advisory Services
Under its retail brand ‘Karvy – the Finapolis', it delivers advisory services to a cross-
section of customers. The service is backed by a team of dedicated and expert
professionals with varied experience and background in handling investment portfolios.
They are continually engaged in designing the right investment portfolio for each
customer according to individual needs and budget considerations with a comprehensive
support system that focuses on trading customers' portfolios and providing valuable
inputs, monitoring and managing the portfolio through varied technological initiatives.

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‘Karvy - the Finapolis', covers the latest of market news, trends, investment schemes and
research-based opinions from experts in various financial fields.

Mutual Fund Services

Karvy has attained a position of immense strength as a provider of across-the-board
transfer agency services to AMCs, Distributors and Investors. Nearly 40% of the top-
notch AMCs including prestigious clients like Deutsche AMC and UTI swear by the
quality and range of services that Karvy offers. Besides providing the entire back office
processing, Karvy provides the link between various Mutual Funds and the investor,
including services to the distributor, the prime channel in this operation. Carrying the
‘limitless' ideology forward, Karvy has explored new dimensions in every aspect of
Mutual Fund servicing right from volume management, cost effective pricing, delivery in
the least turnaround time, efficient back-office and front-office operations to customized
service.

Karvy has been with the AMCs every step of the way, helping them serve their investors
better by offering them a diverse and customized range of services. The ‘first to market'
approach that is Karvy’s anthem has earned the reputation of an innovative service
provider with a visionary bent of mind.

Karvy’s service enhancements such as ‘Karvy Converz', a full-fledged call center, a top-
line website (www.karvymfs.com), the ‘m-investor' and many more, creating a galaxy of
customer advantages.

Karvy Consultants Limited

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As the flagship company of the Karvy Group, Karvy Consultants Limited has always
remained at the helm of organizational affairs, pioneering business policies, work ethic
and channels of progress. Today, Karvy service over 6 lakhs customer accounts in this
business spread across over 250 cities/towns in India and are ranked amongst the largest
Depository Participants in the country. With a growing secondary market presence, Karvy
have transferred this business to Karvy Stock Broking Limited (KSBL), Karvy’s associate
and a member of NSE, BSE and HSE.

Karvy Investor Service

Merchant Banking
Recognized as a leading merchant banker in the country, Karvy registered with SEBI as a
Category I merchant banker. This reputation was built by capitalizing on opportunities in
corporate consolidations, mergers and acquisitions and corporate restructuring. Karvy’s
quality professional team and our work-oriented dedication have propelled it to offer
value-added corporate financial services and act as a professional navigator for long term
growth of its clients, who include leading corporates, State Governments, foreign
institutional investors, public and private sector companies and banks, in Indian and
global markets.
Its financial advice and assistance in restructuring, divestitures, acquisitions, de-mergers,
spin-offs, joint ventures, privatization and takeover defense mechanisms have elevated its
relationship with the client to one based on unshakable trust and confidence.

Karvy Global Services Limited

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The specialist Business Process Outsourcing unit of the Karvy Group. Here Karvy offer
several delivery models on the understanding that business needs are unique and therefore
only a customized service could possibly fit the bill. Be it in re-engineering and managing
processes or delivering new efficiencies, Karvy’s service meets up to the most stringent
of international standards. Karvy’s outsourcing models are designed for the global
customer and are backed by sound corporate and operations philosophies, and domain
expertise. Providing productivity improvements, operational cost control, cost savings,
improved accountability and a whole gamut of other advantages. Karvy’s wide market
coverage includes Banking, Financial and Insurance Services (BFIS), Retail and
Merchandising, Leisure and Entertainment, Energy and Utility and Healthcare.

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 Karvy Computershare Pvt. Limited

Karvy have traversed wide spaces to tie up with the world’s largest transfer agent, the
leading Australian company, Computershare Limited. The company that services more
than 75 million shareholders across 7000 corporate clients and makes its presence felt in
over 12 countries across 5 continents has entered into a 50-50 joint venture with Karvy.
Excellence has to be the order of the day when two companies with such similar
ideologies of growth, vision and competence, get together.

Issue Registry
Karvy has emerged as the largest transaction-processing house for the Indian Corporate
sector. With an experience of handling over 700 issues, Karvy today, has the ability to
execute voluminous transactions and hard-core expertise in technology applications have
gained the No.1 slot in the business. Karvy is the first Registry Company to receive ISO
9002 certification in India that stands testimony to its stature.

It is actively coordinating with both the main depositories to develop special models to
enable the customer to access depository (NSDL, CDSL) services during an IPO.

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Karvy Insurance Broking Private Limited

At Karvy Insurance Broking Pvt. Ltd., it provide both life and non-life insurance products
to retail individuals, high net-worth clients and corporates. With the opening up of the
insurance sector and with a large number of private players in the business, Karvy is in a
position to provide tailor made policies for different segments of customers. With Indian
markets seeing a sea change, both in terms of investment pattern and attitude of investors,
insurance is no more seen as only a tax saving product but also as an investment product.
By setting up a separate entity, Karvy would be positioned to provide the best of the
products available in this business to its customers.

Karvy’s wide national network, spanning the length and breadth of India, further supports
these advantages. Further, personalized service is provided here by a dedicated team
committed in giving hassle-free service to the clients.

Karvy Commodities Broking Private Limited

At Karvy Commodities, Karvy is focused on taking commodities trading to new

dimensions of reliability and profitability. Karvy has made commodities trading, an
essentially age-old practice, into a sophisticated and scientific investment option.
Here Karvy enable trade in all goods and products of agricultural and mineral origin that
include lucrative commodities like gold and silver and popular items like oil, pulses and
cotton through a well-systematized trading platform.
Regular trading workshops and seminars are conducted to hone trading strategies to
perfection. Karvy’s commitment to excel in this sector stems from the immense
importance that commodity broking has to a cross-section of investors – farmers,
exporters, importers, manufacturers and the Government of India itself.

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Karvy Inc.

With its growing ambitions of reaching out to investors across the shores of this country,
Karvy’s has set up Karvy Inc. in the US located in New York to provide various financial
products and information on Indian equities to potential Foreign Institutional Investors
(FIIs) in the region. This entity soon would be ACC registered and would also become a
member of various important stock exchanges in the US. This entity would extensively
facilitate various businesses of Karvy viz., stock broking (Indian equities), research and
investment by (Qualified Institutional Buyer) QIBs in Indian markets for both secondary
and primary offerings, outsourcing of various assignments for the multiple streams of
business in Karvy Global Services Ltd (KGSL).

FUNDAMENTAL AND TECHNICAL ANALYSIS

FUNDAMENTAL ANALYSIS:

- 42 -
 Fundamental analysis is the examination of the underlying forces that affect the
well being of the economy, industry groups, and companies. The goal is to derive the
forecasted earning growths for future price movements.

Fundamental analysis is the method of evaluating securities by attempting to

measure the intrinsic value of a particular stock. It is the study of everything from the
overall economy and industry conditions, to the financial condition and management of
specific companies (i.e., using real data to evaluate a stock’s value). The method utilizes
items such as revenues, earnings, return on equity and profit margins to determine a
company’s underlying value and potential for future growth.

One of the major assumptions under fundamental analysis is that, even though
things get mis priced in the market from time to time, the price of an asset will eventually
gravitate toward its true value. This seems to be a reasonable bet considering the long
upward march of quality stocks in general despite regular setbacks and periods of
irrational exuberance. The key strategy for the fundamentalist is to buy when prices are at
or below this intrinsic value and sell when they got overpriced.

Fundamental analysis consists of:

• For the national economy we focus on economic data to assess the present and
future growth of the economy.
• At the industry level, there might be an examination of supply and demand
forces for the products offered.
• At the company level, may involve examination of financial data, management,
business concept and competition.

Economy analysis

The economy is the overall economic environment in which all firms operate. The key
variables used to describe the state of economy are:

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 • World economy

• Asian economy

• Indian economy

1. Growth rate of GDP

2. Industry growth rate

3. Agriculture and monsoons

4. Savings and investment

5. Inflation

6. Interest rates

7. Balance of payments

8. Infrastructure

World economy
According to the recent statistics, the world GDP (comprising 180 economies)
has reached at a sum of US $ 46,747 Billions. Top 15 contributors to the world GDP are
USA, Japan, Germany, China, UK, France, Italy, Canada, Spain, Brazil, Russia, Korea,
India, Mexico and Australia. Percentage share of USA to the total world GDP is 28.3.

