Fundamental Analysis

FUNDAMENTAL ANALYSIS FOR PORTFOLIO PREPARATION.
EXECUTIVE SUMMARY.
Fundamental analysis is a complex procedure and it requires analysis of various perspectives and tools. It means deciding the future valuation of investment so that an optimum decision of investment can be made. It requires evaluation of three broad perspectives, namely; the economy, the industry and the company. I have done my training at SHAREKHAN, one of Indias leading share trading agency and it gives me immense pleasure to present my analysis. I have undergone several sources of primary and secondary data, but majorly secondary. After analysing the economy as a whole, I have come to a conclusion that Indian economy would be a good economy to invest into as it has one of the fastest growing growth pace (2nd fastest in the world with a GDP growth rate of 8.5 approx in year 2004) along with a good forex reserve base. Additional to it, the value of money is also increasing. A very important determinant of the economy is the stock market of it, and the Indian Stock market saw a great phase in the recent year as it touched the highest point ever. Some of the leading sectors / industries of stock market are Banking, IT and Auto. Hence, these three sectors as industries have been studied by me in depth and detailed manner. After analysing these sectors I have found out that all these three sectors have a good future but IT has it the best as it is an industry which is least affected by any kind of changes going around. The second best would be the banking sector as a lot has been happening in it plus, the government is also doing a lot to build it up really well and several favourable actions have been taken for it. The third sector auto did really well last year (2003) but has not done that well this year (2004) but can do well in near future but this industry would be facing the toughest problems compared to these three. These industries have also been analysed on basis of the latest BUDGET (2005-06) and a similar kind of result is liberated
B.R.C.M. COLLEGE OF BUSINESS ADMINISTRATION.
again. Though the budget has supported the auto sector in its development, yet the increasing price of steel would be still affecting it. After analysing the industries, I have selected the top four companies of each of these sectors (12 companies in total) and then analysed them in an in-depth manner. The companies have been analysed on basis of several criterias like; Ratio analysis, recent market news analysis, Sharekhan acceptance analysis, Mutual fund preference analysis, Shareholding pattern analysis, Price movement chart analysis, etc. On analysing these companies, I found out that the leading companies among them are; IT Infosys, AUTO BAL and BANK HDFC. As these companies belong to separate sectors and different factors affect them, and water tight distinction between them is not possible and hence instead of selecting one company as the most preferable to invest in, I have created a portfolio which includes the above listed 3 companies as the good companies to invest into. It is generally said that wider the portfolio, the lower the risk, so in order to reduce the risk and to add some more companies, companies like TCS from IT, HHML from AUTO and SBI from BANKING can also be preferred. Among them companies like ICICI bank & Satyam can also be added but they may not be as profitable as others. But again, Share market is a very volatile market and hence immergence of any new factor or market or any political situation may change the market condition as a whole.
Signature.
(ATUL AGARWAL)
INTRODUCTION TO THE COMPANY.

Sharekhan, India's leading stock broker is the retail arm of SSKI (S.S. Kantilal Ishwarlal Securities Pvt. Ltd.), an organisation with over eighty years of experience in the stock market. With more than 210 share shops in 90 cities, and India's premier online trading destination www.sharekhan.com, the customers enjoy multi-channel access to the stock markets. Sharekhan offers trade execution facilities on the BSE and NSE, for cash as well as derivatives, depository services, commodities trading on the MCX & NCDEX and most importantly, investment advice tempered by eighty years of broking experience. Apart from Sharekhan, the SSKI Group also comprises of Institutional broking and Corporate Finance. The Institutional broking division caters to domestic and foreign institutional investors while the Corporate Finance Division focuses on niche areas such as infrastructure, telecom and media. SSKI has been voted as the Top Domestic Brokerage House in the research category, twice by Euromoney survey and four times by Asiamoney survey. Sharekhans customers enjoy the freedom to choose the channel through which they can execute their trades. They can personally visit the share shops, trade online or just call on toll-free number for placing your orders. Sharekhan provides three distinct and easy to use, and quick ways of trading. I) SHARE SHOPS With 210 outlets across 90 cities, Sharekhan has the largest chain of retail share shops in India. The customer can walk into any of the outlets and get personalised services for trade execution as well as research advice. II) ONLINE TRADING With a Sharekhan online trading account, one can buy and sell shares in an instant. Anytime one likes, from
anywhere one likes. One can choose the online trading account that suits their trading habits and preferences: CLASSIC ACCOUNT: This account allows the client to trade through our website and is best suited for the retail investor. The customer enjoys features like streaming quotes, multiple watchlist, integrated banking, demat and digital contracts, instant credit and transfer and real-time portfolio tracking with price alerts. The online trading website is continuously upgraded to make trading faster and safer. The classic account now comes with Dial-n-Trade, the exclusive service for trading shares from telephone. Just dial 1-600-227050, enter the TPIN number and one will be directed to a telebroker who will buy or sell shares for the customer. The various features that this facility has are: 1 2 3 4 5 6 Dedicated Toll-Free number for order placements. Automatic fund transfer with phone banking. Simple and secure 1VR based system for authentication. No waiting time. Enter the TPIN to be transferred to telebrokers. Trusted, professional advice from the telebrokers. After-hours order placement facility between 8 a.m. & 9.30 a.m.
7 Reliable services wherever one is. SPEED TRADE: It is Internet-based trading software that allows the customer to buy and sell shares in an instant, allowing capitalizing on intra-day price movements. Other online trading services require clients to switch between multiple screens to execute their transactions, but SPEEDTRADE offers a single screen interface on desktop thus dramatically reducing the time taken for order placement and execution. From real-time streaming quotes
to customized alerts and automatic confirmation of orders, SPEEDTRADE has a range of features that make frequent trading simple and easy. SPEEDTRADE is a next-generation online trading product that brings the power of broker's terminal to clients PC. It is ideal for active traders and jobbers who transact frequently during day's trading session to capitalize on intra-day price movements. SPEED TRADE PLUS: It provides all the convenience of SPEED TRADE with the added functionality of trading in derivatives from the same Single-screen interface. The seven amazing features that SPEED TRADE PLUS provides are: 1. Single Screen Trading Terminal. 2. Real-time Streaming Quotes. 3. Live Tic-by-Tic Intra-day Charting. 4. Instant Order/Trade Confirmations in the same Window. 5. Hot Keys Similar to a Broker's Terminal. 6. Customised Alerts based on Multiple Parameters. 7. Back-up Facility to Place Trades on Direct Phone Lines. III) DIAL N TRADE: Dial-n-Trade is an exclusive service available to all Sharekhan customers for trading in shares via the telephone. Just dial 1-600-22-7050 or 30307600, enter the TPIN number and one will be directed to a telebroker who will buy or sell shares for you. Other then all this, SHAREKHAN also has a special research team that continuously keep in touch with the experts and hence provides very valuable and expert opinion about the investments in various equities. The team of dedicated analysts are therefore, constantly at work to track
performance and trends and determine the winners. That's why all tradingproducts have one of the highest success rates in the industry. On basis of the research continuously being carried on by its experts, Sharekhan categorises the scrips of the companies into six clusters to help its clients identify the stocks that fit their time horizons and return objectives the best. Each cluster represents a certain profile in terms of business fundamentals as well as the kind of returns one can expect of it over a certain time horizon. The six clusters are: Evergreen, Apple Green, Emerging Star, Ugly Duckling, Vulture's Pick and Cannonball. - Evergreens are steady compounders, churning out steady growth rates year on year. They are typically significant players in their markets, with sound strategies that will help them achieve and sustain market dominance in the long run. They have strong brands, management credentials and a consistent track record of achieving super normal shareholder returns. It expects stocks in this category to compound at between 18-20% per annum for the next five to ten years. Also called ownership stocks, Evergreen stocks are the brightest jewels in any portfolio. - Apple Green are stocks that have the potential to be steady compounders and are attempting to move upwards, to turn Evergreen. They rank a shade below the Evergreen companies, only because their potential in the five to ten years' time is still not very clear, although they might grow at rates faster than that of the Evergreen stocks in the next year or two. They could grow at 25-30% per annum over the next two to three years. - Emerging Star are typically young companies, often in niche businesses, that have the potential to grow and dominate their niches. Even better, they might turn out to be real giants, if their niches explode into full-blown markets in their own rights. These stocks are potential tenbaggers but you need to be patient.
- Ugly Duckling are companies that are trading below their fair value or at values which are at a significant discount to that of their peer group, due to a combination of circumstances. But things are now starting to happen in these companies or in their markets that are likely to cause a re-evaluation of their prospects. These stocks could double in two to three years' time. - Vultures Pick are companies with valuable assets or brands that have been trashed to ridiculously low prices. Buy a Vulture's Pick and wait for a predator who finds its assets undervalued to come along. This could be a long wait but the returns could be startlingly high. The key is to be patient. The vulture after all is a patient bird. - Cannonball are Season's favourites! Typically they are fast gainers in a rising market, which could give returns of 20-40% within three months. Based on a combination of sound market information, technical charts and available fundamentals for investors with an appetite for high risk and high reward.
Sharekhan provides the facility to trade in commodities (bullion: gold/silver and agricultural commodities) through Sharekhan Commodities Pvt Ltd a wholly owned subsidiary of its parent SSKI. Sharekhan is the member of two major commodity exchanges and offers trading facilities on both these exchanges: (1) Multi Commodity Exchange of India Ltd, Mumbai (MCX) www.mcxindia.com (2) National Commodity and Derivative Exchange, Mumbai (NCDEX) www.ncdex.com
OBJECTIVES OF THE PROJECT.
To help the people understand which sectors/companies are best for investment in the current and near future situation so that they can achieve the optimum satisfaction from their investment. To analyse the Indian share market and study the impact on shares & the most happening sectors. To study the impact of the sectors and determine the most happening sector among them. To study the leading companies of the selected sectors as per the equity market & analyse the best among them. To able to provide and express the theoretical as well as the practical gained knowledge in the best possible manner. To prepare the report in a simple & descriptive manner so that any person can understand the analysis & report very easily and clearly.
METHODOLOGY OF THE PROJECT.

The methodology of the creation of the report shall follow the following steps, sequentially;
Get a basic practical idea about the stock market & To study and analyse the external environmental
the leading sectors of it & its dealings.
factors (Macro) like Economy, Share Market as a whole, Budget (present as well as the coming budget 2005-06), etc. in order to get an idea as to whether the future is good for the investment in stocks or not?
To collect & analyse the various industry level
details (Micro) by means of ETOP study to analyse whether the typical industry can be good for investment or not, and if yes then for what duration.
To study the various scrips, Companies, their
balance sheet, P&L, etc. in an in-depth manner by means of ratio analysis to find out the sustainability and profitability of the company on basis of the past records.
To study the various other tools like current news
about the company, trend analysis, 52 week up-down, risk involvement, returns on basis of the face value of shares, equities that are being recommended by Sharekhan, equities that are general being accepted by MFs, etc. in order to get a complete picture as to which equity / what portfolio can be the best for investing into.
Providing ranking to various companies & select the
best company from each sector on basis of the above tools that are used.
Providing the final conclusion as to the portfolio
which will be best for the current as well as future time span investment, keeping in mind the present reflecting factors that are affecting it.
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LIMITATIONS OF THE PROJECT.
Complete financial data was not available from one single source so I had to refer to various alternatives and due to that ratios may not be very accurate in nature, i.e. up to the mark. Insufficient time because of the limit period (2 months) because of which I was able to analyse only 3 sectors in detail. Due to limited time period, I was not able to calculate all the type of ratios which would have resulted in a better analysis. The decision given in this report is based upon factual and quantitative data whose accuracy may not be considerable totally and up to the mark accurate. Indian Stock market is not stable and keeps on fluctuating. Emergence of new factors or environmental conditions may totally change the appropriate field of investment in future. Hence the decision provided regarding investment can not be considered as a totally reliable & rock steady decision.
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INTRODUCTION TO BASICS.
1. What is a Stock Market?
Stock exchange is a place where the second-hand stocks are sold and bought by the people directly or via brokers through places called terminals. The fresh issued stocks are only available from company either through an IPO (initial public offer) or another issue. Later these shares can be sold in the same market. To start trading in shares, one has to open a Demat A/c in a bank that works as a gate-pass for you in trading. It's always advised to first test your hand on the recent market trend by some simulation or in virtual world, instead of putting money into the market. When you are sure enough about technique and instincts, then you can shift to top gear with the bulls-n-bears. - The DOs & DONTs in Stock Markets 1. Always trade with a reasonable amount so that you can always have a smooth liquidity with you and with a piece of mind. In other words, bite only as much as you can chew! 2. Never follow rumors and if you listen to someone else, he may get you IN right time, but be sure whether he will be there to tell you when to get OUT? 3. Make sure that after investing; you regularly assess your shares portfolios to keep up with the recent changes and trends. 4. Don't make your analysis for short term only, but always have a consistent plan to follow. The theory is that most successful traders are those that use market sentiments i.e. if too many people are bullish about the market to go up, the market is ripe for a decline, as they take profits or are forced to get out.
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Conversely, if too many people are bearish about the market, it implies that an up move may be in the making. - Rules for Dealing in Stock Market Each deal is the resultant of the demand of one hand satisfied by the supply of the others hand and for that, knowing the basic rules of volume analysis becomes very important which are stated below: 1. When the prices are rising and the volume is increasing, the present trend will continue and the price will be rising. 2. When prices are rising and volume is decreasing, the present trend is not likely to continue i.e. the price rise will decelerate and then turn downwards. 3. When prices are falling and volume is increasing, the prices will continue to fall. 4. When prices are falling and the volume is decreasing, the present trend is not likely to continue, i.e. the price decline will decelerate and then price will turn upward. 5. When volume is not rising or falling, then the effect on price is neutral.
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2. What is Index and what are their purposes?

The stock index is an odd four figure number that acts as a barometer of the state of the economy. The two basic stock indexes of India are SENSEX (the index of BSE) and NIFTY (The index of NSE). A stock market index reflects the overall behaviour / returns / movements of the equity markets as a whole. Some of its main objectives are: i) The returns on the market index ideally represent the returns obtained on any standard portfolios. ii) The second use of an index could be in the form of a benchmark for measuring fund performance. An index with a good track record makes an ideal benchmark for fund managers to compare the performance of their funds and portfolio. iii) The third use of an index is that it can be used to trade derivatives and for launching index based products and funds. - How an Index is Constructed? Though the affects of index may be clear in the minds of the people but the main question that arises is how does the index represent the total condition of the economy? i.e. What is relation with the price of the shares? What relation does it have with the economy? All these questions can be answered by explaining how an index constructed? An ideal index must serve two purposes; i) First, it should represent the changes taking place in the scrips. ii) Secondly, it must be able to reflect movements in price of some typical shares in order to represent the market better. Starting from this premise, let us see how an index is constructed. The process can be divided into three areas - coverage, base year selection and method of compilation.
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I) Coverage An index should ideally consist of scrips, which represent a wide cross-section of the industry, have good liquidity and a high market cap. The BSE Sensex today lists shares of 30 companies from the so-called 'specified' group. II) Base Year The base of an index is chosen so as to have a suitable starting point. In case of the BSE, the year was taken as 1979-80. Considerations for the choice were the price stability during the year and proximity to the year in which the index was introduced. III) Method of Compilation The two important methods for computation of an index are: a. b. Price weighted arithmetic mean method, and Capitalization weighted arithmetic mean method.
An example would illustrate the methodology and the differences between the two methods. Suppose the index comprises the following four securities on the base date:
Share A B C D Price 80.00 150.00 385.00 55.00 Total shares 2,000 4,500 2,200 4,000
Prices of the same scrips today:

Share A B C D Price 80.00 130.00 425.00 75.00 Total shares 2,000 4,500 2,200 4,000
Under the price weighted arithmetic mean method, the index as at the base date and today would be:
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Base Date
Share A B C D Base Price 80.00 150.00 385.00 55.00 670.00 Weightage 80/670 150/670 385/670 55/670 0.1194 0.2239 0.5746 0.0821 1.0000
Index = 1.0000 x 1000 = 1000 Today

Share A B C D Total Base Price 80.00 130.00 425.00 75.00 710.00 670.00 Weightage 80/670 130/670 425/670 75/670 0.1194 0.1940 0.6343 0.1119 1.0596
Index = 1.0596 x 1000 = 1,059.60
Under the capitalization weighted arithmetic mean method, the index as at the base date and today would be:
Base Date
Share Price Total shares Capitalization (price x no of shares) A B C D Base 80.00 150.00 385.00 55.00 2,000 4,500 2,200 4,000 160,000 675,000 847,000 220,000 1,902,000 160/1902 675/1902 847/1902 220/1902 0.0841 0.3549 0.4453 0.1157 1.0000 Weightage
Index = 1.0000 x 1000 = 1000 Today

Share Price Total shares Capitalization (price x no of shares) A B C 80.00 130.00 425.00 2,000 4,500 2,200 160,000 585,000 935,000 160/1902 585/1902 935/1902 0.0841 0.3076 0.4916 Weightage
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0.1577 1.041
D Total Base
75.00
4,000
300,000 1,980,000 1,902,000
300/1902
Index = 1.0000 x 1.041 = 1,041
Hence, the capitalization-weighted method is preferable to the price weighted method. This is especially true in the Indian context where a number of firms have a low number of outstanding shares. - What are the uses of indices for the various classes of market players? Fund / Portfolio managers:
Derivatives trading Fund managers can use indices to hedge their exposures in equities Passive investment management Index funds replicate the indices to earn the market returns Benchmarking performance Open and close-ended funds performances can be effectively benchmarked against the indices and this forms the basis for evaluation of performance of the various funds.
Traders / Market intermediaries:
Evaluating market sentiment The indices help traders and the various market intermediaries to gauge the performance and sentiment for the market as a whole.
Corporates:
Comparison across market Corporates can compare their performance with competitors performance, business group performance or market performance as a whole with the help of indices.
Individuals:
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Individual investors can benchmark their own portfolios performance against the performance of the market as well as to gauge the performance of the market as a whole.
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3. What is Fundamental Analysis?