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While both the emerging economies such as India and China have a share of 1.82 and
5.41 respectively.

Find below the top 15 contributors to the world GDP.

Asian Economy
Asian Economies have brought tremendous success in the recent years. Economic growth
rate in China crossed a two-digit number, while economic growth in India’s Economy is
near to 10 percent. Apart from those two emerging Asian Economic giants, economies
such as Philippines, Indonesia and Malaysia are growing at a faster pace. Find below
various economic indicators on the Asian Economies.

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GDP growth projections among various Asian Economies over years are as follows:

GDP Growth Projection on Asian Economies

Country Name 2007 2008
Japan 2.3 1.9
Hong Kong SAR 5.5 5.0
Korea 4.4 4.4
Singapore 5.5 5.7
China 10.0 9.5
India 8.4 7.8
Indonesia 6.0 6.3
Malaysia 5.5 5.8
Philippines 5.8 5.8
Thailand 4.5 4.8

The output over the world increased by 4.4% in the year 2005. The largest contributors of
the world output were India, China and Russia. The Gross World Product (in purchasing
power parity) as to the 2005 estimated data has reached at $ 60.71 trillions with a real
growthrateof4.7%.

The services sector contributes a largest share to the world GDP. As to the 2004 estimated
data, the services sector accounted for 64% followed by industries at 32% and Agriculture
4%. The level of exports and imports over the world has reached at $10.33 trillion and
10.3 trillions f.o.b. as to 2004 estimation.

World inflation:
Inflation, which can be simply stated to be a state of economic activities with rising price
level and falling purchasing power of money, has become global phenomenon. Fast rising
oil prices over the world has pressurized the general price level in countries of the world.
Present world economy is experiencing higher economic growth with some inflationary
pressure.
The stabilized countries have the inflation level ranging between 1-3% and the
developing countries have inflation between 3-6%.

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 Sector contribution to GDP
Indian primary sector
Agriculture is the mainstay of Indian economy because of its high share in employment
and livelihood creation notwithstanding its reduced contribution to the nation’s GDP. The
share of agriculture in the gross domestic product has registered a steady decline from
36.4 per cent in 1982-83 to 17 per cent in 2007-08. Yet this sector continues to support
more than half a billion people providing employment to 52 per cent of the workforce. It
is also an important source of raw material and demand for many industrial products,
particularly fertilizers, pesticides, agricultural implements and a variety of consumer
goods. This is first time after green revolution that the India has become dependent in
satisfying its own food need. Growth pattern of Indian agriculture has been so irregular,
because of over dependency on the monsoon. This year we could achieve dismal growth
of 2.5%.India is expecting its agriculture to grow at least 4% (CAGR) in the 11th plan to
have sustainable and consistent growth of overall GDP.

Industrial sector (secondary sector)

Industrial growth in India has been inspired by the LPG in 1991. in the 10th plan we
could achive growth rate of 8-9%. At present industry sector is contributing 28% to
country’s GDP. Though at present India is experiencing slowdown in growth of industry
production, the long term growth of 8-10% is still intact. The first eight months of the
current fiscal, till November 2007, witnessed a moderate slowdown in the growth of the
industrial sector. The slowdown has mainly been on account of the manufacturing sector.
The mining and quarrying sector grew at a faster pace, while the growth in electricity
remained unchanged from April- November 2006. Nonetheless, the 9.2 per cent growth
achieved during April-November 2007 by the industrial sector, when seen against the
backdrop of the robust growth during the preceding four years, suggests that the

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buoyancy in this sector has continued, albeit with a degree of moderation. Two important
changes have occurred in the growth pattern of the use-based industrial categories:
First, capital goods have grown at an accelerated pace, over a high base attained in the
previous years, which augurs well for the required industria capacity addition. Secondly,
the consumer durables basket that forms part of the Index of Industrial Production (IIP)
showed a negative growth during the period, thereby forcing a visible decline in the
growth of the total consumer goods basket, despite reasonable growth in the non-
durables.

Dimension of Indian Economy

Gross domestic product:

Measure of the total production of final goods and services in the economy during
a specified period usually a year. Higher the growth rate, the other things being equal, the
more favorable it is for the stock market.

The growth rate of GDP is more important indicator of the performance of the
economy. The average growth rate of Indian economy during 1950-1980 was around
3.5% in real terms. In 1980 it was 5% and 6.2% in 2004. At present it is 8.7 and estimated
to cross 9%.

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Industrial growth rate:

Stock market analysts mainly focus on the industrial sector. Higher the growth
rate, more favorable is the things for stock market. The industrial sector witnessed a
slowdown in the first nine months of the current financial year. The growth of 9 per cent
during April-December 2007, when viewed against the back drop of the robust growth
witnessed in the preceding four years, suggests that there is a certain degree of
moderation in the momentum of the industrial sector. At the product group level, the
moderation in growth has been selective. Industries like chemicals, food products, leather,
jute textiles, wood products and miscellaneous manufacturing products witnessed
acceleration in growth, while basic metals, machinery and equipments, rubber, plastic and
petroleum products and beverages and tobacco recorded lower but strong growth during
April-December 2007.

Agriculture and monsoons:

Agriculture accounts for about a quarter of the Indian economy and has important
linkages both direct and indirect with the industry. There has been a loss of dynamism in
the agriculture and allied sectors in recent years. A gradual degradation of natural
resources through overuse and inappropriate use of chemical fertilizers has affected the
soil quality resulting in stagnation in the yield levels. Public investment in agriculture has
declined and this sector has not been able to attract private investment because of
lower/unattractive returns.

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 Savings and investment:

A notable feature of the recent GDP growth has been a sharply rising trend in
gross domestic investment and saving, with the former rising by 13.1 per cent of GDP
and the latter by 11.3 per cent of GDP over five years till 2006-07. The average
investment ratio for the Tenth Five Year Plan at 31.4 per cent was higher than that for the
Ninth Five Year Plan, while the average saving rate was also 31.4 per cent of GDP higher
than the average ratio of 23.6 per cent during the Ninth Five Year Plan.

Money supply:

For policy purposes for 2007-08, the RBI assumed a real GDP growth of 8.5 per
cent with inflation close to 5 per cent, and targeted the monetary expansion in the range
of 17-17.5 per cent and credit expansion in the range of 20 to 24 per cent as consistent
with envisaged growth and inflation.

Interest rates:

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 Interest rates affect the cost of financing to the firms. Higher the interest rates,
higher will be the cost and if lower, lower the cost and more will be the profitability.
Below table shows that interest rates are decreasing year after year which is a good sign
for the growth.

Year Interest(bank) rates %

p.a.
April 1997 11
April 1998 10
March 1999 8
March 2001 7
April 2003 6

Inflation:
The Wholesale Price Index (WPI), which is available on a weekly basis,
continues to be the most popular measure of headline inflation in India.

Balance of payments:
The strength, resilience and stability ofthe country’s external sector is reflected by
various indicators. These include a steady accretion to reserves, moderate levels of
current account deficit, changing composition of capital inflows, flexibility in exchange
rates, sustainable external debt levels with elongated maturity profile and an increase in
capital inflows. The current account has followed an inverted “U” shaped pattern during
the period from 2001-02 to 2006-07, rising to a surplus of over 2 per cent of GDP in

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2003-04. Thereafter it has returned close to its post-1990s reform average, with a current
account deficit of 1.2 per cent in 2005-06 and 1.1 per cent of GDP in 2006-07.Capital
inflows, as a proportion of GDP, have been on a clear uptrend during the six years (2001-
02 to 2006-07) of this decade. They reached a high of 5.1 per cent of GDP in 2006-07
after a somewhat modest growth rate of 3.1 per cent in 2005-06.The net result of these
two trends has been a gradual rise in reserve increase to reach 4 percent of GDP in 2006-
07 (Figure 6.1). With capital inflows exceeding financing requirements, foreign exchange
reserve increase was of the order of US$ 15.1 billion in 2005-06 and US$ 36.6 billion in
2006-07 (Table 6.2). As a proportion of GDP, external debt was 17.2 per cent and 17.9
per cent
In 2005-06 and 2006-07 respectively.

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Infrastructure:

With the rapid growth of the economy in recent years the importance and the
urgency of removing infrastructure constraints have increased. Traditionally, power,
railways, roads, ports, airports and telecommunications were the exclusive domain of the
government. Policy has changed gradually over the past two decades under the pressure
of rising gaps between demand and supply of infrastructure and deteriorating quality of
assets.

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 INDUSTRY ANALYSIS
Introduction
Hotel Industry in India has witnessed tremendous boom in recent years. Hotel Industry
is inextricably linked to the tourism industry and the growth in the Indian tourism
industry has fuelled the growth of Indian hotel industry. The thriving economy and
increased business opportunities in India have acted as a boon for Indian hotel industry.
The arrival of low cost airlines and the associated price wars have given domestic tourists
a host of options. The 'Incredible India' destination campaign and the recently launched
'Atithi Devo Bhavah' (ADB) campaign have also helped in the growth of domestic and
international tourism and consequently the hotel industry.

The opening up of the aviation industry in India has exciting opportunities for hotel
industry as it relies on airlines to transport 80% of international arrivals. The
government's decision to substantially upgrade 28 regional airports in smaller towns and
privatization & expansion of Delhi and Mumbai airport will improve the business
prospects of hotel industry in India. Substantial investments in tourism infrastructure are
essential for Indian hotel industry to achieve its potential. The upgrading of national
highways connecting various parts of India has opened new avenues for the development
of budget hotels in India. Taking advantage of this opportunity Tata group and another
hotel chain called 'Homotel' have entered this business segment.
Factors considered:
• Growth of industry
• Industry life cycle
• Current situation analysis

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 • Investment
• Competition
• Regulations
• Budget impact
• Budget measures
• Swot analysis

Growth of tourism industry

The year 2004-05 saw tourism emerging as one of the major sectors for growth of
Indian economy, the foreign exchange earnings increased from Rs. 16,429 crore to 21,828
crore up to December. Similarly in the last year, tourism industry registered a growth
rate of 17.3% in foreign tourist arrivals, which has been the highest in last 10 years.
Foreign exchange earnings grew at an even higher rate 30.2%.

India's tourism industry is thriving due to an increase in foreign tourists arrivals and
greater than before travel by Indians to domestic and abroad destinations. The visitors are
pouring in from all over the world: Europe, Africa, Southeast Asia and Australia. At the
same time, the number of Indians traveling has also increased. Some tourists come from
Middle East countries to witness the drenching monsoon rains in India, a phenomenon
never seen in desert climates.
 The tourism traffic has been growing between 20-28 % every year for the last four
years and this rate of growth is expected to continue for the next few years.
 According to a report, Hotel Industry in India currently has supply of 110,000
rooms and there is a shortage of 150,000 rooms fueling hotel room rates across
India. According to estimates demand is going to exceed supply by at least 100%
over the next 2 years. Five-star hotels in metro cities allot same room, more than
once a day to different guests, receiving almost 24-hour rates from both guests
against 6-8 hours usage. With demand-supply disparity, hotel rates in India are
likely to rise by 25% annually and occupancy by 80%, over the next two years.
This will affect the competitiveness of India as a cost-effective tourist destination.

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  The constant boom and the resultant demand-supply mismatch has led to sharp
increases in the average room rates and thus pushing up revenues of industry
players (hotels, tour operators, airlines, shipping lines, etc)
 The tourism sector is expected to perform very well in futureand the industry
offers an interesting investment opportunity for long-term investors.

 Most of the five-star hotels are seeing more than 80 % occupancy and some of the
lesser-known five-star hotels are overbooked.

Reasons for this boom

there could be several reasons for the buoyancy in the Indian tourism industry.
 First, the upward trend observed in the growth rate of Indian economy has raised
middle class incomes, prompting more people to spend money on vacations
abroad or at home.
 Second, India is booming in the information technology industry and has become
the IT center.
 Third, Aggressive advertising campaign “Incredible India" by the government has
also had contribution in changing India's image from that of a land of snake
charmers, and sparking new interest among overseas travelers.

Industry life cycle stage:

Services sector is growing at a higher rate and is now contributing 55% to the country
GDP. All service sector industries like hotel, transport, tourism, hospitality are realising a
higher growth rate. The hotel industry is now in the rapid growth stage.
Current situation of India’s hotels
 Hotel Imperial New Delhi: 99.57 % occupancy. Hotel Trident Hilton,Gurgaon
(suburban Delhi): 98.3 % occupancy. Indian hotels are witnessing mindblowing
occupancy rates.
 Increase in average room rent for the entire hotel industry over the last year:
35 %.
 Unmet demand for hotel rooms: 150 000 rooms. Additional demand this year:
15 000 rooms.

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  The boom has attracted several global players, ranging from Starwood and Mariott
to Four Seasons and ShangriLa. The largest hotel company in the world,French
chain Accor, has entered India and is now devising aggressive plans for expansion
in the market. Several others are racing to increase their presence in India,
including the Marriott group.

 Currently Marriott has over 1,000 rooms spread across four properties in Mumbai
and Goa.

Inversement

 Now besides hotel companies, even the investment firms and private equity
companies are beginning to get excited about India. Berggruen Holdings India, a
subsidiary of New York-based investment company Berggruen Holdings,has
announced that it is seed-funding a non-luxury hotel chain in India.
 Private equity firm Warburg Pincus has picked up around 27 % stake in Delhi-
based mid-price hotel chain,Lemon Tree, for $ 60.2 million.

Thé Compétition
The world's leading hotel brands - joining the battle

 The country has been flooded by some of the world's leading hotel brands. New
brands such as Amanda, Satinwoods, Banana Tree, Hampton Inns, Scandium By
Hilt and Mandarin Oriental are planning to enter the Indian hospitality industry in
joint ventures with domestic hotel majors.

 Unitech, which is setting up two hotels in Delhi,has already formed a joint venture
with Marriott International to run its three new hotels in India, which are expected
to start operations by 2008. “The three new hotels will be located in Kolkata,
Gurgaon and Noida. We are investing around 700 crore rupees to set up these
hotels,” says Unitech managing director Sanjay Chandra.

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  All other major including Marriott, Hyatt, Hilton, Accor, Four Seasons etc are
briskly reinforcing their presence in India.
 Established hotel chains : A number of global players are already well established
in India. These include Hilton, Shangri-La, Radisson, Mariott, Meridien, Sheraton,
Hyatt, Holiday Inn, InterContinental and Crowne Plaza.

Regulations:
In recent years government has taken several steps to boost travel & tourism which have
benefited hotel industry in India. These include the abolishment of the inland air travel
tax of 15%; reduction in excise duty on aviation turbine fuel to 8%; and removal of a
number of restrictions on outbound chartered flights, including those relating to frequency
and size of aircraft. The government's recent decision to treat convention centers as part
of core infrastructure, allowing the government to provide critical funding for the large
capital investment that may be required has also fuelled the demand for hotel rooms.

Challenges to face

 The lack of adequate infrastructure development: The airports at the primary

gateway cities of Delhi and Mumbai have been privatised, and work has
commenced on modernisation. New privately owned international airports are
expected to be commissioned at Hyderabad (2008) and Bangalore (2009), which
will give a large boost to the economic growth of these areas.

 There is still need to improve air connectivity : rail and road connections as
well as general infrastructure like power and water.

 The result of the industry's success. As competition increases, there is a definite

pressure on ARR and operating margins. The industry market will definitely
shift from being demand-driven to supply-driven and that the hotel companies will
need to revisit their strategies and, of course, their prices.

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  Some players are already preparing for the difficult times when the ARRs
are expected to fall by 30-40 percent in the next 3-4 years and then the
distinguishing factor for the hotels will be the offer in its entirety rather than just
the price or the facilities that the hotels offer.