This relates to an examination of the intrinsic worth of the company, to find out whether the current market price is fair, overpriced or under-priced. This is done by studying the various aspects of the company (Company Analysis) in the background of the performance of industry to which the company belongs and the general economic and socio-political scenario of the country. Thus, the fundamental analysis of the share price involves three major steps. (a) Economic Factors and their Analysis. (b) Industry Analysis, (c) Company Analysis. However, his study can also be approached in two ways; (a) Top-Bottom Approach. (b) Bottom-Up Approach. In Top-Bottom Approach, firstly, the economy is to be studied and then the industry and finally the company. The importance of this study is that as economy is studied as a beginning step, the sectors not being preferred by the government or in the economy is eliminated primarily itself, hence, making the tedious process easy. In Bottom-Up Approach, certain companies are selected firstly, and then an analysis is done of them in light of several company level factors affecting them, and then of the industry and then its relevance in the economy. Hence, the Top-Bottom approach is the one that is going to be followed by me in this project. Though, top-bottom approach eliminates the irrelevant sectors and hence concentrates the work on a specific sector that should be analyzed in a graver manner later, yet, all the sectors will be covered in the deepest manner within my reach in this project.
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Moving back to the basic understanding of the fundamental analysis, the logic of this three tier analysis is that the company performance depends not only on its own efforts and working but on the general industry and economic factors, which influence its performance. No company can work in vacuum. It is a part of the industry and the economy and its performance depends on these forces which are external to the company. As referred to earlier, studies have shown that a company's share price depends on the intrinsic or internal factors only to the extent of about one-half of the total forces and the rest is contributed by the external forces, namely, psychological and expectational factors regarding the company, relative to others in the industry and the sentiment in the market, which depends on the socio-economic and political forces operating on the market. This reflects the dictum that Stock Market is window of the economy and the totality of forces operating on the economy would influence the Stock market. In the economy, some industries are expanding while others are stagnant and some contracting, depending on the demand and market conditions. The investor has to choose the growth industry and in that industry, choose the scrips undervalued as judged by his study and analysis. Hence, in other words, it is a process of analyzing the various companies in various industries and finding out the best blue chip companies so that investment in such companies can be done in order to gain an advantage on basis of the price at which they were purchased previously. Blue Chip Companies are in simple language, Growth Oriented Companies showing signs of expansion, diversification, modernization of Technology and reputation for consistent profitability and profit margins to sustain the consistent dividend distribution, growing profits and expanding net worth.
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Emerging Blue Chip companies are those which are turn-around companies and exhibit potentiality to grow and expand in gross block, sales and net profit. The actual Blue Chip Companies like Colgate, Hindustan Lever, L&T etc., have a consistent record of dividend pay outs, growth in dividends, expansion and bonus from time to time. The main characteristics of the Blue Chip Companies may be set out as follows: 1. These companies belong to the Industry groups which are in general expanding and growing. 2. They are market leaders as in the case of Indian hotels in the Hotel Industry, ACC in Cement Industry, Bajaj Auto in Scooter Industry and Colgate in Tooth Paste Industry. 3. These Companies show capacity to diversify and grow and generate larger gross block, higher sales turnover and growing profit margins. They continuously expand the capital base in terms of debt or equity or rights etc. 4. They have purposeful tax planning and consistent modernization and expansion plans. They have the capacity to meet the emerging challenges like input or labour problems. 5. The Management outlook is dynamic and their vision is ambitious expansionism. They are highly aggressive leaders in the Industry.
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6. They have also commitments to research and development and are quick to adopt new Technologies and lower costs and rise profits. They have reputed foreign collaborators to back thorn up. A company which has a high intrinsic worth is not necessarily the best stock to buy. It may have no growth prospects or it may be overpriced. Similarly, a company that performs well during any one year may not be the best to buy. On the contrary, a company which has been ", doing badly for some time might have turned the corner and it may be the best buy, as its shares may be underpriced and it has good prospects of growth. So an analyst should not be guided by one or a few indicators but has to consider the performance of the whole company, and over a period of time, say, 5 years. Besides a company is to be judged in the background of the industry's performance, product nature, prospects of the industry, etc. A study of the industry factors constitutes the industry analysis. Next to economy's performance, industry's performance is vital for an assessment of a company's prospects and growth. In order to enable one to identify these blue chips of tomorrow, one should know the nature and characteristics of these companies. A few guidelines in this regard are set out below. Firstly, the management should be experienced and efficient; they should have the honesty, integrity and vision for expansion and growth. Such is the case with Ambanis, Tatas and Birlas. Secondly, the market share of the company should be substantial and at least more than one-third. The larger the share, the better the prospects of controlling the market and profit margins and expanding the operations. Bajaj Auto has a share of two-thirds in the two-wheeler and three-wheeler market. So is the case with Asian Paints, Laxmi Machine Works etc.
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Thirdly, the company must be well-diversified into areas of growth potential. The growth potential changes from time to time. At present, industries with a growth potential are cement, paper, petrochemicals, etc. Thus a company with a good diversification into such growth areas would do well in sales, profits, and earnings. Some of the consumer product industries producing soaps, cosmetics, toothpaste and powders etc. would generally record a consistent growth. A well-diversified company like ITC, Hindustan Lever, or Century Textiles is a good buy at any reasonable price. Fourthly, the company's policy of expansion should be consistent and has a long-term perspective. Its assets growth should be reasonably good, reflecting its expansion goals. Growth helps the industry to stabilize its earnings from undue fluctuations and help the diversification process. The companies with a good asset growth are Reliance, L&T, GSFC etc. Fifthly, the company should have a consistent and stable distribution policy with good profit margins. The company should distribute a reasonable proportion of its profits as dividends, bonus etc. Such companies like Ponds, Colgate, Glaxo etc., would be in good demand, as investors prefer regular dividend-paying companies. Sixthly, such a company services the investors well with bonus or rights issue or convertible debentures, from time to time in addition to increasing dividend payments. The financial structure and utilization of capital are efficient. The profit margins are growing and the company is growing in financial strength. Lastly, the industry or industries in which the company is operating should have good growth prospects. The products should be in continuous demand like food products, paper soaps, etc. or consumer nondurable goods. The future outlook of the company and prospects of the industry are interlinked. The prospects would depend also on the government policy and whether it is subject to price and distribution control or any
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restrictions or regulations. The prospects of the industry in which the company is operating should be assessed from all points of view. Thus, in the choice of blue chips, the investor has to examine the fundamentals of the companies through balance sheet analysis for a period of at least five years before finally selecting the shares. The time of purchase should be decided on the basis of technical analysis. But for a layman, the purchase time should be in the bearish phase of the market, when an all-round decline in prices is recorded. At such times, the companies with strong fundamentals should be picked up at low prices for long-term investment if they can be classified as blue chips as per the above guidelines.
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4. What is Ratio Analysis?

Ratio analysis is a powerful tool of financial analysis. A ratio is defined as "the indicated quotient of two mathematical expressions" and as "the relationship between two or more things." A ratio is used as a benchmark for evaluating the financial position and performance of a firm. The absolute accounting figures reported in the financial statements do not provide a meaningful understanding of the performance and financial position of a firm. An accounting figure conveys meaning when it is related to some other relevant information. For example, a Rs 5 crore net profit may look impressive, but the firm's performance can be said to be good or bad only when the net profit figure is related to the firm's investment. The relationship between two accounting figures, expressed mathematically, is known as a financial ratio (or simply as a ratio). Ratios help to summarize large quantities of financial data and to make qualitative judgment about the firm's financial performance. Several ratios, calculated from the accounting data, can be grouped into various classes according to financial activity or function to be evaluated. In view of the requirements of the various users of ratios, we may classify them into the following four important categories: I. Liquidity ratios II. Leverage ratios III. Activity ratios IV. Profitability ratios. I. Liquidity Ratios Liquidity ratios measure the firm's ability to meet current obligations; leverage ratios show the proportions of debt and equity in financing the firm's assets; activity ratios reflect the firm's efficiency in utilizing its assets, and profitability ratios measure overall performance and effectiveness of the firm.
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II. Leverage Ratios To judge the long-term financial position of the firm, financial leverage, or capital structure, ratios are calculated. These ratios indicate mix of funds provided by owners and lenders. As a general rule, there should be an appropriate mix of debt and owners' equity in financing the firm's assets. III. Activity Ratios Activity ratios are employed to evaluate the efficiency with which the firm manages and utilizes its assets. These ratios are also known as turnover ratios because they indicate the speed with which assets are being converted or turned over into sales. Activity ratios, thus, involve a relationship between sales and assets. IV. Profitability Ratios The profitability ratios are calculated to measure the operating efficiency of the company. Besides management of the company, creditors and owners are also interested in the profitability of the firm. Some of the most important and most frequently types of ratios are discussed below and are hence also utilized in the project further. Current ratio: The current ratio is calculated by dividing current assets by current liabilities:
Current Ratio = Total Current Assets / Total Current Liabilities.
The current ratio is a measure of the firm's short-term solvency. It indicates the availability of current assets in rupees for every one rupee of current liability. A ratio of greater than one means that the firm has more current assets than current claims against them. As a conventional rule, a current ratio of 2:1 or more is considered satisfactory. Debt-Equity ratio: The relationship describing the lenders' contribution for each rupee of the owners' contribution is called debt-
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equity ratio. Debt-equity (DE) ratio is directly computed by dividing total debt by net worth:
Debt-Equity Ratio = Total Debt of the firm / Total Equity of the firm.
Generally, the higher this ratio, the more risky a creditor will perceive its exposure in your business, making it correspondingly harder to obtain credit. Gross Profit ratio: This ratio is the percentage of sales dollars left after subtracting the cost of goods sold from net sales. It measures the percentage of sales dollars remaining (after obtaining or manufacturing the goods sold) available to pay the overhead expenses of the company. Comparison of your business ratios to those of similar businesses will reveal the relative strengths or weaknesses in your business. The Gross Margin Ratio is calculated as follows:
GP Ratio = Gross Profit / Net Sales.
Net Profit ratio: This ratio is the percentage of sales dollars left after subtracting the Cost of Goods sold and all expenses, except income taxes. It provides a good opportunity to compare your company's "return on sales" with the performance of other companies in your industry. It is calculated before income tax because tax rates and tax liabilities vary from company to company for a wide variety of reasons, making comparisons after taxes much more difficult. The Net Profit Margin Ratio is calculated as follows:
NP Ratio = Net Profit / Net Sales.
Return on Equity ratio: It determines the rate of return on your investment in the business. As an owner or shareholder this is one of the most important ratios as it shows the hard fact about the business -- are
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you making enough of a profit to compensate you for the risk of being in business?
ROE Ratio = Net Profit / Total Equity.
Return on Assets: This measures how efficiently profits are being generated from the assets employed in the business when compared with the ratios of firms in a similar business. A low ratio in comparison with industry averages indicates an inefficient use of business assets. The Return on Assets Ratio is calculated as follows:
ROA Ratio = Net Profit / Total Assets of the Firm.
Earnings per Share: This is, perhaps, the fundamental investor ratio: in this case, we work out the average amount of profits earned per ordinary share issued. EPS calculations made over years indicate whether or not the firm's earnings power on per-share basis has changed over that period. The formula is:
EPS = Profit after Tax / Number of Common Shares Outstanding.
Dividends per Share: The net profits after taxes belong to shareholders. But the income which they really receive is the amount of earnings distributed as cash dividends. Therefore, a large number of present and potential investors may be interested in DPS, rather than EPS. Its calculation is as follows:
DPS = Dividends / Number of Ordinary Shares Outstanding.
Price Earnings Ratio (P/E Ratio): The P/E ratio is a vital ratio for investors. Basically, it gives us an indication of the confidence that investors have in the future prosperity of the business. A P/E ratio of 1 shows very little confidence in that business whereas a P/E ratio of 20
28
expresses a great deal of optimism about the future of a business. Its calculation is as follows:
P/E Ratio = Current Market Share Price / Earning per Share.
- LIMITATIONS OF RATIOS: The ratio analysis is a widely used technique to evaluate the financial position and performance of a business. But there are certain problems in using ratios. The analyst should be aware of these problems. The following are some of the limitations of the ratio analysis: comparison. The comparison is rendered difficult because of differences in situations of two companies or of one company over years. The price level changes make the interpretations of ratios invalid. The differences in the definitions of items in the balance sheet and the profit and loss statement make the interpretation of ratios difficult. changes. The ratios are generally calculated from past financial statements and, thus are no indicators of future. The ratios calculated at a point of time are less informative and defective as they suffer from short-term It is difficult to decide on the proper basis of
29
THE INDIAN OVERVIEW (ECONOMY).

1. Economy as a Whole.
At present the Indian economy is passing through a very crucial phase. In the last five years, while most of the countries were experiencing stagnation or even negative growth rates, the Indian economy registered an average annual growth rate of around 6 percent. It made a great reading for an Indian when the Central Statistical Organisation said that the Indian economy during the second quarter of 2003-2004 had grown by 8.4 per cent, making it one of the fastest growing economies in the world. The tenth five year plan is the most ambitious plan after independence, as it not only aims at achieving the higher average annual growth rate of 8 % over the plan period, but also has certain monitorable targets covering most of the major sectors of the economy particularly the ones in the social sector.
India is the 2nd fastest growing economy in the world and will continue to be so
Real GDP growth (%) 10 8 6 4 2 0
US A Ho ng Ko ng Ph il li pi ne s M al ay sia Th ai la nd In di a Eu ro zo ne Au st ra lia Ko re a Ch i na
8.5 6.7 4.5 3 0.5 3.1 3.1 3.3 5.2
9.1
With its foreign exchange reserves booming at over 100 billion dollars, India now has the world's fourth largest foreign exchange reserves. India's currency assets are also as high as $ 1,10,560 million and gold reserves and Special Drawing Rights are also high at $ 4,198 million and $ 2 million, respectively. Exports during 2003-04 have grown by over 17.26
30
percent. In addition to impressive growth of exports, the imports have also grown smartly. India's imports during 2003-04 were valued at $ 75,209 million, denoting an increase of 24.96 percent over the total import value of the pervious financial year, which was $ 60,169 million.
12 0 10 0 8 0 6 0 4 0 2 0 0
Forex Reserves (US$ bn)
Rs/US$ rate (RHS)
49. 0 48. 0 47. 0 46. 0 45. 0 44. 0 43. 0 42. 0 41. 0 40. 0
199900
200001
200102
2002-
200304
In making India the third largest economy of Asia, several sectors and sub-sectors have recorded very high contributions to the GDP. Information Technology (IT) is one of the sectors that has made a very significant contribution in this respect. For almost a decade now, India has globally maintained its competitive edge in production and export of IT services. During the previous financial year, the revenues from the IT sector rose by 26 per cent. During this year, mainly because of outsourcing by many US firms, IT-enabled services have grown by 65 per cent. Sub-sectors like automobiles, tourism, basic metals and textiles have also grown by more than 20 per cent since June. Infrastructure sector in particular has made outstanding strides. During 2003 alone, nearly 1000 kilometres of four/six lane highways were built, whose length was more than double the total high quality roads built over the past 50 years taken together. The government of India has also announced a Sagarmala Project aimed at developing a string of ports with global facilities all along the Indian coast line, by spending Rs 1,00,000 crore in a phased manner. Thus, a lot more is required to be done before the country can sustain high growth rate for longer duration. It would be cynical to ignore
31
all the good work done and only ponder over the failures. The policy makers and administrators deserve the credit for outstanding performance of the economy. The need now is to improve the performance in the sectors where there is more scope and effect a turnaround in the areas where the economy has been precarious. Market conditions are to India's advantage and the country must exploit them to the optimum. However, lets a look at the other value adders of India:
Economic Indicators GDP (US$ bn, 2001) GDP per capita (PPP US$, 2003) Industries (% of GDP, 2002) Agriculture (% of GDP, 2002) Services (% of GDP, 2002) Exports (US$ bn, 2002) Imports (US$ bn, 2002) Public expenditure on education (% of GDP, 1998-2000) Public expenditure on health (% of GDP, 2001) Fiscal Deficit (% of GDP, 2003) Forex Reserves (US$ bn, 2003) India 477.3 2,830.0 21.5% 23.9% 54.6% 52.7 65.2 4.1% 0.9% 5.4% 119.8 China 1,159.0 4,690.0 51.1% 15.4% 33.5% 325.7 281.5 2.1% 1.9% -3.0% 439.8
Human Development Indicators Population (million, 2001) Annual population growth (1975-2001) Population density (people per 1sq km) Population under age 15 Population living below $ 1 a day (1990-2001) Unemployment (% of labour force, 2002) Adult literacy rate (15 years and above) Female adult literacy rate (15 years and above) Life expectancy (years, 2001) Infant Mortality rate (per 1,000 live births, 2001)
1,033.0 2.0% 324.0 33.7% 34.7% 9.9% 58.0% 46.4% 63.3 67.0
1,285.2 1.3% 130.0 24.3% 16.1% 9.0% 85.8% 78.7% 70.6 31.0
Other Indicators Telephone mainlines (per 1,000 people, 2001) Internet us ers (per 1,000 people, 2001) Cellular subscribers (per 1,000 people, 2001)
38.0 6.8 6.0
137.0 25.7 110.0
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2. Recapping the Stock market 2004.