Budget 2008-09

India continued to witness robust trends in the tourism sector in 2007. During the
year, estimated 4.4 m tourists visited the country, registering a growth of 14% YoY.
Though the demand supply mismatch continued to exist, exorbitant room tariffs took a
toll on occupancy rates in five-star hotels. With room rates ruling at around Rs 13,000-
17,000 per night, occupancy levels in most metro markets except Mumbai witnessed a
dip. As a result of the high room rates in branded hotels, unregulated, unorganized hotels
and guesthouse segments have reared their heads. However, on account of the strong
economic growth and rising propensity to spend, the Indian hospitality sector aspires to
become the forerunner of India's economic growth albeit with a fair amount of support
required from the government.

Budget measures
An amount of Rs 0.6 bn to be allocated for the Commonwealth Games
Five year holiday from income tax is granted to two, three or four star hotels established
in specified districts having UNESCO-declared 'World Heritage Sites'. The hotel should
be constructed and start functioning during the period April 1, 2008 to March 31, 2013.

Corporate income tax rates, surcharge and dividend distribution tax kept unchanged

Budget Impact

The development of hotels in world heritage sites will help promote tourism in the
country. The funds allocated for the common wealth games would help bring in
additional supply of rooms in the North India region.

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The measures taken on the infrastructure front will also help improve the prospects of the
Indian hospitality sector. If these measures are implemented, then it will go a long way in
promoting India with well-connected tourist destinations

Company Impact

No major impact on the large five star hotel players

Industry Wish list

FICCI's wish list

• The hotel industry to be treated at par with other infrastructure sectors such as
roads, ports and telecommunications and be granted full tax benefits.

• The tax benefit given to the two-star, three-star and four-star category (constructed
and start functioning within the period 1st April 2007 to 31st March 2010 in the
National Capital Territory of Delhi and districts of Faridabad, Gurgaon, Gautam
Budh Nagar and Ghaziabad) should also be extended to newly constructed hotels
of five-star category. Further, the tax stimulus of a 100% tax holiday benefit for
ten years instead of five years should also be given as it involves huge investments
and high risk in terms of uncertainty of revenues after the Commonwealth Games.

• The industry is also seeking rollback of the depreciation rate for hotel buildings to
20%, which was reduced to 10% in 2003. It said that a hotel's building were the
main plant and machinery for the hotel and because of the nature of the business,
they had to be renovated, refurbished and refurnished on a continuous basis and
should be treated differently from other buildings.

• Hotels should be exempted from paying service tax on services received from
Foreign Tour Operators, as it is one of the prime foreign exchange earners.

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 • Also, proper infrastructure development is needed. Private sector participation
needed to upgrade infrastructure in several identified tourist circuits.

Budget 2006-07 and 2007-08

No major impact on the large five star hotel players

Swot analysis

Every business with the global prospects in the multi dimensional, volatile atmosphere
has to introspect its strategies taking into consideration the strengths, weaknesses,
opportunities and threats. The hotel industry also tags along the line and has to undertake
smart and innovative moves to woo its clientele who expect best possible service at
competitive rates. It is estimated that approximately a lull of 2%-10% of the previous year
business in all categories of hotels. Some hotels have to face modernization at huge costs
often especially in cyber city like Bangalore where technology up-gradation is swift and
the inflows of customers require multi dimensional facilities ranging from full-fledged
business center to high grade video conferencing.

Hotels seeking a balance between achieving high occupancies and high average room
rates may have higher long term profit. The peculiar nature of the hotel business may
compel the management to think short term about day-to-day problems or the next-meal
periods, as the ROOM DAY is a PERISHABLE ITEM. The room occupancy perishes on
the expiry of the day.

The increased competition has lead to Up market self-catering, time sharing, home
entertainment, competition from producers of other services and commodities and other
trends like rising operating costs, high interest and too many hotel in many areas.

Strengths
¥ India's rich cultural heritage
¥ Second largest foreign exchange earner

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¥ Demand far exceeds Supply
¥ Global economical turn-up
¥ Inclusion in EPCG* scheme
¥ New business opportunities

Weaknesses

¥ Capital intensive
¥ Lack of adequate Man power
¥ Non-availability of land
¥ Regional imbalance of hotels
¥ Long gestation period
¥ Poor infrastructure and cleanliness
¥ Huge labor turnover
¥ Less corporate ownership

Opportunities
¥ Boom in tourism
¥ Privatization of airlines
¥ Tie ups with international hotel chains
¥ Increase in disposable incomes
¥ Boost in tax concessions

Threats
¥ Sensitive to disturbances in the country
¥ Competition from other Asian countries whose official currencies have fallen
drastically
¥ High service & luxury taxes may render India as an unviable destination.
¥ Lack of trained entrepreneurs

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THE FUTURE GROWTH
 Hospitality experts believe that the Indian hotel industry will witness higher than
usual growth in the coming peak season. The good times for the Indian hospitality
industry are here to stay, with top-end hotels experiencing high room occupancy
rates even in the lean season.

 “ The lean season has been exceptionally good for us. Our room occupancy rate
has been around 89 per cent and we are looking at over 95 per cent occupancy for
the period September to December,” says Kapil Chopra, general manager, Trident
Hilton, Gurgaon.

 There was an increase of 15 % in the number of international tourist arrivals in

India and 14 % in the foreign exchange earnings in the first quarter of 2006 as
compared to the same period last year.

 The non-luxury segment in particular has been perking up with more and more
investors spotting the demand supply imbalance, surge in domestic travel and
growth in spending among middle-class Indians.

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 COMPANY ANALYSIS
INDIAN HOTELS
Introduction
It began on December 16, 1903, when Jamshetji Nusserwanji Tata opened Taj’s first
hotel, the Taj Mahal Palace & Tower, Mumbai. This grand hotel epitomized a philosophy
that still holds true today: provide impeccable service and unparalleled facilities so every
stay is a memorable one.

Company operates its hotels under “the taj hotels and resorts” umberella brand and is the
largest hotel chain in south asia. It comprises hotels with 9400 rooms and 280 food and
beverage outlets. The company now owns or manages 82 hotels as against 75 in 2005-06.
the company operates internationally in usa, Australia, mauritious, malashiya, uk,
srilanka, Africa and middle east.

A part of the Tata Group of companies www.tata.com, over the years, Taj has won
international acclaim for its quality hotels and its excellence in dining, business facilities,
interiors, and world-class, personalized service.

In India, Taj is recognized as the premier hospitality provider, spanning the length and
breadth of the country, and gracing important industrial towns and cities, beautiful
beaches, historical and pilgrim centres, and wildlife destinations.

Over the years, the Taj brought into Bombay, “Professors of Dance’ Mademoiselle Singy
to raise temperatures and a few eyebrows with the Tango, the first air-conditioned
ballroom to cool things down, the first cold storage, the first licensed bar, and more.

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Important Milestones:
1903: Created history with the opening of The Taj Mahal Palace Hotel, Bombay
(Mumbai) – India’s first Luxury hotel

1971-72: Pioneered the concept of authentic Palace Hotels in the country with the
Rambagh Palace in Jaipur, the Palace of the Maharajah of the esrtswhile state of Jaipore.

1974: Conceptualized the unique beach resort at Fort Aguada, Goa built within the walls
of a Portuguese fort overlooking the Arabian Sea

1978-82: Taj launched in Delhi with its luxury hotel - Taj Mahal Hotel on No. 1 Man
Singh Road and then prepared India for the Asian Games by setting up Taj Palace, Delhi
with the largest convention centre in the country

1982: Taj established a presence in the Western Hemisphere with the historic St. James
Court Hotel near Buckingham Palace, London.

1984-92: Well before these destinations became world renown for their beauty, Taj
expanded to Kerala and Sri Lanka

1992-97: Rolled out Business Hotels in key cities and towns across the country, branded
as Taj Residency hotels

2000: Consolidated its position as the largest chain in India with hotels in Ahmedabad
and Hyderabad, the latter city being a joint venture with GVK Hotels resulting in a
dominant position in the market for premium and luxury hotel rooms

2002: The new Taj Exotica Resort & Spa, Maldives, within six months of its launch, was
awarded the title of "The Best Resort in the World" in the first ever Harpers and Queen
Travel Awards.