Swept by the "India Shining" re-election campaign of the 12-party National Democratic Alliance (NDA) government and a wall of money willing to buy the "back-office to the world" story, the BSE-30 Index soared above the 6,000 levels in January, 2004. However, the loss of the NDA in the general elections and the creation of the United Progressive Alliance (a 15-party group led by the Congress which also includes the Communists) shocked investors. On May 17, 2004 the BSE-30 Index saw its largest one-day point decline when foreign investors (the largest net buyers of Indian equities over the past three years) began to unwind their positions. The involvement of the Communist Party with their traditional agenda of reviewing the "reform process" in a new government was perceived to be bad news. The subsequent run-up in the market and the consecutive new highs established by the BSE-30 Index in December 2004 vindicates our stand that this Congress-led government has the credentials and desire to keep reforms going. Despite election jitters in the first quarter, the fact that India managed to absorb the transition in leadership at the Centre proves the strength of our democratic setup. This is of significant importance because political stability is paramount in the top-down approach to investing. Secondly, despite seeing one of its biggest falls on May 17th, the market bounced back and in this case, fundamentals ruled. Thirdly, the
33
institutional framework today in India is so good that in spite of such a severe stock market crash, there was no payment crisis. Coming to the stock market performance, the BSE Sensex gained 15% in calendar year 2004. But as always, there were winners and losers in terms of returns. The under-performance of the BSE FMCG index for the second year in succession was not a surprise to many, especially given the inability of the players to expand the market. On the other hand, one of the major underperformers in the calendar year 2003 i.e. the BSE IT index bounced back in 2004. Also, expectations of the government fast-tracking the consolidation process and the second half recovery in non-food credit resulted in the BSE Bankex outperforming other sectors. Another flavor of the year was the mid-cap stock segment. Though there is no standardization in equity markets with regard to what can be termed as 'mid-caps', even DSQ Software found buyers supposedly because it is a 'mid-cap' company with 'promising' growth potential! Factors like poor track record, lack of information and low liquidity are some of the risks that investors need to bear in mind before investing in mid-caps.
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3. THE BUDGET.
The Budget is an estimate of Government expenditure and revenue for the ensuing financial year, presented to Parliament (in case of Union Budget) usually by the Finance Minister. Occasionally, in times of financial crisis, interim Budgets may be introduced later in the year to increase taxation, expenditures, etc. Sometimes there may be slight modifications in taxation and expenditure without the formality of a revised budget. Budgets are basically of two types: l) THE UNION BUDGET: An estimate of all anticipated revenue and expenditure of the Union Government for the ensuing financial year is laid before Parliament on the last working day of February every year. This is known as the Annual Financial Statement or the Budget and covers the Central Government's transactions of all kinds in and outside India during the year in which the statement is prepared as well as ensuing year, or the Budget year, as it is known. 2) STATE BUDGETS: Like the Union Government, State Governments, too, have their own budgets. Estimates of receipts and expenditure are presented by the State Governments to their legislatures before the beginning of the financial year and legislative sanction of expenditure is secured through similar procedure. Among these two, the graver impact creator is the Union Budget as it affects the economy as a whole. The govt. launches budget every year and hence, to understand the present and future condition of the sectors, it becomes very important to understand the Budget 2005-06. - BUDGET 2005-06. The budget 2005-06 has come up with a lot of pros and cons for the various sectors that exist. But typically we shall for now see the
35
various kinds of impacts that it ha created on our sectors, i.e. IT, Banking and Auto. IT (SOFTWARE) SECTOR Given the fact that India's software industry is of a miniscule size compared to the global technology industry, there is tremendous scope to grow. In particular, BPO services and higherend IT services will be the next growth drivers for the industry, and companies which are steadily moving up the value chain will benefit. Companies having a scalable business model, operating in niche areas requiring a higher level of skills, and which are steadily building competencies in providing high-end business solutions to their clients are expected to corner the gains from this growth. The major actions that have been taken in the current Budget regarding this sector are; 1. Zero customs duty on items bound under the Information Technology Agreement. 2. In order to provide a level playing field to the domestic industry, customs duty on specified capital goods and all inputs required for the manufacture of ITA bound items has been removed. 3. Additional countervailing duty (CVD) at 4% has been imposed with immediate effect from 1st March 2005 only on items bound under the Information Technology Agreement, and on specified inputs/raw materials for manufacture of electronics/IT goods. 4. IT software and documents of title conveying the right to use IT software will not be subject to this levy. However, the major kinds of impacts that it will create are only two; 1. The cost of manufacturing items bound under the ITA is expected to fall. With the increase in competition and the
36
abolition of customs duties, the lower costs should be passed on to the end-user, resulting in availability of cheaper hardware, thus giving much-needed encouragement to the hardware industry, which has been a poor cousin of the high-profile software industry in the past. 2. No major impact on software companies, which are already operating under a favourable tax regime. AUTO SECTOR Since September 2001, the automobile sector has been clocking impressive growth rates, in terms of number of units sold. While huge pent-up demand, lower interest rates, replacement cycle and improved economic performance have led to this performance, in the next three years, the challenges are immense i.e. increased competition, fragmentation, new regulations and more importantly, significant capital expenditure commitments. But measuring the better performance in the next three years cannot be done unless the budgets created are taken into consideration. The major actions taken by the government in the current budget regarding the Auto sector are: 1. Second hand motorcars and motorcycles would now attract a customs duty of 100% as compared to 105% earlier. New cars will, however, continue to attract 60% duty. 2. Tractors of engine capacity more than 1800 cc for semi trailers will now attract excise duty @ 16%. 3. No change in excise duty on passenger cars and UVs. 4. Peak customs duty reduced from 20% to 15%. 5. Excise duty is being reduced on tyres, tubes and flaps from 24% to 16%. Customs duty on lead cut to 5%. Hence, the major impacts of it will be; 1. Finance Minister's move on the direct tax aspects will result in higher disposable income, which in turn could boost auto
37
sales. The industry's demand for further lowering of excise duty on passenger cars has not materialised. 2. On the input side, the lowering of excise duty will lessen the costs of key raw materials, which are mostly pass through in nature. The fall in excise duty on lead will result in Exide lowering battery prices, which then will be passed on to auto majors. BANKING SECTOR The budget has been a mixed outlook for the banking sector. While there is increased flexibility, the move to boost agriculture advances is likely to have a much larger impact on PSU majors. While the expectations are that the credit growth are to remain robust (though slower than 21% in the recent past), not all banks will be able to reap the benefit from such sector trends. Enhanced lending to agriculture and priority sectors (including infrastructure lending) will require banks to exercise more caution on the NPA front. Amendments to Banking Regulation Act may however, fulfil the key objectives of competition, consolidation and convergence as highlighted in the budget speech. The major actions of these budgets on banking were: 1. Amendment of the Banking Regulation Act. 2. Allow banking companies to issue preference shares. 3. Introduce provisions to enable the consolidated supervision of banks and their subsidiaries by RBI. 4. Increase bank lending to agricultural sector by 30% and PSU banks to increase number of agricultural borrowers by 5 m. 5. Remove the lower and upper bounds to the statutory liquidity ratio (SLR) and removal of the limits on the cash reserve ratio (CRR) to provide flexibility to RBI to prescribe prudential norms. 6. Enable RBI to lend or borrow securities by way of repo, reverse repo or otherwise.
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7. 0.1% banking transaction tax to be imposed on cash withdrawals above Rs 10,000 on a single day. 8. Removal of benefits available to depositors (Section 80-L). 9. Autonomy to RBI to implement reforms in banking sector. The major impacts that it will create are; 1. Higher autonomy to RBI will enable the apex bank to vary the CRR and SLR limits as per the liquidity requirements of banks (in consonance with the credit growth) and this in turn, will facilitate more flexible conduct of monetary policy. Also, enabling RBI to lend or borrow securities by way of repo or reverse repo will enhance trading of government securities. 2. The proposal to amend the Banking Regulation Act does not specify the intended modifications to be brought in the act. However, the same may consider the enhancement of FDI limits and higher voting rights cap. 3. Allowing banking companies to issue preference shares will enable them to infuse more Tier I capital and thereby help them comply with Basel requirements. 4. Mandation on PSU banks to hike their agricultural lending may resurface the problem of NPAs for these banks. 5. Banks are also likely to be the beneficiaries of higher infrastructure lending by way of routing their funds through the 'Infrastructure financing SPV' for eligible and appraised projects. While this would provide an impetus to core advances of banks, the quality of such advances is likely to be better. In this light, there is relatively less NPA risk. 6. The 0.1% banking transaction tax will discourage cash transactions. 7. The removal of benefits to individuals with respect to Section 80-L i.e. deduction to a limit on interest on bank deposits could impact deposit growth.
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INDUSTRY ANALYSIS, THE ETOP WAY.

1. ETOP Analysis...
The identification of environmental issues is helpful in structuring environmental appraisal so that the strategists have a good idea of where the environmental opportunities and threats lie. Structuring the environmental appraisal is a difficult process as environmental issues do not lend themselves to a straightforward classification. Issues may arise simultaneously from more than one sector of the environment. Strategists have to use their experience and judgment to place the different environmental issues where they mainly belong so that clarity can emerge. There are many techniques available to structure the environmental appraisal. One of the technique, suggested by Glueck, is that of preparing an Environmental Threat and Opportunity Profile (ETOP) for an organization. The preparation of ETOP involves dividing the environment into different sectors and then analyzing the impact of each sector on the organization. A comprehensive ETOP requires subdividing each environmental sector into sub-factors and then the impact of each subfactor on the organization is described in the form of a statement. However, there can be some environmental factors which may cause no impact on the industry at all as that industry of sector may be water tight in its nature form those sector or may be not at all related to those factors, such sectors are marked by a horizontal double pointed arrow (). In case some factor is causing a positive impact then it is pointed by an upward arrow () and a negative impact making factor with a downward arrow ().
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Following the same concept, in order to understand which sector is better for the investment, an ETOP study can be conducted of the various sectors and hence an analysis can be done as to understand which sector is the best, keeping in mind the future prospects. To take a look at the IT Sector primarily, the various factors affecting it and causing a sizable impact on it are;
ETOP of IT Sector/Industry Nature of Impact Description
Environmental Factor 1. Market (Micro Env.)
2. Economic
3. Political & Gov. 4. Socio-Cultural 5. Technological 6. Demographic 7. Natural 8. International
- Huge rise in IT sector's Q3 Income. - Rise in salaries of all employees of IT sector by 14.3% * - Assumed to be the sector for tomorrow so better scope for growth. - Low taxation on IT softwares but likely to be different for different softwares in future course. - Heavy support from government for its development in Budget system. - No significant threat or affect assumed from this factor. - The sector itself denotes technology so not much affect. - No significant threat or affect assumed from this factor. - No significant threat or affect assumed from this factor. - Not much threat but a little from US IT companies.
* - Such fields have no solid base but are believed in general by everyone.
Observation: Taking a look at the table given above we notice that, IT sector is one of a unique type if sector which is not affected a lot by external environments, but works on its own manner. Though there is going to be an increase in the taxation that is charged on the products, yet the sector will still be in a profitable position as taxation is assumed to be charged less then other sectors. Additional to all this, the large support provided by the government considering it as a market of tomorrow, the large support provided by the government may also help it in its development. Some of the leading IT
41
companies like TCS, Infosys, etc. have also gained heavily in the current year taking a look in comparison to the previous year. Similarly, to take a look at the Auto Sector, the various factors affecting it are;
ETOP of AUTO Sector/Industry Nature of Impact Description - Increase in Prices of raw material especially steel prices, hence prices of autos will increase. - Auto companies about to increase their capacity by 45% in '05 and SUV by 25%. * - Increasing prices of oil will further demotivate the market in future. * - Heavy Competition from several MNC's entered the market thus destroying the market share of listed companies and expected to destroy the share of their markets in future also. - Increase in prices of automobiles by 2-5% due to VAT. - Excise, Customs and Imports to get cheaper/lower as Government plans to cut them in budget. - Government may reduce duties on raw materials and components of autos to fight the price rise. - Government's plan of CNG application or 'CNG application table' might increase the sales of this sector in near future. - No significant threat or affect assumed from this factor. * - Imparting of better technology assumed from International Players entering the market. - No significant threat or affect assumed from this factor. - No significant threat or affect assumed from this factor. * - Entry of several International players is assumed to be taken this year.
Environmental Factor
1. Market (Micro Env.)
2. Economic, Political and Governmental.
3. Socio-Cultural 4. Technological 5. Demographic 6. Natural 7. International
Observation: Considering the total income of Auto sector for once, we get into picture that the total income of auto sector reduced from 135%
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(in 2003) to approx 45% in the current year (2004). Hence we can say that it was not the year for auto sector. Additional to it, increasing prices of Steel, Oil, VAT and entry of several new players (MNCs which are not listed in the stock exchange) may further destroy the market of the Indian auto companies. But at the same time, the government is also taking several steps to control the hikes of metals by reducing taxes on metals, lowering of duties on imports, which will enable the company to import materials or technology from outside. And lastly, to take a look at the Banking Sector the various factors affecting it and causing a sizable impact on it are;
ETOP of Banking Sector/Industry Environmental Factor Nature of Impact Description 1. Market (Micro Env.)
2. Economic, Political & Governmental.
3. Socio-Cultural 4. Technological
- Huge rise in Banking sector's Q3 Income. - Banks going for M&A's heavily to expand their market. * - Banking and securities Act (BSA) launched by the Government has heavily reduced the NPA's or Default customers of the banks. - Banks may loose a large part of their profits when interest rates rise due to sinking treasury income. - Banks may get to invest 10% of their deposits in stocks (previously only 5% was allowed). - Banks and MF's may soon be allowed to trade in Commodity futures (5-10% of advances). - Government stays firm on its decision to hold more then 51% shares of PSU banks. - RBI guides banks M&A to get Tax-breaks. - Banks fear excessive control by Government. - No significant threat or affect assumed from this factor. - No significant threat or affect assumed from this factor.
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5. Demographic 6. Natural 7. International
- No significant threat or affect assumed from this factor. - No significant threat or affect assumed from this factor. - Foreign banks may be allowed to creep up 10% a year in Pvt. Banks.
To talk about the banking sector, one of the leading sectors of the year 2004 was the banking sector. This was proved by the increasing Quarter incomes of the banks (Q3). Along-with, the heavy M&As taking place, the permission given by the government to banks to invest in stocks and commodities & the governments decision to hold more the 51% of its stakes of PSUs also helped. But at the same time the banks now also fear of increasing interest rates of RBI & increasing power of the government to control banks. Conclusion: To take a final decision about which sector would be most prosperous; primarily it would be important to study the analysis of the various sectors. To take a look at the Auto sector, the future doesnt seem very bright as even if the government supports the auto sector, still the same benefits will be available also to the MNCs, hence in near future the loss of market can cause very furious impact on the sector. Hence, it can be a very risky sector to invest in and that too without sustainable returns. The surprise sector of this year Banking also doesnt seem very satisfying for investing as government has currently allowed private MNC banks to creep into the market every year by 10%, hence, the MNCs would be able to sweep the private banking sector very soon. Plus the increasing interest rates by RBI and excessive control by government may not allow the banks to function as per their decision. Hence, again a risky sector to invest in without sufficient returns, as expected. The sector that was very cool and slow in 2003 and came into force again in 2004 (IT sector) seems a good market to invest in, in the coming
44
future year. IT sector is a sector which has a very miniscule impact from outside factors. All that it faces is tough competition from its competitors. Though government plans to increase tax rates and even charge different rates of taxes for different softwares created in near future, still the low tax rate charged till now doesnt seem to affect the market a lot. Hence, keeping the present vision of the future, it seems that the IT sector can be the best to invest in the near future. But again, stock market is not a science and runs on basis of the mentality of the investors and hence, a very solid assumption of the future market would not be a very intelligent thing to do. An In-depth description of all the sectors shall be provided before the company analysis.
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IT (SOFTWARE) SECTOR.
1. The Sector that was and is.
Between the two under-performers of the calendar year 2003 in relation to the benchmark index i.e. the Sensex, the software sector was a surprising one besides FMCG. Forward to the calendar year 2004, the CNX IT index has outperformed the Nifty Fifty. The year 2004 marked the continuity in prospects for the Indian software sector with billing rates stabilising and volume expanding at faster than earlier pace. However, the year also led the management of Indian software companies chew on risks on the outsourcing front in wake of the US presidential elections held in November. While the return of Mr. Bush Junior brought some respite for these companies as the year drew to a close, it was not before a lot of apprehensions were raised whether the backlash would affect Indian software companies. In FY04, India's IT software and services exports grew by 30.2% to reach revenues of US$ 12.5 bn. Of this, IT services and products grew by 25% to clock revenues of US$ 8.9 bn, while the ITES segment grew by around 46% to reach revenues of US$ 3.6 bn.
The domestic market grew by 22% (same as in FY04) to reach a size of US$ 3.4 bn. Growth in this market was characterised by a higher volume growth in the face of falling billing rates.
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While application development and maintenance (ADM) continued to be a major source of revenues, software companies concentrated on high-end services like package implementation, IT consulting and systems integration for growth. This was in line with the Indian software industry's rapid movement up software the value chain. While billing rates stabilised during the second half of FY04, growth was mainly volume based. To improve volume growth, the companies not only improved utilisation levels and concentrated on a host of new service offerings but also tried to expand their presence in the lesspenetrated geographies like Europe and Asia-Pacific. With around 80% of Fortune 500 companies evaluating the off shoring option, Indian BPO companies added new and diversified services to their portfolio. This included, among other, engineering services and equity research. While lower attrition rates came as a positive surprise, there still remained bottlenecks in the form of poor infrastructure and inconsistency in the government's taxation policy towards the segment. 2004 also saw the listing of TCS, Asias largest software services exporter onto the Indian bourses. The issue received a wide response and the stock was listed at the upper end of the issue price. Another event to have marked 2004 was the crossing of US$ 1 bn revenue mark by two Indian tech majors Infosys and Wipro. While size of these three Indian software players are still miniscule as compared to global technology majors, the crossover of the US$ 1 bn revenue mark definitely marks their emergence into the global technology domain where balance sheet size plays a vital role in garnering large-scale contracts and growing businesses rapidly. Some of the most happening companies of this sector are; TATA Consultancy Services Ltd. (TCS), Satyam Computer Services Ltd., Patni Computer Systems Ltd. and Infosys Technologies Ltd.
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2. The Company Preview.

I. INFOSYS TECHNOLOGIES LTD.
44 & 97A, Electronics City Hosur Road Bangalore Karnataka 560100 28520261,28520262,28 520351, 28520362, infosys@itlinfosys.com http://www.infy.com Mr.Nandan M Nilekani Not Applicable Computers - Software
Registered Office Tel: Fax Email WebSite CEO
BSE Code NSE Code Face Value Market Lot
500209 INFOSYSTCHEQ 5 1
Business Group Industry Share Holding Pattern as on '30/09/2004' Major Holder Percentage (%) 21.98 Promoters Institutional 46.34 Investors 10.91 Other Investors 20.77 General Public
Dividend Announcements Year Dividend (%)

2004 2003 2002 2001 2000 2590 540 400 200
90
Infosys Technologies Ltd. provides consulting and IT services to clients globally - as partners to conceptualize and realize technology driven business transformation initiatives. With over 32,000 employees worldwide, we use a low-risk Global Delivery Model (GDM) to accelerate schedules with a high degree of time and cost predictability. It provides solutions for a dynamic environment where business and technology strategies converge. Their approach focuses on new ways of business combining IT innovation and adoption while also leveraging an organization's current IT assets. They work with large global corporations and new generation technology companies - to build new products or services and to implement prudent business and technology strategies in today's dynamic digital environment.
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II. SATYAM COMPUTER SERVICES LTD.

Mayfair Centre 1 Floor 1-8-303/36 Secunderabad Andhra Pradesh 500003 27843222,,, 27813166, investorservices@satya m.com http://www.satyam.com Mr.B Rama Raju Satyam Group Computers - Software
Registered Office Tel: Fax Email
500376 SATYAMCOMPEQ 2 1
WebSite CEO Business Group Industry Share Holding Pattern as on '30/09/2004' Major Holder Percentage (%) 16.23 Promoters Institutional 64.73 Investors 13.43 Other Investors 5.61 General Public

2004 2003 2002 2001 2000 200 150 60 40
30
Satyam Computer Services Ltd. is a leading global consulting and IT services company, offering a wide array of solutions customized for a range of key verticals and horizontals. From strategy consulting right through to implementing IT solutions for customers, Satyam straddles the entire IT space. It has excellent domain competencies in verticals such as Automotive, Banking & Financial Service, Insurance & Healthcare, Manufacturing, Telecom Infrastructure Media Entertainment Semiconductors (TIMES). As a diverse end-to-end IT solutions provider, Satyam offers a range of expertise aimed at helping customers re-engineer and re-invent their businesses to compete successfully in an ever-changing marketplace. Satyam's network spans 45 countries, across 6 continents. Over 16,800 dedicated and highly skilled IT professionals, work in development centres in India, the USA, the UK, the UAE, Canada, Singapore, Malaysia, China, Japan, Australia and Hungary and serve over 350 global companies, including over 109 Fortune 500 corporations.
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III. TATA CONSULTANCY SERVICES LTD.

Bombay House 24 Homi Modi Street Fort Mumbai Maharashtra 400001 56658282,,, 56658080,
Registered Office
532540 TCSEQ 1 1
Tel: Fax Email tcs@tata.com WebSite www.tcs.com CEO Mr.Ratan Naval Tata Business Group Tata Group Industry Computers Software Share Holding Pattern as on '30/09/2004' Major Holder Promoters Institutional Investors Other Investors General Public Percentage (%)
84.84 7.87 1.11 6.18
Dividend Announcements Dividend Year (%)

2004 2003 2002 2001 2000 12 0 0 0
Commenced operations in 1968, TCS pioneered the offshore delivery model for IT services. Today, with a presence in 32 countries across 5 continents, & a comprehensive range of services across diverse industries, we are one of the world's leading Information Technology companies. Six of the Fortune Top 10 companies are among its valued customers. TCS is a part of one of Asia's largest conglomerates - the TATA Group - which, with its interests in Energy, Telecommunications, Financial Services, Chemicals, Engineering & Materials, provides us with a grounded understanding of specific business challenges facing global companies. TCS has been present in the Asia Pacific region for more than 20 years. TCS uses these insights and knowledge accumulated over the years, as well as its global expertise, to provide innovative solutions to its clients in the Asia Pacific region.
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TCS serves the Asia Pacific region from 12 offices and three development centres across nine countries, and offers high-end IT consulting and software solutions to global corporations as well as local companies. Over 1000 highly qualified consultants are based in our offices, development centres as well as on client sites. Sine its incorporation in India, in past 3-4 years, TCS has won many awards including the best employer award. Its IPO opening also received one of the greatest response ever received.
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IV. PATNI COMPUTER SYSTEMS LTD.

S-1A Irani Market Compound Yerawada Pune Maharashtra 411006
Registered Office
532517 PATNIEQ 2 1
26693457,,, Tel: 26693859, Fax investors@patni.com Email www.patni.com WebSite Mr.Narendra K Patni CEO Not Applicable Business Group Computers - Software Industry Share Holding Pattern as on '30/09/2004'
Major Holder Promoters Institutional Investors Other Investors General Public
Percentage (%)
51.26 11.39 34.56 2.78

2004 2003 2002 2001 2000 N/A 50 26 -
Patni Computer Systems Limited was incorporated as Patni Computer Systems Private Limited on February 10, 1978 under the Companies Act, 1956. In 1988, by virtue of Section 43A of the Companies Act, the Company became a "deemed public company" and subsequently on April 15, 1991 it was converted into a private limited company. By virtue of its turnover exceeding prescribed limits under the then-applicable Section 43A of the Companies Act, on July 1, 1995, the Company became a deemed public company and consequent to the deletion of Section 43A from the Companies Act, 1956, the Company was converted to a private limited company on June 27, 2002. The Company was again converted to a public limited company on September 18, 2003. The original activities of the Company were computer time rental, the resale of imported computer hardware, and software exports. In 1981, the Company promoted PCS Data Products (Private) Limited ("PCSDP") for the sale and marketing of computer equipment and hardware maintenance. In 1987, the Company promoted PCS Data General India ("PCSDG"), a joint venture with The Data General Corporation, USA, for the manufacture and maintenance of computer hardware. In 1994, the
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name of PCSDP was changed to PCS Industries Limited ("PCSIL") and PCSDG was merged into PCSIL. Since 1994, the Company has been entirely focused on software exports. In 1999, the shares of PCSIL held by the Company and other non-operating assets were de-merged into other group companies and the Company emerged as a focused IT services company. Patni Computer Systems Limited is a separate entity from PCS Industries Limited, which is a group company. Patni is a global IT Services provider with revenues in excess of $250 million in 2003. Over 9000 professionals service clients across diverse industries, from 24 sales offices and multiple offshore development centers across 8 cities in India. As industry leaders, we introduced Offshore Development Centers, and pioneered 'follow the sun' development and support frameworks.
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3. Ratio Analysis.
Ratio analysis is a very important tool which helps us in analysing how well the companys performance in the past few years was and hence helps us in understanding what can be the companys future situation too. How ever there are always some or the other limitations ruling the analysis. The only typical limitation ruling in the current analysis of the IT sector is the non-availability of the 2004 report of PATNI. Hence, the analysis of the PATNI computer systems ltd. is done on basis of its two years performance only. Current Ratio: An ideal current ratio is understood as in the ratio of 2:1. A ratio lower then it is considered to be harmful but at the same time a ratio higher then it is also not considered to be helpful for the company as well. Hence, on basis of the following interpretation, the following conclusions can be drawn about the companies;
CURRENT RATIO Infosys Satyam TCS 1.67 7.34 1.7 3.92 5.58 1.4 3.87 7.05 3.153333 6.656667 1.55 3 4 1
CURRENT RATIO
8 7 6 5 4 3 2 1 0 2004 2003 2002 Average YEARS / AVERAGE
2004 2003 2002 Average Rank
Patni 3.3 2.8 3.05 2
Infosys Satyam TCS Patni
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Debt-Equity ratio: A debt-equity ratio is generally found by dividing total debt of the firm by the total equity of it. It generally shows the margin of safety of creditors of the firm as it shows what amount of equity is being used in place of the debt. But, in the current case the situation id totally different and reaching to any specific conclusion is not feasible as none of the four companies have used debts in their capital raising procedure. Hence, the ratio also results in 0 (Zero), hence, no ranking whose debt-equity ratio is the best and whose most safe.
DEBT EQUITY RATIO Infosys Satyam TCS 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Patni 0 0 0 0
DEBT EQUITY RATIO

1 0.8 0.6 0.4 0.2 0 2004 2003 2002 Average YEARS / AVERAGE Infosys Satyam TCS Patni
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Gross Profit Margin: A Gross profit of the firm tells what has been the total income of the company on a basis of 100 Rs., before deducting some of the expenses like, depreciation, interest, taxes, etc. In the current ratio we seen that though we dont have the financial data of Patni of year 2004, yet after analysing the other periods of patni we get a conclusion that Patni computer systems is having the highest GP Margin compared to others. Though its profits seem to be having a fall, compared to previous years, as it is having a higher average still it can be expected that the company may again regain the position of a positive profitability in future. Closely following it is Infosys, which is having a positive profit growth bar. Similar is the position with Satyam and TCS.
GROSS PROFIT MARGIN (%) Infosys Satyam TCS Patni 33.1 27.2 27.3 34.5 30.6 24.4 40.1 39.9 33.6 30.5 48.6 35.83333 30.46667 27.4 44.35 2 3 4 1
GROSS PROFIT MARGIN (%)

60 50 40 30 20 10 0 2004 2003 YEARS 2002 Average Infosys Satyam TCS Patni
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Net Profit Margin: A GP Magi of a firm might some times miss lead but this cannot be the case with NP Margin as it tells the final profit in the hands of the company as all the expenses have been deducted now of every kind. In the Net profit Margin also Patni computers follow the same pattern as it followed in GP Margin. Patni computer systems have the highest NP Margin recorded but it is only due to its outstanding performance in year 2002 and henceforth, it has been facing a reducing profit. Similarly, we see that Patni Computer Systems is followed by Infosys very closely, but the main change that takes place here is that here TCS overtakes Satyam which shows that TCS is having better profit then Satyam as a whole, or in other words the expenses of Satyam after GP are higher then TCS.
NET PROFIT MARGIN (%) Infosys Satyam TCS Patni 26.1 21.9 22.6 26.4 15.2 19.8 30.9 31 28.3 25.3 36.6 27.83333 21.8 22.56667 33.75 2 4 3 1
NET PROFIT MARGIN (%)
40 30 20 10 0 2004 2003 2002 Average YEARS / AVERAGE Infosys Satyam TCS Patni
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Return on Equity: The return on equity tells us what has been the return on the total capital that was invested by the shareholders of the firm. When it comes to return on equity the position or the ranking of the firms totally gets reversed. Here, its TCS that takes the lead which means that it provides the best returns to its investors on their capital. Though, the TCS return on equity is also facing a negative growth pattern still, the return provided by it is way past ahead of the others to outdate it compared to others. And t ether way also we see that 3 out of 4 companies have followed the same pattern themselves also. Only Infosys made a trend reversal by facing a higher Return in the year 2004 and that too very minimal.
RETURN ON EQUITY (%) Infosys Satyam TCS Patni 38.2 21.5 78.1 33.5 14.4 82.6 19.6 38.8 25.4 96.14 23.6 36.83333 20.43333 85.61333 21.6 2 4 1 3
RETURN ON EQUITY (%)
120 100 80 60 40 20 0 2004 2003 2002 Average YEARS / AVERAGE Infosys Satyam TCS Patni
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Return On Assets: Whether the firm has seen a justifiable growth in comparison to its assets holding, is what is displayed by this ratio. Its TCS that again takes the lead in this field along with a positive growth trend in return on assets over the years. Some other companies like Infosys, Satyam have also made a turn around and may make a higher return on assets in future, but presently on an average after analyzing the past three years we see that TCS provides the best return on assets. Hence, we can say that TCS is utilizing its resources to the best compared to others.
RETURN ON ASSETS (%) Infosys Satyam TCS Patni 24.4 18.9 43 27.2 12.3 34.4 17.2 32.1 22.6 20.7 27.9 17.93333 38.7 18.95 2 4 1 3
RETURN ON ASSETS (%)
50 40 Infosys 30 20 10 0 2004 2003 2002 Average YEARS / AVERAGE Satyam TCS Patni
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Earnings per Share: The term that directly gives a straight shot to the investors is the earnings per share of the company as maximum people invest in shares for the sole purpose of earning a profit. In the current situation we see that, Infosys rules the market as the earning as per it is way past higher then any one. The earning of other companies to its shares seems very miniscule compared to others. To add further more, the EPS over the ears is also following a positive trend which means that chances are there that it may rise more in future too. The only company in competition we can see on basis of EPS would be TCS as it is the only company following a continuous growth trend in terms of EPS though way past below Infosys.
EARNINGS PER SHARE (Rs.) Infosys Satyam TCS Patni 186.6 17.6 35.4 144.6 9.8 24 15 122.1 15.6 24.2 22.2 151.1 14.33333 27.86667 18.6 1 4 2 3
EARNINGS PER SHARE (Rs.)

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Dividends per Share: Another way or term that provides a direct impact on the investors is the dividends provided by the company to its investors. In this scene we see that again, Infosys is at the lead position providing dividends to share holder greater then any body else over the years. The company that provided the greatest challenge to Infosys in previous ratio - TCS - is no where in scene as it has provided no dividends to its share holders form a time period of three years. Hence, we see that Infosys is at the best, followed by Satyam, then Patni and finally TCS.
DIVIDENDS PER SHARE (Rs.) Infosys Satyam TCS Patni 129.5 4 0 27 3 0 1 20 1.2 0 0 58.83333 2.733333 0 0.5 1 2 4 3
DIVIDENDS PER SHARE (Rs.)