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Factors considered:
 Management review
 Earnings
 Growth rate
 Human resources
 Capital structure
 Infrastructure
 Financial performance

Management review:
Factors considered:
• Future expansion plans
• Product upgradation
• Risk factors
• High operating leverage
• Foreign exchange fluctuation risks
• Human resources
• Internal control systems and their adequacy
• Risk mitigation initiatives

Future expansion plans

During the year company added 383 rooms to its portfolio by continuing its expansion in
international destinations and within India.
Divided into two parts:
• Abroad
• Domestic

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Expansion plan in abroad:

• Company has acquired erstwhile and ritz carlton in Ap2007 this is its I phase of of
investment in US
• Now company has made commitment to get into South Africa and it’s key market
for hospitality ventures
• Company is on verge of completion of management contracts signed in
Malashiya, Lankawi, and Thimpu
• Work on palm island, Dubai continues
• During the year company has signed construction of 150 rooms for Taj Exotica
golf resorts, Doha and completion of acquisition of kho Lon phuket for the
construction of 80 villa Taj Exotica, resort and spa on the island.
• Formed a joint venture with Tata South Africa in South Africa, Taj international
South Africa

Expansion plan in domestic destinations:

• Company continued its project work in whitefeild, Bangalore, Falaknuma Palace,

hyderabead, race course road, coimbatore, Santa Cruz, Mumbai.
• Allotted a site in Noida and planning to construct a 500 room premium business
with hotel convention center
• Company has a lease agreement to operate 350 room premium business hotel in
yeshwantpur, Bangalore
• Continued projects in Nagpur, Trivandrum, panjim, goa and bekal, north Kerla
• Management contract with gateway hotels has been signed in Raipur and
Jallundur

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Product upgradation:
• Continuing with its ongoing programme of investing in renovation and
upgradation of its properties, the Company has been renovating rooms and suites
in several of its hotels which included Taj Mahal Palace and Tower, Mumbai, Taj
Palace, Delhi, Taj Holiday Village, Goa, Fort Aguada Beach Resort, Goa and Jai
Mahal Palace, Jaipur.

• The Company also over saw and supported renovation in some of the key
properties of Associate companies as part of its ongoing programme of investing
in renovation and product upgradation.
Risk factors:
• Dependence on India- it’s significant revenues come from Indian markets making
it susceptible to domestic social and political conditions.
• Dependence on high and luxury segment that contributes significant revenues of
the company affected from international events and travel behavior and suffers
from high operating leverage
• Competition from international hotel chains and have announced expansion plans
in south east Asia with high growth rates

High operating leverage

Company and industry both are enjoying high operating leverage

Foreign exchange rate fluctuation risks: because most of it’s revenues is realized in
US dollar ($) it’s prone to be hit.

Risk mitigation initiatives:

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 • To reduce geographical and economic risks by looking at increasing presence
in gateway cities and resorts in South east Asia and Indian ocean rim
• To reduce the dependence on high and luxury segment by entering mid market
segment which is completely insulated from socio-political changes
• To control operating and financial leverage by expansion through management
contracts and leveraging the strengths of the associates
• Company is currently pursuing foreign currency hedging to counter the effect
of fluctuation in currency

Internal control systems and their adequacy:

Company has reviewed its internal control systems and its effectiveness through internal
audit process. The focus of this review:
• Compliance with various policies
• Compliance with Tata code of conduct
• Management of business and financial risks
• Identifying weakness and areas of improvement

Human resources:
Employees are the important asset of the company.
10018 – during 2006-07
8553 – 2005-06

Financial performance analysis:

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 Industry
ratio year
Ratios 2007 2006 2005
current ratio 1.062 1.50 2.47 2.38
quick ratio 0.936 1.43 2.39 2.32
19.324
inventory turnover ratio 33.63 29.55 27.54
0.71
Debt equity ratio 0.52 0.31 0.89
38.742
operating profit ratio 36.82 29.53 22.57
return on equity 17.94 10.72 9.38
20.624
P/E 26.64 41.87 27.68
3.696
price to book value ratio 4.76 4.49 2.60
dividend payout ratio 29.09 40.09 43.84
5.024
earning yield 2.60 1.93 7.49
1.568
dividend yield 184.28 183.76 189.98
0.36
total asset turnover ratio 0.36 0.34 0.31
0.54
capital turnover ratio 0.54 0.45 0.58
32.25
gross profit margin 30.9 23.46 15.87
20.64
Net profit margin 19.98 16.07 11.88

Interpretation:

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Liquidity ratios:
The company’s current ratio is coming down year by year now it is almost matching
with industry average of just more than 1.But still CR and QR for the company are little
higher than industry average.

Turnover ratios:

All turnover ratios are improving year by year. These ratios are even better than
industry average that shows a good sign and company is consistently moving upwards.

Leverage ratios:
Company is in the comfortable zone. So that it can still use more Financial
Leverage in future.

Profitability ratios:
These ratios are on par with industry average and have shown consistent
improvement over the year. Company is consistently improving its OPL that is evident in
the COGS over the years. It is also evident in the turnover ratios which have shown
consistent improvement in sales thereby getting the benefit of OPL ie non proportionately
high improvement in OP. change in the sales over years is 27.41, 27.91, and 42% but the
corresponding change in OP is 88, 67 and 75% respectively.

Valuation ratios:
P/E of company is slightly higher than industry average; perhaps it is because of the
company brand and almost derisked business operations. Coming to price to BV ratio
company higher ratio than industry average but proportionately it is not having any higher
earnings and profit as compared to industry average so in this respect scrip seems to have
over been valuated. Even the DY and EY for scrip is also lower than industry average.
NPM and GPM are lower than industry average but still company is enjoying higher P/E
and price to BV ratios.
Summary:
So I can conclude company’s scrip is over valued.

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Note:
Adjustment factor for P/E:
After considering all financial ratios and data I would like to adjust P/E multiple to 22
which is at present 26.54.

Adjustment factor for price to BV ratio:

Though the company’s earnings and business risks are almost comparable to its
competitors, the company is enjoying higher price to BV ratio. So we think bit
conservative and try to discount the factor by readjusting its price to BV ratio to industry
average ie 4.

Adjusted factor for DYR:

Company’s DYR is very low so it is adjusted to industry average ie 1.568.

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Period & months 2007/03 2006/03 2005/03 2004/03 2003/03 2007-08 2008-09 2009-10 CAGR

INCOME

Net Operating Income 1,544.6 1,084.2 847.63 665.23 569.27 1885.9 2302.6 2811.4 1.22
Manufacturing
Expenses 315.19 240.03 181.41 163.95 152.95 364.23 420.90 486.39 1.16

Personal Expenses 278.7 222.28 200.26 154.07 130.95 324.15 377.01 438.49 1.16

Selling Expenses 64.08 30.51 23.91 26.33 25.9 76.81 92.06 110.35 1.20

Administrative
Expenses 320.14 279.27 250.72 240.03 178.04 360.00 404.83 455.23 1.12

Capitalized Expenses -2.28 -8.1 -0.01 -20.67 -10.97 -1.67 -1.22 -0.89 0.73

Cost of Sales 975.83 763.99 656.29 563.71 476.87 1,123.5 1,293.5 1,489.57

Reported PBDIT 568.80 320.27 191.34 101.52 92.40 762.41 1,009.1 1,321.9
Other Recurring
Income 68.14 58.83 42.87 31.77 56.21 70.81 73.59 76.48 1.04

Adjusted PBDIT 636.94 379.10 234.21 133.29 148.61 833.22 1,082.6 1,398.3

Depreciation 91.44 65.9 56.77 48.58 38.98 108.44 128.60 152.51 1.19

Adjusted PBIT 545.50 313.20 177.44 84.71 109.63 724.78 954.05 1,245.8

Financial Expenses 102.6 48.54 53.98 43.89 56.21 115.72 130.52 147.21 1.13

Adjusted PBT 442.90 264.66 123.46 40.82 53.42 609.06 823.53 1,098.6

Tax Charges 152.25 88.22 35.82 19.55 12.92 249.35 408.39 668.85 1.64

Adjusted PAT 290.65 176.44 87.64 21.27 40.50 359.70 415.14 429.76

Non-recurring Items 31.74 7.34 18.22 35.9 15.95 36.423 41.797 47.963 1.15

REPORTED PAT 322.39 183.78 105.86 57.17 56.45 396.13 456.94 477.72

no of shares 58.66 5.67 4.64 4.51 4.51

Eps 5.50 32.41 22.81 12.68 12.52 6.75 7.79 8.14

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EPS forecast:

Book value 2008- CAG

Calculation 2006-07 2005-06 2004- 05 2003-04 2002-03 2007- 08 09 2009-10 R
Dividend 96.46 77.95 50.25 36.09 31.58 120.60 150.77 188.5 1.25
REPORTED
PAT 322.39 183.78 105.86 57.17 56.45 396.13 456.94 477.7
Equity Share
Capital 58.67 56.67 46.41 45.12 45.12 61.83 65.17 68.68 1.05
Reserves &
Surplus 1,738.3 1,657.8 1,081.8 844.79 842.17 2022.9 2,026.1 2,397.5
Number of
Equity shares
outstanding 58.66 5.67 4.64 4.51 4.51 61.83 65.17 68.68

Net worth 2022.9 1820.3 1183.82 910.99 907.65 2,026.1 2,397.5 2,995.02
book value 34.49 302.38 243.15 197.32 196.74 37.23 40.05 42.25

Note:
Adjustment factor for P/E:
After considering all financial ratios and data I would like to adjust P/E multiple to 22
which is at present 26.54.