140 120 100 80 60 40 20 0 2004 2003 2002 Average YEARS / AVERAGE
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P/E Ratio: P/E ratio r the price earnings ratio tells us about the future prospect of the companies, i.e. whether people are expecting the companys share prices to go up or down. Due to unavailability of data of previous years the P/E ratio is calculated here of only the present years and tat to on basis of the share prices of NSE. On basis of the P/E ratio we can expect that in future, if everything moves favourably, the share prices of TCS may go the highest or may collect the highest growth compared to others. Closely following can be the growth of Satyam, then Infosys and lastly Patni. The share prices of Infosys are hard to increase as already its share prices have increased very heavily previously and hence we can say that may be they have reached a maturity level.
P/E RATIO (as on 31-Dec-2004 (NSE)) Infosys Satyam TCS Patni 11.21014 23.34946 37.72458 4.57701 3 2 1 4
2004 Rank
P/E RATIO (as on 31-Dec-04), NSE

40 35 30 25 20 15 10 5 0 2004 Years
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- CONCLUSION: As each and every ratios is different in its nature, it would be very unjust to directly give a conclusion as to which company would be the best, hence, a list of the various companies ratio ranking positions can be made and hence an analysis can be made accordingly. Hence, the company tat makes the lowest points in ranking would be having a highest rank accordingly.
Infosys 3 0 2 2 2 2 1 1 3 16 Satyam 4 0 3 4 4 4 4 2 2 27 TCS 1 0 4 3 1 1 2 4 1 17 Patni 2 0 1 1 3 3 3 3 4 20
Current Ratio Debt-Equity ratio Gross profit Margin Net profit Margin Return on Equity Return on Assets Earnings per Share Dividends per Share P/E ratio Total
Hence, on the basis of the financial ratios, we can make a conclusion that the best company for the investment can be Infosys at present, very closely followed by TCS, then Patni and finally Satyam.
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4. Market News Analysis.

The market news analysis provides us a picture as to what is the position of the company in the current scenario and what can be the future trend of the company as well. The market news or the news of the company creates a very deep impact on the market price of the shares and hence, is the base for the creation or destruction of the boom and bane phase in the prices of the shares in the market. The market news of the various IT companies move very rapid generally as a lot keeps happening in this sector everyday and that too very rapidly. To talk about companies like Infosys and TCS, the market news keeps popping up every day but the one that affected them the most was that; Infosys Q3 income rises by 51%, but not very amusing as market expected more. TCS Q3 income rises by 54% and everyone happy. TCS playing intelligent by investing in Biotechnology based softwares capturing markets of tomorrow. The following news about the company made the market very dull for Infosys and at the same time gave a very bright future for TCS as people now expect a better future in TCS then Infosys. Some of the other companies like Satyam and Patni dont stay in the news very often but provide a view about them sometimes, which keeps the investors interested in the company. Some of the biggest news issued for Patni are; Patni plans to raise $100-120 mn ADR issue. Patni to vertical integrate with Cymbal (US company) as a telecom growth.
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Hence, on basis of the Market News Analysis we come to a conclusion that TCS is the best for future investment followed by Infosys, later come Patni and finally Satyam. 1st TCS, 2nd Infosys, 3rd Patni and, 4th Satyam.
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5. Shareholding Pattern Analysis.

Often a mis-judgement is made that if a company is providing a good EPS or ROE on its shares then it is a good company to invest into but one thing is generally not taken into consideration is that what is the percentage of shares that general public holds or what is the share holding pattern of the company? Share holding pattern represents as to what percentages of shares are being held by whom? The point of notice here is that; if a companys major amount of stock is with the promoters of the company itself then this would mean that there are less amount of shares of that company floating in the market. In such a situation, investment in that share can be to some extent more riskier the other shares as it may either have very high risk or might become very low valued. But at the same time fewer amounts of shares with the promoters of the company is also very risky as it would mean that the power of the company might flow off in any bodys hands, hence, not safe for investing in. In the individual profile of the company, we see that in Infosys, approx only 22% of shares are being held by the promoters of the company. But the same time it is not a situation of being in a panic as majority of shares here are being held by institutional investors (46%) who are quite experienced and hence would think and work for the betterment of the organisation. Along with that, the general public holds approx 21% of the total shares hence, we can say that the distribution is quite suitable and non-objectable. In Satyam also, we see that majority of shares are being held by the institutional investors but at the same time the promoters hold extremely less amount of shares in there hands ( only 16%). Additional to it, the general public and other investors additionally hold less then 20% of the total investments, hence the situation seems very risky and less reliable.
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When taking a look at TCS, we get a picture that the company basically believes in keeping a hold of the company with its promoters itself and doesnt want to allow institutional investors to play with the company in the market. Hence, we get a picture that there will be a very strong position of the companys decision panel and hence, not changing. But at the same time the general public holdings are also very less which makes the company to invest into a bit risky, but the build up of the good brand name of Tata industries covers it up very well. The position of Patni seems very different from the other players of its sectors. Patni keeps a very minority of its share holdings with the institutional investors or in other way round, institutional investors dont intend to invest in Patni to a large extent. Though a majority of part of share holding of the company is with the promoter itself yet a large part of it is also along with the investors and general public. Hence we can say that Patni would be a good company to invest into as it would be having a good amount of floating of shares in the market for general public plus its promoters base also seems satisfying. On basis of the following study, a conclusion can be drawn that from the point of view of shareholdings analysis we can say that Infosys would be a good company followed by Patni, then TCS and finally Satyam.
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6. Sharekhan Acceptance Analysis.

Sharekhan acceptance analysis will give us a picture as to which shares Sharekhan is expecting to work out really good in the coming year, i.e. 2005. Such kind of analysis is required because while all the other analysis are based on the past data or such, none of them typically represent or reflect, the real market movement of shares prices. The special expert researchers of Sharekhan on basis of their study of market and all the situations reveal their view as to which shares they expect to be the best in the coming year. Analysing such type of support reports will bring in a picture, clearer as to which shares are working well in real life situation also irrespective of what the financial reports of the company say. In IT Sector, Sharekhan typically believe Infosys and Satyam to be a good investment in the coming years. Infosys is being considered a very good company to invest into by Sharekhan due to the gaining outsourcing momentum and some other reasons. Infosys is also being considered in the Evergreen category by Sharekhan hence, it is more or less always a good company to invest into as per their study. Satyam is also being expecting to work out good in this year. Sharekhan expects Satyams EPS to rise by more then 75% in the coming two years (by 2006). However, it is being considered in an Ugly Duckling phase which means that one has to be patient and the company after quite some time in this year will begin to fulfil the shareholders expectations.
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7. Mutual Fund Preference Analysis.

The Mutual Fund Preference Analysis provides us a view as to which companies are those in which the mutual funds generally believe to invest into. Such type of study not only provides us a view regarding which company the MF believes best for good returns but also provides us a view as to in which companys shares in general might stay in the market for longer duration of time, as MFs have policies for short as well as long term investments decisions. Along with, it also acts as a counter check against the previous analysis done as it will again provide a scenario of the real market situation. There several MFs existing in India presently so in order to make a fair study, the investment pattern of top 6 MFs of India are studied here. The MF preference analysis of IT sector provides us a view as follows:
Mutual Fund Preference Analysis for IT Sector. TC Infosys Satyam Patni S UTI MF 1 2 3 4 HDFC MF 1 2 3 4 Pru. ICICI MF 1 3 2 DSP Merrill Lynch 1 4 2 3 TATA MF 2 3 1 4 Kotak MF 1 3 2 Total 7 17 13 15 Average 1 3 2 4 Final Rank 1 3 2 4
After analysing the various MFs, their policies & their preference levels of various companies in their policies, the above table is drawn, which provides ranking to various IT companies in various MFs.
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The above table shows the ranking provided to various companies on basis of various MFs and finally a total of them is done and then its average to see as to which company scores the least (as ranking is to be noticed and valued) and then the least average and finally if the average is same of two companies then final ranking on basis of various ranks received and total achieved. On basis of this study made, a conclusion can be drawn that, from the above listed companies, the most preferable company selected as per the various MFs for their investments and healthy returns are; 1st Infosys 2nd TCS 3rd Satyam and lastly, 4th Patni.
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8. Price Movement Charts Analysis.

The price movement charts analysis provides a practical picture as to where be the valuation of the companys shares heading to? What is its pattern it is following? What is the maximum highest price it has reached? What is the lowest price it has striked? What is its volatility in the market? etc. It provides us an analysis to the picture as to what we see everyday around for general understanding of the share condition. Here is the analysis of the IT sector companies selected: INFOSYS TECHNOLOGIES LTD.
NSE Chart
After taking a look, one immediately thinks that why there is this severe fall in share prices? The fall in graph is due to the fall in prices due to issue of bonus shares by the company. As the share prices had reached an outstanding highest price of Rs.6000 on 13th April 2004, the company issued bonus shares to decrease the shares prices so that it becomes more affordable for different players to buy the shares of Infosys. The companys lowest price of shares striked on 9th July 2004, after the issue of bonus shares and hence forth as shown in graph, the prices are rising steadily hence forth. What is being said is that; if once the share prices can reach a height of Rs.6000, why cant it again repeat the same? Along with the high intra-day volatility of the share prices approx Rs.2070 every day on an average makes it a good play for intraday players also.
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SATYAM COMPUTER SERVICES LTD.

NSE Chart
Despite showing several heavy ups and downs as shown by the chart, the long term preview shows that the company is constantly taking a growth phase. Its 52 week high low also shows that the company ahs faced a highest price of Rs.422 on 30th Nov-04 and the lowest of Rs.250 on 17th May-04. Its intraday volatility shows that the company faces a volatility of generally Rs.5-10 generally but for longer durations, i.e. fall for continuously 2-3 days or so. Though, its growth pattern slope seems less rapid compared to Infosys, yet the company shows good signs of growth. But, comparatively, the company seems more risky then Infosys due to its low pricing yet, highly uncertain volatility.
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TCS LTD.
NSE Chart
With very low volatility signs, TCS proves itself to be a c\good company to invest into. Though, some where in between Jan-Feb, the company shows a sign of great depression, yet seems that the company recovered it and is again growing at a very fast pace. The 52 week high low shows that the company share prices struck the highest on 11th March 2005 of Rs.1435 and the lowest on 27th August 2004 of Rs.958.55. This also shows that how fast the company has grown. The volatility pattern of the prices on an intraday basis shows that the company has faced the volatility of generally approx. Rs.35-40 at the most, which again makes it a good company to invest into. Along with, the share prices of TCS has grown almost Rs.100 in month of Feb-March (11 th of each month), which again shows that company is in a hot growth pace now.
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PATNI COMPUTER SYSTEMS LTD.

NSE Chart
Though growing, yet the steadily word misses in the growth phase of the chart. The chart shows that the company moves ahead with a push all of sudden and then suddenly slows down. Its movement seems very un-steady in nature and at the same time very risky. The 52 week high low pattern states that, the company share prices has faced a maximum of Rs.422 on 21st Dec-04 and a minimum of Rs.186 on 17th May-04, which shows that company has faced very steep growth in a very short time but the pattern reveals the true picture that how the company has moved ahead and about its un-steadiness. The companys share prices generally face a volatility of RS.10-15 at the most but the same trend continues for days along which makes it a risky invest to do. Btu at the same time, it can be a good company to invest into for long run, as it is showing a growth trend.
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- CONCLUSION: Hence, after analysing the price movement charts of various companies, a conclusion can be made on basis of the charts that, the best company, from the point of view of long term investment, can be: 1st TCS LTD. It shows signs of good growth with the best slope of growth along with a very steady pattern in it. The company has lower intra-day volatility yet a good amount of it which makes the investors of both the long as well as short term satisfied. 2nd INFOSYS TECHNOLOGIES LTD. The company shows signs of growth and is expected to be one of the biggest Indian giants in IT sector. The high intra-day volatility and the high prices of shares is something which makes the share less preferable to play with. 3rd PATNI COMPUTER SYSTEMS LTD. This company shows signs of good growth in near future but the un-steady pattern of its growth is what makes it reach at a third position. Though the company achieved a lot in a very short span of time, yet, its growth pattern is not as good compared to the other companies and hence, it reaches a place of third. However, it makes it up to a [position better then Satyam. 4th SATYAM COMPUTER SERVIVCES LTD. This company though started from way before Patni, the highly unsteady bumpy growth pattern is what makes this company les preferable for investment as investors might face a heavy loss in such low investment compared to other three companies of this sector, hence, more risky.
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9. Sectoral Conclusion.
After analysing the various companies of the IT Sector, it becomes necessary to provide a singular solid result as to which company is performing the best and which will perform the best in near future too, hence, a table can be formed showing the various ranking provided to various companies and hence an average rank calculated can provide a proper solution to it. The table formed for IT sector will look as follows:
SECTORAL ANALYSIS (IT SECTOR) INFOSYS SATYAM Ratio analysis 1 4 Market news analysis 2 4 Shareholding pattern analysis 1 4 Sharekhan Acceptance 1 2 Analysis Mutual Fund preference 1 3 Analysis Price Chart Movement 2 4 Analysis AVERAGE / RANKING 1 4
TCS 2 1 3 2 1 2
PATNI 3 3 2 4 3 3
Hence, we get an all balanced picture now that after considering analysis from various prospects, we get a picture that Infosys ranks 1st all in all, closely followed by TCS, then Patni and then Satyam.
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AUTOMOBILE SECTOR.
1. From the Beginning to the Current Time.
It is true that today's automobile still has the same basic characteristics as the horseless carriage pioneered in the 1880s by Karl Benz and Gottlieb Daimler-four wheels, mostly petroleum-powered engines, low weight, and relative speed-but the changes that have been made are dramatic. Over the past 120 years or so, but more especially in the past 70, the motor ear has transformed society and personal mobility. In 1890, the average Briton-then a citizen of the world's most industrialized societytraveled about 13 miles a year. According to figures compiled by UK industry consultants Autopolis, that figure had reached about 13 miles a day by the 1990s. Autopolis calculate that there were 800 cars on the road at the end of the 19th century. By 1910, that number had increased to almost 460,000, with more than 300 car makers setting up business. Ten years later, there were 8 million vehicles on the road. Even then, the industry was heavily weighted in production and usage towards the United States. As production grew, so prices fell. By the outbreak of the Second World War, the entire industry had embraced the concept of mass production, dominated by Henry Ford's ubiquitous Model T in the 1920s. Only after the war, however, did the industry truly begin to gain global proportions. Growing personal wealth and international trade created new export markets in North America, Japan, and Western Europe. That drive, at least after the oil crisis of 1973, has been dominated by the production techniques, quality manufacturing, and sales of Japanese manufacturers. Their global scale, along with those of their American rivals General Motors (GM), Ford, and Chrysler, underpinned an industry which, by 2000, was producing 59.7 million vehicles annually.
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In terms of sourcing for manufacturing industry, India at present ranks seventh, according to the Deloitte study while North American companies account for 59%. However, in India, MNC's have not yet seen the opportunities in sourcing to India. Interestingly, in the manufacturing industry, globally over 80% of the corporates have reduced their workforce in the past three years, while about 50% have closed down certain production facilities. These numbers are less in India. The Indian automobile segment can be divided into several segments viz. two-wheelers (motorcycles, geared and ungeared scooters and mopeds), three wheelers, commercial vehicles (light, medium and heavy), passenger cars, utility vehicles (UVs) and tractors. The Indian automobile sector can be divided into several segments: 2 & 3 wheelers, passenger cars, commercial vehicles (Heavy CVs/ Medium CVs/Light CVs), utility vehicles (UVs) and tractors. Assuming an investor invested Rs 10,000 each in 10 auto stocks on December 28th 2003, the portfolio would have appreciated by 4% in the last one year. Compare this to the previous year i.e. calendar year 2003 when the same portfolio appreciated by as much as 129% in one year! As we had mentioned in our auto sector outlook at the beginning of the year, growth was already factored into the price and is vindicated by this marginal out performance relative to the benchmark index. As compared to a YoY decline in industry volume sales in FY03, growth accelerated in FY04 and for the period till November 2004, passenger car sales has increased by 34% approx. While new launches have played their part in expanding the market, the key growth driver in the period under review has been the interest rate factor. In light of the sharp fall in interest rates over the last four years, cars are more affordable at the current juncture (it is estimated that close to 80% of cars sold in the country are loan financed). While the growth rate may slowdown in the future owing to increase in interest rate and higher fuel cost, demand for
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cars is likely to trace GNP per capita growth in the long-term. The GNP per capita between 1971 to 2001 was around 11%, with passenger car sales mirroring this growth trend. Another segment that has witnessed a turnaround in fortunes has been tractors. Owing to erratic monsoons, demand for tractors was lacklustre between FY01 to FY04. Without realising the fundamental issue, manufacturers stocked up inventory with the dealers. With demand growing at a slower rate or declining in some regions (Southern and Western), manufacturers were forced to clear the inventory in the system that eventually led to a decline in volumes at the wholesale level. However, good monsoons in FY03 and in FY04 have helped matters and the industry is slowly coming out of the trough. Besides, the measure by the current government to reduce excise duty on tractors to zero percent in the last budget was also a trigger. The dream run for the commercial vehicle (CV) segment continued in FY04 and going by the volume numbers till November 2004, it was another stellar year for Tata Motors and Ashok Leyland. While we expect the rate of growth to slowdown in FY06, in terms of volume sales, the industry will continue to grow at the higher tonnage segment in line with the road construction projects. Historical evidence from other developed and developing countries suggests that in the long-term, the share of goods transportation through road increases, with railways losing steam, depending upon the pace of the road construction activity. The demand slowdown could arise from higher fuel cost, which the transport operators may not find it easy to pass on to the customers. Some of the leading Auto Companies of the current time are; Bajaj Auto Ltd. (BAL), Hero Honda Motors Ltd. (HHML), Maruti Udyog Ltd. (MUL) & Tata Motors (TAMO). We shall take a summarised look now at the profiles of all these companies.
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I. TATA MOTORS LTD.
Bombay House, 24, Homi Mody Street Mumbai Maharashtra 400001 56658282,,, 56657799, hks@tatamotors.com http://www.telcoindia.co m Mr.Ratan N Tata Tata Group Auto - LCVs/HCVs
Registered Office Tel: Fax Email WebSite CEO Business Group Industry
500570 TATAMOTORSEQ 10 1
Share Holding Pattern as on '30/09/2004' Major Holder Promoters Institutional Investors Other Investors General Public Percentage (%)
32.84 36.59 17.42 13.15
Dividend Announcements Year

2004 2003 2002 2001 2000
Dividend (%)
80 40 0 0
25
Established in 1945, Tata Motors entered into a collaboration with Daimler Benz of Germany in 1954 to manufacture commercial vehicles. The collaboration ended in 1969. Tata Motors has since grown from strength to strength. The Company has spread its manufacturing facilities across India by setting up plants at Jamshedpur, Pune and Lucknow. This is coupled with a nation-wide sales, service and spare parts network. The Company enjoys a significant demand in export markets like Europe, Australia, South East Asia, Middle East and Africa. The Company's vehicles are seen in all the continents.
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II. HERO HONDA MOTORS LTD.

34, Community Centre, Basant Lok, Vasant Vihar New Delhi Delhi 110057 26144121,26142451,, 26143321, 26153913, ickamboj@herohonda.co m www.herohonda.com Mr.Pawan Munjal Hero Group Auto - 2 & 3 Wheelers
Registered Office Tel: Fax Email
500182 HEROHONDAEQ 2 1
WebSite CEO Business Group Industry Share Holding Pattern as on '30/09/2004' Major Holder Percentage (%) 54.96 Promoters Institutional 32.44 Investors 1.37 Other Investors 11.23 General Public

2004 2003 2002 2001 2000 1000 900 850 150
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Hero Honda came into existence in 1984 as a joint venture between Hero group, the worlds largest bicycle manufacturer and Honda Motors Company, Japan. Company has its plants located in Dharuhera and Gurgaon in Haryana having a total installed capacity of 1.8mn motorcycles per year. Motorcycles in the entry-level segment such as CD100, CD SS, Dawn and CD Dawn are manufactured at the Dharuhera plant. Gurgaon plant manufactures motorcycles in the executive and the premium segment (Passion, Ambition, CBZ and Karizma). Hero Honda Splendour, the largest selling motorcycle in the world is produced in these both plants. Hero Honda Motors Limited gave India nothing less than a revolution on two-wheels, made even more famous by the 'Fill it - Shut it Forget it ' campaign. Driven by the trust of over 5 million customers, the Hero Honda product range today commands a market share of 48% making it a veritable giant in the industry. Add to that technological excellence, an expansive dealer network, and reliable after sales service, and you have one of the most customer- friendly companies.
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III. MARUTI UDYOG LTD.

11th Floor, Jeevan Prakash Building, 25, Kasturba Gandhi Marg New Delhi Delhi 110001 23316831,23316832, 23318754, investors@maruti.co.in http://www.marutiudyog.com Mr.Jagdish Khattar Suzuki Group Auto - Cars & Jeeps
532500
MARUTIEQ 5 1
72.94 16.68 3.07 7.76

2004 2003 2002 2001 2000 30 30 30 0
25
Maruti Udyog Limited (MUL) was established in Feb 1981 through an Act of Parliament, to meet the growing demand of a personal mode of transport caused by the lack of an efficient public transport system. Suzuki Motor Company was chosen from seven prospective partners worldwide. This was due not only to their undisputed leadership in small cars but also to their commitment to actively bring to MUL contemporary technology and Japanese management practices (which had catapulted Japan over USA to the status of the top auto manufacturing country in the world). A licence and a Joint Venture agreement was signed between Govt of India and Suzuki Motor Company (now Suzuki Motor Corporation of Japan) in Oct 1982.
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Maruti created history by going into production in a record 13 months. On 14 December 1983, the then Prime Minister of India, Mrs Indira Gandhi, released the first vehicle for sale by handing over the keys of a Maruti 800 to Mr. Harpal Singh of Delhi. It exceeded the volume targets, and in March 1994, we became the first Indian company to produce over one million vehicles, a landmark yet to be achieved by any other car company in India. Maruti is the highest volume car manufacturer in Asia, outside Japan and Korea, having produced over 4 million vehicles by April 2003. Maruti revolutionised the way Indians looked at cars. "No other car company so completely dominates its home market" - (The Economist). MUL is the first and only car company in the world to lead its home market in terms of both market share and in the JD Power Customer Satisfaction study (JD Power Asia Pacific 2000 India Customer Satisfaction studies). It is also the only car company in the world to be Top ranked four times in a row (2000, 2001, 2002 & 2003).
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IV. BAJAJ AUTO LTD.

Mumbai Pune Road, Akurdi Pune Maharashtra 411035 7472851 7476151,,, 7473398 7407389, jsridhar@bajajauto.co.in http://www.bajajauto.co m Mr.Rahul Bajaj Bajaj Group Auto - 2 & 3 Wheelers
Registered Office Tel: Fax Email WebSite
500490 BAJAJAUTOEQ 10 1
CEO Business Group Industry Share Holding Pattern as on '30/09/2004' Major Holder Percentage (%) 29.75 Promoters Institutional 25.22 Investors 17.73 Other Investors 27.3 General Public

2004 2003 2002 2001 2000 250 140 140 80
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Started of on 29th November 1945, under the name of M/s Bachraj Trading Corporation Private Limited, Bajaj Auto became a public limited company in year 1960 and ever since that Bajaj Auto is continuously building milestones for itself year after year. Some of the latest ones are:
MILESTONES OF BAJAJ AUTO LTD. 2004 September August May January 2003 October October July February 2001 November January Bajaj Auto launches its latest offering in the premium bike segment Pulsar. The Eliminator is launched. Bajaj Discover DTS-i launched New Bajaj Chetak 4 stroke with Wonder Gear launched Bajaj CT100 Launched Bajaj unveils new brand identity, dons new symbol, logo and brandline Pulsar DTS-i is launched. 107,115 Motorcycles sold in a month. Bajaj Wind 125,The World Bike, is launched in India. Bajaj Auto launched its Caliber115 "Hoodibabaa!" in the executive motorcycle segment.
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3. The Ratio Analysis.

Ratio analysis helps us in making us a comparison between various companies and thats exactly what I have tried to do in this part. Various auto companies have been compared by me in this part and hence a suitable analysis is tried to be done here. Current Ratio: This ratio helps in determining how much current asset the company holds in comparison to its current liability. An ideal one is considered to be 2:1. We see here that all four auto companies have current assets ratio less then 2:1, hence all of them need to improve their ratios or holdings to some extent but the company that is closest to its goal is MUL (on an average). MUL in previous year did reach very close to the ideal goal but again n the year 2004 got deviated from its pathway. Compared to it, other three companies seem to move much more concentratively towards its ideal ratio achievement but at a very slow pace. Still, keeping in mind the average ratio, MUL can be considered to be the best.
CURRENT RATIO HHML MUL BAL 0.3 1.3 0.8 0.4 1.9 1 0.5 1.4 1 0.4 1.533333 0.933333 4 1 2
TAMO 0.8 0.9 1 0.9 3
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CURRENT RATIO
2.1 1.8 1.5 1.2 0.9 0.6 0.3 0 2004 2003 2002 Average YEARS / AVERAGE
TAMO HHML MUL BAL
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Debt-Equity ratio: Debt equity ratio means how much amount of debt the company hold as a part of the total holdings of its equity. In the current situation we se that MUL holds the least debt against equity which is in a way good for the investors as the firm will be having more equity then debts hence, a better scope for equity holders gets emitted. MUL has always held lower debt equity compared to others, especially TAMO, whose ratio is way ahead of others. Closely following MUL is HHMLs ratio, and then comes BAL and finally TAMO.
TAMO 0.3 0.6 0.7 0.533333 4
DEBT EQUITY RATIO HHML MUL BAL 0.15 0.1 0.27 0.15 0.1 0.25 0.16 0.2 0.21 0.153333 0.133333 0.243333 2 1 3
DEBT-EQUITY RATIO
0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 2004 2003 2002 Average YEARS / AVERAGE
TAMO HHML MUL BAL
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Gross Profit Margin: The gross profit margin of a company tells how much margin the company earns on every Rs.100. In the current situation we see that HHML earns the best Gross profit margin compared to others. Others, as we see especially MUL doesnt reach even the better half of it. One more thing worth noticing here is that though all the companies show every year a negative rise in the Gross profit margin yet the margin decrease rate of HHML is mush lower compared to its others competitors.
GROSS PROFIT MARGIN (%) TAMO HHML MUL BAL 13.5 15.9 10 13.2 12.1 16.3 5.3 14.8 9.5 14.8 3.1 10.9 11.7 15.66667 6.133333 12.96667 3 1 4 2
GROSS PROFIT MARGIN (%)

18 16 14 12 10 8 6 4 2 0 2004 2003 2002 Average YEARS / AVERAGE
TAMO HHML MUL BAL
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Net Profit Margin: The et profit margin shows a better view of the total earnings of the firm as GP margin includes some of the type of expenses not considered earlier like depreciation, taxation, interest, etc. but are considered in Net profit Margin. In the current situation, it clearly visible that though we saw that HHML is the best GP margin earner, yet the after GP costs moves it from the leading position to the second position and BAL comes at the top now. Alongwith it, we also notice that HHML is continuously facing a negative trend (when it comes to net profit margin), but at the same time BAL faced a negative trend in 2003 but again he recovered it in 2004.
NET PROFIT MARGIN (%) TAMO HHML MUL BAL 6.5 12.3 5.8 14.3 3.4 11.3 2.1 12.2 -0.07 10.3 1.5 13.5 3.276667 11.3 3.133333 13.33333 3 2 4 1
NET PROFIT MARGIN (%)

18 15 12 9 6 3 0 -3 2004 2003 2002 Average YEARS / AVERAGE TAMO HHML MUL BAL
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Return On Equity: The ROE ratio tells us about the returns that the equity investor gets on his investment. In other words the part of the profit that every equity investor gets. Here we see that HHML keeps its equity invertors the most satisfied as it provides the best returns on equities compared to others three players of this filed. HHMLs returns on equity is way far ahead compared to the other players and at the same time its on a rise in all three years facing no negative trend unlike others. The other thing also worth noticing is that though other companies were facing a continuous negative growth to such extent that there returns got halved in 2-3 years, yet, HHMLs returns were continuously increasing.
RETURN ON EQUITY (%) TAMO HHML MUL BAL 24.2 63.9 15.2 19.8 11.9 68.3 4.9 16.6 -2.3 68.5 4 18.1 11.26667 66.9 8.033333 18.16667 3 1 4 2

80 70 60 50 40 30 20 10 0 -10
TAMO HHML MUL BAL
2004
2003
2002
Average
YEARS / AVERAGE
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Return On Assets: The return on assets shows us as to which firm has a capacity to utilise and provide efficient returns on the total assets that the company holds. When it comes to ROA, the position gets changed compared to ROE. In terms of ROA, it is clearly visible that MUL is ahead of all the others, followed by TAMO, then HHML and finally BAL. Another thing worth noticing here is that the change in ROA rates of TAMO and MUL compared to its previous years. MUL increased its returns more then three times in the latest year, which is way more superior compared to others.
RETURN ON ASSETS (%) TAMO HHML MUL BAL 8.6 0.5 9.7 0.2 4 0.6 2.8 0.1 -0.7 0.6 2.2 0.1 3.966667 0.566667 4.9 0.133333 2 3 1 4

12 10 8 6 4 2 0 -2 2004 2003 2002 Average TAMO HHML MUL BAL
YEARS / AVERAGE
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Earnings per Share: EPS is something which directly attracts the interest of the investors in the share of the following company. It is a base for the decision of the equity holders in their decision for investment. Here, it is seen that in order to maintain the interest of the shareholders in the company, BAL provides the best EPS to its shareholders. The EPS of BAL is nearly the sum total of two other companies EPS provided. Along with, its EPS is also facing a continuous growth trend. Comparatively, we see that though other companies EPS are also growing but not as steadily and rapidly as that of BAL.
EARNINGS PER SHARE (Rs.) TAMO HHML MUL BAL 24.5 36.5 18.8 72.3 9.6 29 5.1 53.2 -1.7 23.2 79 51.5 10.8 29.56667 34.3 59 4 3 2 1

90 80 70 60 50 40 30 20 10 0 -10
TAMO HHML MUL BAL
2004
2003
2002
Average
YEARS / AVERAGE
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Dividend per Share: Other then earnings, the other term that attracts long term investors is the dividend provided by the company on its shares (equity). Taking a look at the DPS chart, w get an idea that on an average HHML provides the best DPS compared to the other three companies. It is very closely followed by BAL, then by MUL and finally TAMO. Taking a look from the other perspective, it is noticeable that the growth rate of DPS of BAL is mush faster compared to HHML, but still not making out future from ones own self and keeping in mind the average method, HHML is ranked the best DPS provider.
DIVIDENDS PER SHARE (Rs.) TAMO HHML MUL BAL 8 20 1.5 25 4 18 1.5 14 0 17 30 14 4 18.33333 11 17.66667 4 1 3 2

35 30 25 20 15 10 5 0 2004 2003 2002 Average YEARS / AVERAGE
TAMO HHML MUL BAL
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P/E Ratio: The P/E ratio or the price-earnings ratio tells us about the future condition of the peoples expectations about the share prices of the company. The higher the ratio the greater would be the peoples expectation of rise in prices of shares. Here, we see that the highest average of the P/E ratio is of MUL followed by TAMO, BAL and lastly HHML. Taking a look from another angle we also get a look at the things that HHML is the only company which is having a consistent growth in P/E and hence it should have been rated higher rank but still we take a look at the year 2004, its P/E ratio is still, lower compared to MUL, hence MUL is ranked the best.
P/E RATIO (as on 31-Dec (NSE)) TAMO HHML MUL BAL 20.6 15.7 24.6 15.6 47 15.5 73.6 21.4 11.6 9.8 33.8 14.26667 49.1 15.6 2 4 1 3
P/E RATIO (as on 31-Dec (NSE))

TAMO HHML MUL BAL
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- CONCLUSION: To draw a conclusion in such a situation the best way would be to draw out a table in which the ranks provided in various ratios are totalled and hence a final decision taking can be same what appropriate.
Current ratio Debt-Equity ratio Gross profit Margin Net profit Margin Return on Equity Return on Assets Earnings per Share Dividends per share P/E Ratio Total
TAMO 3 4 3 3 3 2 4 4 2 28
HHML 4 2 1 2 1 3 3 1 4 21
MUL 1 1 4 1 4 1 2 3 1 18
BAL 2 3 2 4 2 4 1 2 3 23
Hence, from the following table we can draw a conclusion that as MUL is having the minimum ranking; it would the best company for investing into on basis of ratio analysis; followed by HHML, then BAL and then TAMO.
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4. The Market News Analysis.

The market news analysis provides a clear picture as to where the company is being driven or where the market will be the company driving itself in near future in light of the news of the company in the market. Some of the biggest news that have stroked around regarding auto companies are; Government likely to sell of 7.5% of shares it owns of Maruti & BHEL. HHML Q3 profit rise by 8% despite heavy inputs. Bajaj Auto Q3 profit amount to Rs.183cr. Maruti Q3 profit rise to Rs.240cr. Bajaj likely to acquire Nigerian Auto market by exporting its bikes to Nigeria in order to capture its market. Maruti likely to setup new plants to expand its production in yr.2005. The same being followed by Hyundai and others planning on expansion of present plants. All in all, likely to create a threat to Maruti. New MNCs including companies like Audi likely to enter this year in auto sector. All in all, we get a picture that though a lot has been happening about MUL, yet the future of MUL doesnt seem very bright due to foreign entrants. Instead, BAL and HHML seems better for investment in near future as foreign competitors in two-wheeler auto sector are likely less and hence, chances of creation of problem are also less. Hence, a ranking can be provided as follows; 1st BAL, 2nd HHML,
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3rd & 4th MUL & TAMO.