Adjustment factor for price to BV ratio:

Though the company’s earnings and business risks are almost comparable to its
competitors, the company is enjoying higher price to BV ratio. So we think bit
conservative and try to discount the factor by readjusting its price to BV ratio to near
industry average i.e, 4

Adjusted factor for DYR:

Company’s DYR is very low so it is adjusted to industry average ie 1.568.

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Projection of MPS
Basis Formula MPS 2008 2009 2010
P/E(value EPS * P/E 148.5 171.38 178.95
anchor
method)
Price to BV BV * 148.92 160.2 169
price to
BV ratio
Dividend DPS/DYR 123.02 148.35 179
yield(DYR)

Data:
Adjusted P/E multiple = 22
Adjusted Price to BV ratio = 4
Adjusted DYR = 1.568
BV for 2007=30.63
BV growth rate = 27.41 %( CAGR)
DPS 2007 = Rs1.6(FV=Rs 1)
DPS CAGR = 20.59

Fair value of stock:

Weight age assigned to different basis for calculating MPS of stock:
• For P/E basis: 1.5
• For price to BV basis: 1
• For DYR:0.5
Particular Formula 2008 2009 2010
Fair Value (1.5*P/E MPS + 144.39 163.8 175.64

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 1* P to BV MPS
+0.5*DYRMPS)

TECHNICAL ANALYSIS:

Technical analysis is the examination of past price movements to forecast future price
movements. Technical analysts are sometimes referred to as chartists because they rely
almost exclusively on charts for their analysis.

Stock market prediction analyses can generally be classified as either Fundamental or

technical. The former approach considers the cause of market behavior, whilst the latter

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studies the effect. Thus, technical analysis is based only on quantifiable market data,
whilst fundamental analysis includes data related to the market situation, time of year,
Company prospects and so forth. Technical analysis has attracted a large following
amongst trading practitioners but has been criticized in the past by theoreticians. It should
be noted, however, that more recent studies in the literature have given some support to
the technical approach. The technique developed in this paper has focused solely on
technical analysis. However, it could easily be extended to cater for fundamental data
types.

Technical stock analysis is based on three basic principles namely:

1. Market action discounts everything;
2. Prices move in trends;
3. History repeats itself.
Technical analysis is a forecasting method of price movements using past Prices, volume,
and open interest. Pring (2002), a leading technical Analyst provides a more specific
definition:
“The technical approach to investment is essentially a reflection of the idea that prices
move in trends that are determined by the changing Attitudes of investors toward a
variety of economic, monetary, political, and psychological forces. The art of technical
analysis, for it is an art, is Testing of Technical Analysis Tools”.

two technical indicators have been used to analyse the patterns on the chart. They are
moving averages both simple and exponential moving averages and relative strength
index. They are explained in detail as below:

Moving Average:

• Zigzag movement of prices often makes it difficult to judge the

underlying trend. Trend lines do help as we have already seen.
• Another popular way is to smooth the price data with the help of
moving averages.

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 • Technical analysts use three different types of moving averages -
simple moving average, exponential moving average and weighted moving
average.
• We will discuss only the simple moving average because it is the
easiest to compute and interpret.
• The moving average system of trading is also known as the trend
following system because the trader waits for the trend to be established
before initiating a trade.

Moving averages are one of the most popular and easy to use tools available to the
technical analyst. They smooth a data series and make it easier to spot trends, something
that is especially helpful in volatile markets. They also form the building blocks for many
other technical indicators and overlays.

The two most popular types of moving averages are the Simple Moving Average (SMA)
and the Exponential Moving Average (EMA). They are described below:

Simple Moving Average (SMA)

A simple moving average is formed by computing the average (mean) price of a security
over a specified number of periods. While it is possible to create moving averages from
the Open, the High, and the Low data points, most moving averages are created using the
closing price. For example: a 5-day simple moving average is calculated by adding the
closing prices for the last 5 days and dividing the total by 5.

10+ 11 + 12 + 13 + 14 = 60
(60 / 5) = 12

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The calculation is repeated for each price bar on the chart. The averages are then joined to
form a smooth curving line - the moving average line. Continuing our example, if the
next closing price in the average is 15, then this new period would be added and the
oldest day, which is 10, would be dropped. The new 5-day simple moving average would
be calculated as follows:

11 + 12 + 13 + 14 +15 = 65
(65 / 5) = 13

Over the last 2 days, the SMA moved from 12 to 13. As new days are added, the old days
will be subtracted and the moving average will continue to move over time.

In the example above, using closing prices from Eastman Kodak (EK), day 10 is the first
day possible to calculate a 10-day simple moving average. As the calculation continues,
the newest day is added and the oldest day is subtracted. The 10-day SMA for day 11 is
calculated by adding the prices of day 2 through day 11 and dividing by 10. The
averaging process then moves on to the next day where the 10-day SMA for day 12 is
calculated by adding the prices of day 3 through day 12 and dividing by 10.

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The chart above is a plot that contains the data sequence in the table. The simple moving
average begins on day 10 and continues.

Exponential Moving Average (EMA)

In order to reduce the lag in simple moving averages, technicians often use exponential
moving averages (also called exponentially weighted moving averages). EMA's reduce
the lag by applying more weight to recent prices relative to older prices. The weighting
applied to the most recent price depends on the specified period of the moving average.
The shorter the EMA's period, the more weight that will be applied to the most recent
price. For example: a 10-period exponential moving average weighs the most recent price
18.18% while a 20-period EMA weighs the most recent price 9.52%. As we'll see, the
calculating and EMA is much harder than calculating an SMA. The important thing to
remember is that the exponential moving average puts more weight on recent prices. As
such, it will react quicker to recent price changes than a simple moving average. Here's
the calculation formula.

Exponential Moving Average Calculation

Exponential Moving Averages can be specified in two ways - as a percent-based EMA or

as a period-based EMA. A percent-based EMA has a percentage as it's single parameter
while a period-based EMA has a parameter that represents the duration of the EMA.

The formula for an exponential moving average is:

EMA(current) = ( (Price(current) - EMA(prev) ) x Multiplier) + EMA(prev)

For a percentage-based EMA, "Multiplier" is equal to the EMA's specified percentage.

For a period-based EMA, "Multiplier" is equal to 2 / (1 + N) where N is the specified
number of periods.

For example, a 10-period EMA's Multiplier is calculated like this:

(2 / (Time periods + 1) ) = (2 / (10 + 1) ) = 0.1818 (18.18%)

This means that a 10-period EMA is equivalent to an 18.18% EMA.

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Note: StockCharts.com only support period-based EMA's.

Below is a table with the results of an exponential moving average calculation for
Eastman Kodak. For the first period's exponential moving average, the simple moving
average was used as the previous period's exponential moving average (yellow highlight
for the 10th period). From period 11 onward, the previous period's EMA was used. The
calculation in period 11 breaks down as follows:

(C - P) = (57.15 - 59.439) = -2.289

(C - P) x K = -2.289 x .181818 = -0.4162
( (C - P) x K) + P = -0.4162 + 59.439 = 59.023

*The 10-period simple moving average is used for the first calculation only. After that the
previous period's EMA is used.