A Shareholding pattern analysis provides us a proper view as to which company can be good for investment as well as for its liquidation. Taking a look at the Tata motors shareholding pattern one gets a feel that TAMO believes in providing a good return to its investors as well as it cares about the liquidity of shares, hence, it keeps a handsome number of its shares in the hands of Investors and general public (31% approx) but at the same time it also doesnt want to loose its power hence, the promoters hold a majority of shares after institutional investors. In HHML, the position is quite different from TAMO where a large amount of share holding is held by promoters and institutional investors hence, there are fewer proportions of shares available in the market to play with (only 12%). But keeping in mind the ROE provided, for once the problem can be neglected. MUL has got a position even more severe then HHML where almost 89% of the shares lye in the hands of the promoters and institutional investors itself hence, only 11% of shares as a whole, are available in the market for investment. Though the liquidation of the shares in the market may not be a problem due to good brand recognition and performance, yet, the environmental analysis also supports the fact that long term prospects may not be very satisfying. The major player of auto sector BAL has a very favourable outcome compared to other companies of this sector. BALs promoters and institutional investors hold approx. 54% of the total share holding and rest in the hands of the investors and general public. Even after not taking into consideration the investors, still the general public holds more then 25% o the total share holding which is a very good investment situation. Hence, it can be said that BAL holding are in a way a very good blend of the share holding in hands of different groups.
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Hence an analysis can be done that on the basis of the shareholding pattern; BAL is at the top followed by HHML, then MUL and finally TAMO.

The Sharekhan Acceptance Analysis provides us a real time market situation as to which shares are working well and what are their expectations as to the future of the shares.
Sharekhan expects TAMO, MUL, HHML and BAL; all to do well in the year 2005. However, the levels of expectations are different from different companies.
HHML and BAL are being expected to repeat the way they worked last year (2004) and hence, their performance is also expected to be the same this year. Both of these companies due to their tough competition are expected to perform better then peoples expectations this year also.
TAMO and MUL are basically affected by the same factors in general as they belong in the same segment of the market four wheelers, generally. However, the performance of MUL is expected better then TAMO on basis of far more superior EPS by 2005 and 2006. MUL and TAMO, though both are being considered in Apple Green category of Sharekhan analysis, the position in Apple green category of MUL is more superior compared to TAMO.
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The MF Preference Analysis provides us a view as to which shares the big players of the market expect to run well in the near future as well as in the current time as MFs basically have some policies for the long run as well as some for short run. The MF preference analysis by top 6 Indian MFs for Auto sector provides a view as follows:
Mutual Fund Preference Analysis for AUTO Sector. MU UTI MF HDFC MF Pru. ICICI MF DSP Merrill Lynch TATA MF Kotak MF Total Average Final Rank TAMO 1 1 1 1 2 6 1 1 HHML 3 3 4 3 3 16 3 4 L 2 4 2 2 2 12 2 3 BAL 4 2 3 1 1 11 2 2
After analysing the various MFs, their policies and preferences of the companies in their policies, the ranks are provided to various companies and hence an average is calculated which shows that MFs basically consider TAMO as the best investment location, followed by BAL, then MUL and finally HHML. Here, we also notice that though the average of both BAL and MUL are the same, yet, it is also visible that the total of BAL is less then MUL with same number of entries, hence, BAL can be ranked superior then MUL.
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The price movements charts provide us a practical preview as to what is the condition of the shares in the market from the point of vies of its prices and hence, what can be the condition of the shares in the future. The price movement chart analyses of the companies of AUTOMOBILE SECTOR are as follows; TATA MOTORS LTD.
NSE Chart
The current year for automobile sector was not as goods as the previous ones, as the growth pattern was way below the other years. The same is reflected also in the price chart of TAMO. Though the company didnt make any gains in share prices the year, yet at the end of the year, the company made some good decisions and hence, the share prices again reached a height. Though the company can not be said to have made a growth pattern as per the graph, yet the come back to the position is also good and worth appreciating. The 52 week pattern shows that the highest prices of the shares reached on 22nd April 2004 of Rs.527 and the lowest on 17th May 2004 of Rs.330.40. The daily volatility of TAMO is approx. Rs.5-20 at the most. This shows that it the company shows good sign of growth in future, then it can be a good company to invest into as it will be able to fulfil the needs of both long term as well as short term investors due to its volatility and growth.
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HERO HONDA MOTORS LTD.

NSE Chart
Compared to TAMO, the graph of HHML shows a very good sign of progress as even due to the down fall in the market, the company shows no sign of negative set back but at the same time shows signs of growth in the later part. The chart, though good, cannot be considered very good as it often also shows signs of some negative depressions in between and that too very severe. The 52 week up-down tells that the companys share prices have reached the highest on 4th Jan 2005 of Rs.613.95 and the lowest on 17th May 2004 of Rs.310. This shows that, in a way, the companys share prices have reached nearly double (though these figures cannot be total). The daily volatility of the share prices of HHML is from nearly Rs5-15 which is not very appreciable by intra-day players but as the graph shows, the company is very good from the pint of view of long term investment.
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MARUTI UDYOG LTD.

NSE Chart
The graph of MUL is some what similar to TAMO but even in a worse condition as it has not been able t recover the position it had a year ago. The chart clearly shows that in the beginning of the year the company ha a price hike which it loosed in the later part of the year and hence again after some time the company began to recover it but has not been able to recover it, hence, even worse then TAMO. The 52 week high-low shows that the company had the hike price on 22nd April 2004 of Rs.602 and the lowest on 26th October 2004 of Rs.338.10. The daily volatility of the company ranges from approx. Rs.5-10 at the most which again makes it not as preferable from the point of view of small intra-day investors as they wont be gaining very heavily from it.
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BAJAJ AUTO LTD.

NSE Chart
Unlike other companies of this sector, BAL shows a great chart that every investor wishes to see. HHML showed a similar kind of pattern but this chart can be considered a better one as HHML showed a sign of stability pattern for some time and then growth signs but BAL through-out shows signs of good growth, though it showed some signs of depression in between when it reached its 52 week low point. The 52 week high low shows that the company reached its highest point of price on 3rd January 2005 of Rs.1160.00 and the lowest on 16th March 2004 of Rs.795. The daily volatility of the company ranges from approx. Rs.5-20 which is enough to keep some small intra-day investors satisfied as well as the company shows good signs of growth which will keep the long term investors also happy.
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- CONCLUSION: Hence, after analysing the various auto companies a conclusion can be drawn on basis of the price movement chart and the following ranking can be provided to various companies.
1st BAJAJ AUTO LTD. Showing the best signs of growth compared to the other three companies of this sector, this company ranks the top as it satisfies both the long as well as the short term investors in t best possible manner and with the least amount of fluctuations. 2nd HERO HONDA MOTORS LTD. The company ranking after BAL is HHML as it showed no negative trend or very minimal negative trend compared to others of this sector and then a growth phase. 3rd TATA MOTORS LTD. TAMO though showed a negative trend in the year, yet it has almost recovered back its position and in the coming future, it might regain its growth trend from the place where it started. 4th MARUTI UDYOG LTD. With the fall of the sector as a whole, MUL showed also similar patterns but later in the year it trued to regain its position it lost and hence, it is considered as the 4th rank achiever in its category. In the near future it may regain its position, but taking a look at the current trend it seems as the company might need some time for it. Hence, it might regain its position after mid 2005.
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After analysing the various companies from various perspectives, various methods, it becomes of essence, to draw a solid conclusion as to which company is the best, hence, a table can be drawn which will show as to which will show the rankings provided by various companies and on basis of its picture a final ranking can be provided.
SECTORAL ANALYSIS (AUTO SECTOR) TAMO HHML MUL Ratio analysis 4 2 1 Market news analysis 4 2 3 Shareholding pattern analysis 4 2 3 Sharekhan Acceptance 4 2 3 Analysis Mutual Fund preference 1 4 3 Analysis Price Chart Movement 3 2 4 Analysis AVERAGE / RANKING 4 2 3
BAL 3 1 1 1 2 1 1
Hence, on basis of the following table a result can be calculated which will provide a solid base for decision making. The decision drawn from it shows that BAL is the best company for investing into followed by HHML, then MUL and then TAMO.
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BANKING SECTOR.
1. From the Vedas to the Virtuality.
Banking in India has its origin as early as the Vedic period. It is believed that the transition from money lending to banking must have occurred even before Manu, the great Hindu Jurist, who has devoted a section of his work to deposits and advances and laid down rules relating to rates of interest. During the Mogul period, the indigenous bankers played a very important role in lending money and financing foreign trade and commerce. During the days of the East India Company, it was the turn of the agency houses to carry on the banking business. The General Bank of India was the first Joint Stock Bank to be established in the year 1786. The others which followed were the Bank of Hindustan and the Bengal Bank. The Bank of Hindustan is reported to have continued till 1906 while the other two failed in the meantime. In the first half of the 19th century the East India Company established three banks; the Bank of Bengal in 1809, the Bank of Bombay in 1840 and the Bank of Madras in 1843. These three banks also known as Presidency Banks, were independent units and functioned well. These three banks were amalgamated in 1920 and a new bank, the Imperial Bank of India was established on 27th January 1921. With the passing of the State Bank of India Act in 1955 the undertaking of the Imperial Bank of India was taken over by the newly constituted State Bank of India. The Reserve Bank which is the Central Bank was created in 1935 by passing Reserve Bank of India Act 1934. In the wake of the Swadeshi Movement, a number of banks with Indian management were established in the country namely, Punjab National Bank Ltd, Bank of India Ltd, Canara Bank Ltd, Indian Bank Ltd, the Bank of Baroda Ltd, the Central Bank of India Ltd. On July 19, 1969, 14 major banks of the country were nationalised and in 15th April 1980 six more commercial private sector banks were also taken over by the government.
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As economies grow and diversify, their agricultural and manufacturing sectors expand, and their services sector matures. To support this, the banking sector needs to keep up. Growing economic complexity is, of course, an inevitable consequence of growth. It means that the benefits of efficient credit allocation rise, i.e., those projects or sectors are financed where the payoff is perceived to be highest. But it also means that the challenges for those assessing alternative loan applicants mount. They must develop means of allocating credit among competing needs. They must enhance their skills to assess business plans and identify and manage risk. Such is the challenge posed by the Indian banking entities in the coming era. If one looks at the graph below, that compares Rs 100 invested in both the Sensex as well as the BSE Bankex during the year 2004, we observe, that while initially the Sensex trailed closely behind Bankex, the latter outperformed against the Sensex and became Rs 134 by December 27 while Sensex stood at Rs 114.
Here the interesting point to note is that, the annual top gainers of the sector were largely PSUs that seemed to have regained confidence amongst investors, thanks to the steady decline in their NPA levels. Several new events took place in year 2004 in banking sector. Some of the most important steps taken are: Higher recoveries were seen in FY04 in addition to a higher number of cases being filed on the strength of this new law.
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However the year also saw delay in the implementation of crucial policy decisions like lifting the ceiling (10%) on voting rights and further liberalisation of the FDI limit in the banking sector. During FY04, the RBI helped increase the liquidity in the markets by reducing the CRR (Cash Reserve Ratio) to 4.5% from 4.75%, while the bank rate was lowered to 6%. Softer interest rate bias as well as increased liquidity helped grow the banks' credit by 14.6%. What was disturbing however, is the fact that food credit showed a de-growth, compared to the same period last year. FY04 was also a significant year for the banking sector due to the fact that banks were in a better position to negotiate with defaulters to recover bad debts. This was essentially due to the strength provided by the new Securitisation act that gives significant amount of power to the lenders to go after defaulting borrowers. However there are still gray areas, which need to be sorted out in order to increase the potency of the new law. Today the commercial banking system in India can be broadly classified into the following sectors respectively; Public Sector banks, Private sectors banks, Co-operative Sectors, and Developmental banks. Other then this, the major type of existing bank is the RBI, but not accessible by an ordinary citizen. Some of the most vigorously dealed equities among these are; State Bank of India (SBI), HDFC Bank Ltd., ICICI Bank Ltd., and Punjab National Bank (PNB). (Two Pvt. Ltd and Two Pub. Ltd.)
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I. STATE BANK OF INDIA (SBI).
State Bank Bhavan 8th Floor Madame Cama Marg, Mumbai Maharashtra 400021. 22883888,,, 22855348, cgmac@mumbai.coborn.sbi. co.in www.sbi.co.in , www.statebankofindia.com Mr.C Bhattacharya SBI Group Finance - Banks - Public Sector
500112 SBINEQ 10 1
59.73 23 10.66 6.62

2004 2003 2002 2001 2000 110 85 60 50
50
State Bank of India is the biggest bank in India. On June 2, 1806, the Bank of Calcutta was established. On January 2, 1809 it was redesigned as Bank of Bengal. On April 15, 1840, Bank of Bombay was established and on July 1, 1843 Bank of Madras was established. It was in 1861 that the Paper Currency Act was passed. Then all 3 banks amalgamated to form Imperial Bank of India on January 27, 1921. Finally on July 1, 1955, State Bank of India was formed.The State Bank of India was born with a new sense of social purpose aided by the 480 offices comprising branches, sub offices and three Local Head Offices inherited from the Imperial Bank. The State Bank of India was destined to act as the pacesetter in this respect and lead the Indian banking system into the exciting field of national development. At present, State Bank of India (SBI) is India's largest financial entity with asset size of over Rs 4 trillion. The bank, with its wide network
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of over 9,000 branches and over 2,500 ATMs, has business interests including project finance, personal finance, housing finance, mutual funds, investment banking and insurance, apart from traditional corporate lending. The bank is also a leader in cash management services.
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II. HDFC BANK LTD.

Ramon House , 5th Floor, 169, Backbay Reclamation Churchgate Mumbai Maharashtra 400020.
Registered Office
500180 HDFCBANKEQ 10 1
22850032,,, Tel: 22046758-22046834, Fax Email www.hdfcbank.com WebSite Mr.Aditya Puri CEO Business HDFC Group Group Finance - Banks - Private Sector Industry Share Holding Pattern as on '30/09/2004' Major Holder Percentage (%) 24.06 Promoters Institutional 34.75 Investors 26.43 Other Investors 14.76 General Public

2004 2003 2002 2001 2000 35 30 25 20
16
The Housing Development Finance Corporation Limited (HDFC) was amongst the first to receive an 'in-principle' approval from the Reserve Bank of India (RBI) to set up a bank in the private sector, as part of the RBIs liberalisation of the Indian Banking Industry in 1994. The bank was incorporated in August 1994 in the name of 'HDFC Bank Limited', with its registered office in Mumbai, India. HDFC Bank commenced operations as a Scheduled Commercial Bank in January 1995. HDFC Bank, India's premier private sector bank, promoted by HDFC Group, has established a strong presence in both retail and corporate finance. The bank also has active treasury and capital market operations. The bank has a wide reach across the country with a branch network of 404 branches and 900 ATMs. It is acknowledged as one of the most efficient private sector banks in the country. HDFC Bank is also a pioneer of the retail-banking movement in India. It is one of the fastest growing and most profitable banks in India with a strong urban presence. Strong understanding of the retail sphere and inorganic growth initiatives have made it the second largest private sector bank in the country.
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III. ICICI BANK LTD.

"Landmark', Race Course Circle, Alkapuri Vadodra Gujarat 390007 339923,339924,339925, 339926, info@icicibank.com http://www.icicibank.com Mr.K V Kamath ICICI Group Finance - Banks - Private Sector
532174 ICICIBANKEQ 10 1
Share Holding Pattern as on '30/09/2004' Major Holder Percentage (%) 0 Promoters Institutional 65.33 Investors 26.54 Other Investors 8.13 General Public

2004 2003 2002 2001 2000 88.8 75 20 20
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ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial institution, and was its wholly-owned subsidiary. ICICI's shareholding in ICICI Bank was reduced to 46% through a public offering of shares in India in fiscal 1998, an equity offering in the form of ADRs listed on the NYSE in fiscal 2000, ICICI Bank's acquisition of Bank of Madura Limited in an all-stock amalgamation in fiscal 2001, and secondary market sales by ICICI to institutional investors in fiscal 2001 and fiscal 2002. ICICI was formed in 1955 at the initiative of the World Bank, the Government of India and representatives of Indian industry. ICICI Bank post merger with its parent ICICI has emerged as the second largest bank in the country after SBI in terms of asset size. The bank provides a range of corporate and retail banking services. ICICI Bank also prides itself as the first universal bank in the country due to the fact that it provides a wide variety of services. At the end of FY04 the bank had an ATM network of over 1,500 ATMs and 540 branches spread across the country.
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IV. PUNJAB NATIONAL BANK (PNB).

7, Bhikhaiji Cama Place R K Puram, Africa Avenue New Delhi Delhi 110066 26102303,26196487,, 26108741, ipo@pnbindia.com www.pnbindia.com Mr.S S Kohli Public Sector Finance - Banks - Public Sector
532461 PNBEQ 10 1
Share Holding Pattern as on '30/09/2004' Major Holder Percentage (%) 80 Promoters Institutional 14.52 Investors 1.07 Other Investors 4.42 General Public

2004 2003 2002 2001 2000 40 35 30 -
Established in 1895 at Lahore, undivided India, Punjab National Bank (PNB) has the distinction of being the first bank to have been started solely with Indian capital. From its modest beginning, the bank has grown in size and stature to become a front-line banking institution in India at present. During its existence of over one hundred and eight years, Punjab National Bank has faced many a trials of strength including the trauma of partition of India in 1947 at the time of independence. However, due to its inherent strengths and resilience, the bank not only withstood such adversities but established itself still firmly on the Indian subcontinent. The bank was nationalised in July 1969 along with 13 other banks. The bank's strength lies in its corporate belief of growth with stability. At present, a large branch size of 4,037 branches provides it with strong reach in rural, semi urban, urban and metropolitan markets. Post its merger with Kerala based Nedungadi Bank; PNB now has a strong presence in the southern state of Kerala.
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3. The Ratio Analysis.