Note that, in theory, every previous closing price in the data set is used in the calculation
of each EMA that makes up the EMA line. While the impact of older data points
diminishes over time, it never fully disappears. This is true regardless of the EMA's

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specified period. The effects of older data diminish rapidly for shorter EMA's. than for
longer ones but, again, they never completely disappear.

Which is better:

Which moving average you use will depend on your trading and investing style and
preferences. The simple moving average obviously has a lag, but the exponential moving
average may be prone to quicker breaks. Some traders prefer to use exponential moving
averages for shorter time periods to capture changes quicker. Some investors prefer
simple moving averages over long time periods to identify long-term trend changes. In
addition, much will depend on the individual security in question. A 50-day SMA might
work great for identifying support levels in the NASDAQ, but a 100-day EMA may work
better for the Dow Transports. Moving average type and length of time will depend
greatly on the individual security and how it has reacted in the past.

For moving averages, the same dilemma applies. Shorter moving averages will be more
sensitive and generate more signals. The EMA, which is generally more sensitive than the
SMA, will also be likely to generate more signals. However, there will also be an increase
in the number of false signals and whipsaws. Longer moving averages will move slower
and generate fewer signals. These signals will likely prove more reliable, but they also
may come late. Each investor or trader should experiment with different moving average
lengths and types to examine the trade-off between sensitivity and signal reliability.

Uses:

There are many uses for moving averages, but three basic uses stand out:

1. Trend identification/confirmation
2. Support and Resistance level identification/confirmation

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 3. Trading Systems

1. Trend Identification/Confirmation

There are three ways to identify the direction of the trend with moving averages:
direction, location and crossovers.

The first trend identification technique uses the direction of the moving average to
determine the trend. If the moving average is rising, the trend is considered up. If the
moving average is declining, the trend is considered down. The direction of a moving
average can be determined simply by looking at a plot of the moving average or by
applying an indicator to the moving average. In either case, we would not want to act on
every subtle change, but rather look at general directional movement and changes.

The second technique for trend identification is price location. The location of the price
relative to the moving average can be used to determine the basic trend. If the price is
above the moving average, the trend is considered up. If the price is below the moving
average, the trend is considered down.

The third technique for trend identification is based on the location of the shorter moving
average relative to the longer moving average. If the shorter moving average is above the
longer moving average, the trend is considered up. If the shorter moving average is below
the longer moving average, the trend is considered down.

2. Support and Resistance Levels

Another use of moving averages is to identify support and resistance levels. This is
usually accomplished with one moving average and is based on historical precedent. As

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with trend identification, support and resistance level identification through moving
averages works best in trending markets.

Interpretation

• A moving average smoothens the underlying price data and

represents the trend for the period used to calculate the average.
• More importantly, it acts as a curved trendline providing support in
an uptrend and resistance in a downtrend.
• Since the moving average reflects the trend, intersection of the
price with the moving average signals at least a pause in the trend by way
of a correction and possibly a trend reversal.
• In an uptrend, both the price and the moving average are rising and
price is above the moving average. If the price were now to move below
the moving average while the moving average is still rising, it would
probably signal just a correction.
• After a while renewed buying usually pushes the price again over
the moving average. If the moving average is still rising, such a crossover
of the price over the moving average indicates resumption of the uptrend.
• However, caution is indicated if the moving average has begun to
move sideways. A trend reversal is now more likely and is signalled when
the price again crosses below the moving average.
• Penetration of a very short term average such as the 5-day average
occurs often in long lasting trends and often signals temporary pauses in
the trend by way of correction or consolidation. This happens after a sharp
upmove or a downmove when profit-taking sets in a countertrend move in
the opposite direction. However, when prices retrace 50 to 60% of the
previous move, players who missed the earlier move usually enter leading
to resumption of the underlying trend.

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 • On the other hand, penetration of say 20-day average accompanied
by a change in the direction of the moving average itself, would usually
confirm trend reversal or prolonged and deep correction.

Relative Strength Index (RSI):

Developed by J. Welles Wilder and introduced in his 1978 book, New Concepts in
Technical Trading Systems, the Relative Strength Index (RSI) is an extremely useful and
popular momentum oscillator. The RSI compares the magnitude of a stock's recent gains
to the magnitude of its recent losses and turns that information into a number that ranges
from 0 to 100. It takes a single parameter, the number of time periods to use in the
calculation. In his book, Wilder recommends using 14 periods.

Calculation

100
RSI = 100 - --------
1 + RS

RS = Average Gain / Average Loss

Average Gain = [(previous Average Gain) x 13 + current Gain] / 14

First Average Gain = Total of Gains during past 14 periods / 14

Average Loss = [(previous Average Loss) x 13 + current Loss] / 14

First Average Loss = Total of Losses during past 14 periods / 14

Note: "Losses" are reported as positive values.

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To simplify our explanation of the formula, the RSI has been broken down into its basic
components which are the RS, the Average Gain, and the Average Loss.

To start the running calculation, the First Average Gain is calculated as the total of all
gains during the past 14 periods divided by 14. Similarly, the First Average Loss is
calculated as the total magnitude of all losses during the past 14 periods divided by 14.
The next values for the "averages" are calculated by taking the previous value,
multiplying it by 13, adding in the next Gain (or Loss), and then dividing by 14. This is
Wilder's modified "smoothing" technique in action.

The RS value is simply the Average Gain divided by the Average Loss for each period.

Finally, the RSI is simply the RS converted into an oscillator that goes between zero and
100 using this formula: 100 - (100 / RS + 1).

When the Average Gain is greater than the Average Loss, the RSI rises because RS will
be greater than 1. Conversely, when the Average Loss is greater than the Average Gain,
the RSI declines because RS will be less than 1. The last part of the formula ensures that
the indicator oscillates between 0 and 100. Note: If the Average Loss ever becomes zero,
RSI becomes 100 by definition.

Important Note: The more data points that are used to calculate the RSI, the more
accurate the results.

Interpretation:
When Wilder introduced the Relative Strength Index, he recommended using a
14-day Relative Strength Index. Since then, the 9-day and 25-day Relative Strength
Indexes have also gained popularity. The fewer days used to calculate the Relative
Strength Index, the more volatile the indicator.

The Relative Strength Index is a price-following oscillator that ranges between 0

and 100. A popular method of analyzing the Relative Strength Index is to look for a
divergence in which the security is making a new high, but the Relative Strength Index is
failing to surpass its previous high. This divergence is an indication of an impending
reversal. When the Relative Strength Index then turns down and falls below its most

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recent trough, it is said to have completed a "failure swing." The failure swing is
considered a confirmation of the impending reversal.

In Mr. Wilder's book, he discusses five uses of the Relative Strength Index:

1. Tops and Bottoms. The Relative Strength Index usually tops above 70 and
bottoms below 30. It usually forms these tops and bottoms before the underlying
price chart.
2. Chart Formations. The Relative Strength Index often forms chart patterns such
as head and shoulders or triangles that may or may not be visible on the price
chart.
3. Failure Swings (also known as support or resistance penetrations or breakouts).
This is where the Relative Strength Index surpasses a previous high (peak) or falls
below a recent low (trough).
4. Support and Resistance. The Relative Strength Index shows, sometimes more
clearly than price themselves, levels of support and resistance.
5. Divergences. As discussed above, divergences occur when the price makes a new
high (or low) that is not confirmed by a new high (or low) in the Relative Strength
Index. Prices usually correct and move in the direction of the Relative Strength
Index.

Technical analysis consists of:

• Market analysis
• Company analysis

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 Market analysis:
Nifty is considered as market index. Both short as well as long term analysis has been
done using moving averages (simple and exponential MA) and relative strength index
(RSI).

Analysis: fundamentals of market

Evaluating the fundamentals of market ie Nifty though gives us right estimation about the
performance of market and also helps us in forecasting future growth of market, it has got
little importance in present scenario. Because, market is sentiment driven then the actual
fact driven, so swings of market make it so unstable beyond compare.
In notable future of GDP growth rate that there has been sharply rising trend in GDP
investment and savings with former rising by 13.1% of GDP and latter by 11.3% of the
GDP over five years till 2006-07. So there is slight increase in the gap. Average
investment ratio for 10th five year plan is at 31.4% and average savings rate was also at
the same level 28.32%. We can say that gap between investment and saving is very which
is usually being satisfied by FDI flow. This fact clearly shows that Indian investments are
not dependent on foreign countries. On the other side of the growth ie demand, India has
domestic demand which forms major portion of total demand. So we are not dependent
on foreign demand.

Balance of payment:
At present the biggest trade partner is US with whom India is having some $11bn surplus
trade which might be at stake (US recession) and marginally affect foreign trade that to in
service sector. One more thing we need to critically look at is rupee appreciation v/s
dollar which has been so furious and India needs to adjust to the pace at which it is being
appreciated.

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Inflation:
Major concern for India than anything else is alarming inflation which is primarily driven
by the capital goods price and other food items. So keeping inflation below 5-7 percent is
the immediate as well as long term prime objectives of governing bodies here. In the
same light the honorable FM proposed budget which has an element of inflationary
containment. (Across the board cut in excise duty)

After looking at all these major factors of economy, we also need to to look at many other
stock markets across the world like dow jones, Nikkei, shanghai, hangsang which are
shaken because of world economy slow down (US recession). After critically examining
these factors, we come to conclusion that Indian economy is not so much affected by
above discussed factors and long term story of it going to be intact. According to Indian
planning commission expected the GDP growth rate for next plan is between 8%-9%. At
present stock market growth rate (CAGR) is pegged at 18- 20 percent. I expect the same
level of growth in stock market for coming years.
If we look at the market from other side ie technical side, market is in total chaos.

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Technical analysis of market

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Analysis: (Short term or intermediate)
Market Trend:
If we look at 90 day EMA of Nifty chart, for the past one and half year the trend has been
Bullish. From 20th Jan 2008 onwards there has been shift in the trend towards Bearish.
The 18day EMA & SMA of Nifty has broken down below 90 day EMA. So this is one
more conclusive evidence for reversal of trend from Bull to Bear.

Immediate Future:
As we can see from the graph it is clear that market is finding support at 4450 to
4600(which is previous resistance for the market). At this level market is likely to
consolidate for the medium time period.

Significance of Future Trend:

In future unless and until market finds required strengths to come to the previous level i.e.
resistance at 5630 – 50, there will be no signs of market turning Bullish.
And if in future market breaks the resistance level i.e. 5630-50 then it will rally up to
6980-7020. (Target)
Long term analysis

Market is sentiment driven and swings and hypes in market are so strong that they prevail
even for years that have happened at present. There has been shift in market trend and it
has turned bearish though there is no clear sign of bear trend (it’s a long term correction
not exactly bearish) but present situation is of complete chaos has left market in a state of
volatility so we should wait and see market movement closely.
Market’s long term support is at 3118-3130 and next support is at 4500 level so next rally
from that level 4500 is 1380-1400(4500-3110) and we can see some 150-200 points
abortive rally has been occurred and has reached 6050. At that level market was waiting
for correction. Bad clues from US slow down had made market to take LT correction and
market has turned to be volatile and has yet to settle down at previous support of 4500.

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- 92 -
Company technical analysis:
Stock taken is Indian hotels which operates the brand name “Taj hotel resorts and
palaces”. Both short and long term analysis has been done using moving averages (simple
and exponential MA) and relative strength index (RSI).

Short term analysis:

1) Trend short term or intermediate trend for the scrip has been flat. Now
terning in to bearish.

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 2) Key short term support and resistance levels for the scrip.
As we can see from the 10 day EMA &SMA graph the scrip has established
strong support at 130-140 price band.

Price movement; the scrip has undergone major consolidation (sideway

movement) phase. And it seems that the scrip has made abortive attempt to breach
the flat trend and start rally, but in vain and the obvious reason for this failure is
market crash.
In the month Feb 2008 the scrip has broken the key support (130-140) and turned
out to be bearish

Future; as the scrip has already broken the key support, the short term traders
should sell it and the fresh buy signal for the stock is known only when scrip
establishes support.
If in case scrip regains the strength to come back to the level of 130-140, investors
should still wait till it clearly breaches above that level but with expanding
volume.
Trading tactics for short term investors:
As it can be clearly seen from the graph, the stock is purely a trading stock. So to
trade in the scrip one should look for key support and also look for cue from RSI.
If the stock is at support and selling pressure is high i.e. RSI value 30 and below,
it should be bought and sold at high buying pressure i.e. at RSI value 70 & above.
Here the identifying future target price (for the short term) is very difficult as scrip
was undergoing phase of consolidation and has no established resistance level.

Long term analysis:

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Trend
Though the long term trend seems to be bullish and intact, the intermediate trend has been
flat because for year scrip has shown a sign of consolidation.

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Now the scrip is slightly on down trend and settling down to the intermediate support of
110-115.
Long term support & resistance Long term resistance is at 145-155 and support at 65.
Future:
Movement of scrip is mainly dependent on the market (Nifty) performance. If market
turns back to old levels then scrip will get the strength to regain its previous momentum at
resistance level of 145-155 and even break away that level of resistance with expanding
volume then rally is set to be resumed and is expected to rally till 225(target) or else if it
doesn’t get support from market it fails to take support at 110-115 then straight away goes
down to settle at the rock bottom ie 65 level. It’s a LT support for stock and also confirms
end of Bull Run for the scrip.

Note on how to use RSI value and Volume.

Buying and selling is suggested to be followed at support level in combination with right
RSI values. when RSI value is in oversold region i.e, 30 or lower than 30 traders should
rty to combine it with support at that level and make buying decisions. And when RSI
value is in the overbought region (70-100) traders should try to make selling decision
with respect to applicable resistance. But if possible investors should also have a close
eye on expanding volume which is a conclusive evidence for aggressive bull or bear run.

FINDINGS

For stock:

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 • First, the projected MPS using fundamental approach for the stock for next three
years are 144,163 and 176 rupees.
• Short term support for scrip: 130-140; Next support has been established at 110-
115
• Long term resistance for scrip: 160-165
• Long term support is at 65 level;
• Now the scrip is slightly on the down trend(short term) and settling down to the
intermediate support of 110-115
• Long term target by technical analysis is 225 but this is unlikely to happen in the
medium term because short term trend has been bearish and long term trend has
been flat and undergoing long consolidation.
For market:
• Short term support or intermediate support: 4500-4600; next long term support
lies at3100-3150
• Resistance for Nifty is at present is at 6000
• Short term and intermediate trend has been bearish and long term trend is still
bullish

• Long term nifty target is a 6980- 7020.

Recommendations

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 • the long term investors should buy the scrip at key support levels at which the

price is lower or almost equal to the fair value found out by fundamental

approach.

• Short term investors (traders) need not be worried about the fundamentals of the

company but should have a close eye on various supports and resistances of scrip

and market to buy/ sell and book the profit.

• Short term traders should buy or sell whenever there is break outs from the

various levels of resistance and support with expansion in volume. But the same

does not apply to long term investors unless the break out is from key

support/resistance levels.

• Market is very much sentiment driven, so investors are advised to concentrate

more on technicals then being worried about fundamentals which is very difficult

some times.

• So investors are advised to try to discount every happening or news which affects

market and stock before they see its effect on the market or stock so that they get

more benefit out of it.

Conclusion

• Technical analysis can be used as a reliable tool for investing in to stocks.

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 • Technical analysis is more useful in identifying the identification of buying points

and selling points.

• Combination of both approaches will give a investor right guidance in taking

decisions regarding buying and selling points.

About market

• It’s equally important to analysis market conditions before digging into individual

stock.

• In the context of market the sentiments (technical’s) are more important to decide

market conditions(level of index) than the actual fundamentals. And these

sentiments very market moments to a greater extent

Bibliography
Websites

1. nseindia.com

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 2. equitymaster.com
3. icicidirect.com
4. moneycontrol.com
5. bseindia.com
6. stockchart.com
7. reliancecommunication.com
8. bharatiairtel.com
9.
Reference Books
o Investment Analysis and Portfolio Management.
(2nd edition)
Prasanna Chandra
o Financial management.
Khan and jain

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