Ratio analysis is a very important tool which helps in understanding at which position a company stands on basis of its past performances. A single years ratio calculation and interpreting results from it may often mislead and also cannot be said to be proper as it doesnt bring into picture the total performance of the company as a whole but one needs to analyse several continuous years as a whole for the favourable and reliable result to be created. The greater the number of years, the more reliable the result becomes, unless in the past some major environmental factor (micro or macro) affects it. Hence, a time span of three years has been selected as a base for proper analysis. All ratios calculation or its final analysis has some or the other limitation. The limitation in Banking sectors ratio analysis is that due to improper information availability, finding current ratio becomes a very complex task due to which its calculation become un-feasible. Current Ratio: A current ratio brings into picture, the total amount of current assets the company holds in comparison to its current liability. In the current situation, as banks generally dont disclose their balance sheets properly and that too, their assets properly, the calculation of current ratio became unfeasible.
SBI 2004 2003 2002 Average Rank 0 0 0 0 0
CURRENT RATIO HDFC ICICI 0 0 0 0 0 0 0 0 0 0
PNB 0 0 0 0 0
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Debt-Equity ratio: The debt equity ratio provides us a view as to the total debts the company holds in comparison to its total equity. The interpretation takes place in it in the manner as lower the ratio, better it is. In the banking analysis here, we see that the lowest average ratio is of HDFC bank, closely followed by ICICI and then SBI and lastly PNB. But another thing worth noticing here is that the SBIs debt-equity ratio is on a continuous decline where as the others are continuing to increase steadily. Hence we can say that SBI in near future will take a good control over its debt-equity ratio and will be much more favourable in comparison to its other competing banks but at present on an average basis, the HDFC can be said to be the best among the on basis of the debt-equity ratio.
SBI 2004 2003 2002 Average Rank
DEBT EQUITY RATIO HDFC ICICI PNB 16.4 14.7 14.6 19.4 17.8 12.6 14.4 20.4 18.4 11.1 13 19.7 17.53333 12.8 14 19.83333 3 1 2 4
DEBT-EQUITY RATIO
25 20 SBI 15 10 5 0 2004 2003 2002 Average YEARS / AVERAGE HDFC ICICI PNB
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Gross Profit Margin: It gives a gross picture as t what will be the picture of the total profit of the firm but there are some expenses pending while calculating this margin. Here we seen that, from the point of view of GP Margin, HDFC Rules, very closely followed by PNB then SBI and then ICICI. Here, we also see that, the gross profit margin of HDFC and PNB are on a continuous increase where as others seem to be having some problem in raising their profits, hence unsteady.
SBI 6.4 6.5 6.3 6.4 3
GROSS PROFIT MARGIN (%) HDFC ICICI PNB 20.7 -7.8 16.1 12.1 -6.3 14.3 12.4 -1.4 7.5 15.06667 -5.16667 12.63333 1 4 2
GROSS PROFIT M ARGIN (%)

25 20 15 10 5 0 -5 -10 YEARS / AVERAGE 2004 2003 2002 Average SBI HDFC ICICI PNB
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Net Profit Margin: Unlike GP Margin, the NP Margin gives a perfect position of the companys total profit as it is found out after taking into consideration the total expenses of every kind that the company would have incurred. In this situation also we see that, HDFCs NP Margin is way ahead of all the other banks, while the other following banks are closely competing among each other with ICICI at second, PNB at third and SBI at fourth. We also se that though all the companys net profit are on a growth phase, yet the fastest growth trend seems to be of PNB taking a leap of 3% every year compared to other who take at the most 2%. Hence in order to analyse the future situation, we can say that the company in future over take the other banks but from present situation, HDFC seems to be the best from point-of-view of this ratio.
NET PROFIT MARGIN (%) HDFC ICICI PNB 20 18.4 14.3 19.2 12.9 11.3 17.4 12 8.5 18.86667 14.43333 11.36667 1 2 3
SBI 12.1 10 8.2 10.1 4
NET PROFIT M ARGIN (%)

25 20 15 10 5 0 2004 2003 2002 Average YEARS / AVERAGE SBI HDFC ICICI PNB
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Return on Equity: One of the ratios on which the share holders concentrate the most is the ROE Ratio. It gives a picture as to what can be the share holders earnings on the total investment done by him in equities. Here, we see that the maximum ROE on an average is being provided by PNB followed by SBI, then HDFC and lastly ICICI. We saw above that HDFC is earning the best net profit margin compared to other banks but what will be the use of it if it doesnt provide a part of it to share holders as a means of ROE.
SBI 18.2 18 16 17.4 2
RETURN ON EQUITY (%) HDFC ICICI PNB 18.9 20.4 22.1 17.3 17.4 20.9 15.3 4.1 17.2 17.16667 13.96667 20.06667 3 4 1

25 20 15 10 5 0 2004 2003 2002 Average YEARS / AVERAGE SBI HDFC ICICI PNB
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Return on Assets: This provides a picture as to whether the company is utilising its assets properly or not and if utilising properly then who is utilising it to the best. Here, again we see that HDFC takes the lead position followed by PNB, then ICICI and finally SBI. But the major look out here is that HDFCs ROA is not stable on its pattern while the other banks are showing signs of continuous growth pattern and hence in near future the other banks may over take the HDFCs ROAs value. But presently average reveals that HDFC is in the best position.
SBI 0.9 0.8 0.7 0.8 4
RETURN ON ASSETS (%) HDFC ICICI PNB 1.2 1.3 1.1 1.3 1.1 1 1.2 0.2 0.8 1.233333 0.866667 0.966667 1 3 2

1.4 1.2 1 0.8 0.6 0.4 0.2 0 2004 2003 2002 Average YEARS / AVERAGE SBI HDFC ICICI PNB
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Earnings per Share: The low profitability of a company can be tolerated by an investor if the company provides handsome earnings on its shares, even though the company earns a low profit. Here, we see that SBI provides its investors a very handsome amount of earnings compared to its other competitor banks. The earnings provided over the years by the banks have always been higher then its other competitor banks and hence higher on an average too.
EARNINGS PER SHARE (Rs.) HDFC ICICI PNB 69.9 17.9 26.6 41.8 59 13.7 19.7 31.7 46.2 10.6 11.7 21.2 58.36667 14.06667 19.33333 31.56667 1 4 3 2

80 70 60 50 40 30 20 10 0 2004 2003 2002 Average YEARS / AVERAGE SBI HDFC ICICI PNB
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Dividends per Share: The Dividends per Share of the company tells as to how much dividends the company provides to its shareholders. Here also, it is clearly visible that the dividend provided by SBI over the years is much higher compared to other banks. But the situation changes here, in comparison to EPS in the later positions where ICICI takes the second position instead of PNB which moves back to third position. The DPS provide by ICICI over the past two shows a sudden rise compared to its precious years and is maintained for two years which throws it up in second position.
SBI 11 8.5 6 8.5 1
DIVIDENDS PER SHARE (Rs.) HDFC ICICI PNB 3.5 7.5 4 3 7.5 3.5 2.5 2 3 3 5.666667 3.5 4 2 3

12 10 8 6 4 2 0 2004 2003 2002 Average YEARS / AVERAGE SBI HDFC ICICI PNB
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P/E Ratio: P/E ratio tells or gives a scenario as to what are the peoples expectations of future prices of the shares, i.e. whether they will rise or decrease. Higher the P/E, more the increase in prices of shares and vice versa. Here also it is clearly visible that HDFC is at the top and at the same time its P/E growth trend is more rapid compared to others. Following it are ICICI, then SBI and then PNB. But another thing worth noticing is that though ICICI bank may be having a higher average, its growth momentum is not steady. Comparatively, PNB and SBI are more stable and in near future may develop better.
P/E RATIO (as on 31-Dec (NSE)) HDFC ICICI PNB 9.3 29 13.9 9.7 9.1 26.6 15 7.6 6.1 20.4 12 3.4 8.166667 25.33333 13.63333 6.9 3 1 2 4
P/E RATIO (as on 31-Dec (NSE))

35 30 25 20 15 10 5 0 2004 2003 YEARS / AVERAGE 2002 SBI HDFC ICICI PNB
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- CONCLUSION: In order to analyse the net effect of all the ratios, the best possible way would be to sum total all the ranks that are provided to the various banks in various ratios. Hence, we get a totally new picture as to which bank would be the best on basis of their past performances.
Current ratio Debt-Equity Ratio Gross profit Margin Net profit Margin Return on Equity Return on Assets Earnings per Share Dividends per Share P/E Ratio Total
SBI 0 3 3 4 2 4 1 1 3 21
HDFC 0 1 1 1 3 1 4 4 1 16
ICICI 0 2 4 2 4 3 3 2 2 22
PNB 0 4 2 3 1 2 2 3 4 21
Hence, on basis of the ranking provided to the banks, we see that as HDFC earns the minimum score in the ranks, it takes the lead position, followed by SBI and PNB at the second position and ICICI at the last seat.
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4. The Market News Analysis.

The market news provides us a view as to where can a person bank his money for current time or for future time span. Unlike the ratio analysis, the market analysis takes into consideration the news that flow in the market and hence keeps the future prospects into mind as well as the past. Some of the most noticeable news that stroked the counter in the past few months are; ICICI launches 450 cr bonds. HDFC Q3 rises by 29%, i.e. 236 cr. HDFC uses ADS to raise $38.4m. PNB makes a profit of 1050 cr in 9 months. SBI takes 19.6% growth in Q3 which was beyond expectations. The major reason pointed was home loans. SBI acquires Mauritian bank for $10 mn. PNB to save 10% of its issues for small share holders (< 1 lakhs). The total net issue being approx. 8 cr. ICICI bank to consider S&P offer for CRISIL, UTI, LIC to consult government. ICICI to benefit the most from relaxed structure of 10% investment in stocks. SBI to lead the race to buy UTI MF; Deal may cross rs.1000cr. PNB likely to e 2nd partner followed by LIC and BOB. The above news makes it clear that, if some bank is going to be the bank of tomorrow for investment, it will be SBI as a lot is taking place in SBI that can be beneficial in future. The 2nd position may be taken by HDFC as it already holds a good market condition followed by PNB and finally ICICI.
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The Shareholding pattern of a company represents the amount of shares of a specific company that are floating in the market freely for the dealing f the general public. To take a look at the share holding of SBI, it is seen that approx. 81% of the total share holding is in the hands of the promoters and institutional investors while only 19% of it lies in the hands of the hands of general public and investors. Such a position proves that company wants to keep a solid base of its promoter but at the same time providing such a large amount of shares in hands of institutional investors and not general public is not very supportive in nature. HDFC holds a much more better position then SBI on basis of shareholding pattern as general public and investors holds approx 40% of the total holdings. At the same time promoters and institutional investors hold approx. 60% of the total holding. Though a bit risky in nature as institutional investors hold greater proportion compared to institutional investors, yet the situation is quite satisfying compared to others. ICICI holds a much more risky position compared to other banks, as promoters of the company hold no proportion of the total share holding. Instead the institutional investors hold approx 65% of the total holding and rest in hands of the general public and investors. Though the general audience and investors holds quite a large amount of the total shares, still the position seems very risky as there is promoter position in it. PNB seems to achieve a position totally opposite compared to ICICI as vast proportions of total shares are being held by promoters (80%). The general audience and investors holds approx 5.5% of the total holding only, which is much less compared to other companies of this sector. This would mean that though the bank believes in holding a majority of shares with itself for the betterment of the company, yet the
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holdings provided to investors and general audience would have been increased for the betterment from the point of view of investors. Hence, on basis of share holding patterns we can conclude that the top banking company from among these four can be HDFC, followed by SBI, then PNB and finally ICICI.
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Sharekhan acceptance analysis provides us a practical view as to what is the condition of the shares in the market and on basis of the general movement of the share market, which shares are expected to perform better in near future. In banking sector, on basis of the experts analysis, Sharekhan expects HDFC to perform the best, followed by ICICI, then SBI and finally PNB. HDFC is expected to perform better then any other bank in share market in coming year. Its EPS are expected to rise by more then 60% in the coming two years. Additional to it, HDFC is considered among the rare three companies that stand at a position of Evergreen in the Sharekhans research. ICICI bank is considered among the Apple green category in Sharekhans research. Though ICICI is expected to make no great profits in yr.2005, its EPS returns expected in yr 2006 are expected to be very healthy. However, an investment duration longer then that would also not be preferable due to falling P/E ratio. SBI is also expected to perform better in the year 2005 and yr 2006 compared to the present years. Its EPS are expected to rise by 13% approx by yr end of 2005 and by 40% by end of yr. 2006, compared to its current EPS. SBI ranks among the Apple green category of Sharekhan and hence is expected to move very fast in the near future towards Evergreen category. Lastly, PNB is also expected to make its shareholders happy as its EPS is also expected to rise by almost 20% by the end of yr 2005. Although the company is expected to have such huge gains, the company is being considered in the Ugly Duckling category which means that the company is expected to make much brighter appearance in the future.
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A MF preference analysis provides us a view as to which company the MFs generally expect to perform better in near future as well as which companies re working better now as it would be the prime reason why MFs are investing in the company equities. The MF Preference analysis of Banking sector provides a scenario as follows:
Mutual Fund Preference Analysis for BANKING Sector. UTI MF HDFC MF Pru. ICICI MF DSP Merrill Lynch TATA MF Kotak MF Total Average Final Rank SBI 1 1 1 1 1 1 6 1 1 HDFC 3 3 3 2 11 3 3 ICICI 2 2 2 3 9 2 2 PNB 4 4 4 4 16 4 4
As the table above explains, in order to analyze the various Mutual funds of India in a best manner, the top 6 MFs are selected and on basis of the preferences and policies of different MFs, ranking are provided to various companies and then in order to analyze it, a total and hence later an average is calculated, to finally provide a ranking to it. On basis of the above analysis we get that MFs basically believe that from among the above listed companies, SBI is generally the most preferable, followed by ICICI, then HDFC and finally PNB.
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The price movement chart analysis provides a practical approach a to; What is the condition of the shares in the market? What way will then move? What is its going to be their future in the market? etc. The price movement charts of the companies of Banking Sector are as follows: STATE BANK OF INDIA.
NSE Chart
2004 saw the rising of the banking sector to a very large extent. Banking was considered to be the vest sector of the year and in such a year if a banking company faces a negative of stable trend then it would be negative counter part for the company. In the same fashion SBI saw a negative trend at the beginning of the year and later saw a very good growth trend. The 52 week high-low says that the company reached its highest price on 11th March 2005 of Rs.750.70 and the lowest on 9th July 2004 of Rs.399.95. The intra-day volatility of the company ranges from Rs.5-25 which makes it a good company to invest into for short term investors, especially intraday dealers.
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HDFC BANK LTD.

NSE Chart
HDFC bank in a way proves that banking sector was the sector of year 2004 by its chart which shows continuous signs of growth, with just one minor fluctuation. The graph shows no stability or negative trend but just growth as a whole. The 52 week high-low shows that the company reached its highest price on 10th March 2005 of Rs.629.95 and the lowest of Rs.262 on 17th May 2004. The intra-day volatility of the company ranges from Rs.5-15 but some sudden shocks are expectable.
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ICICI BANK LTD.

NSE Chart
Another bank which shows good signs of growth after HDFC bank is ICICI bank. Though facing a minor negative set back in the mid year, the companys share prices has hence forth been increasing continuously. The 52 week high-low shows that the company reached its highest prices on 4th March 2005 of Rs.404.00 and the lowest price on 17th May 2004 of Rs.218.00 Its daily volatility ranges to approx Rs.10-15 at the most. This makes it a highly unfavorable share to deal in, in an intra-day trading but highly favorable from the point of view of chart for long term trading.
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PUNJAB NATIONAL BANK.

NSE Chart
This bank showed no good sign in the beginning of the year and I mid later part also. At last two months of the year ending, the companys hare prices showed some favorable response which helped out the company. The 52 week high-low says that the companys share prices reached the highest on 7th March 2005 of Rs.521 and the lowest on 17th May 2004 of Rs.212.05. The intraday volatility of the share ranges from Rs.5-25 which makes it a good share to trade in fro the point of view of intra-day but not very favorable from the point of view of long term as it doesnt show a very healthy sign of growth.
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- CONCLUSION: Hence, after analyzing the charts of various Banking sector companies, a conclusion can be drawn on basis of the price movement as to which company would be the best for investing into on basis of these charts and hence, a ranking can be provided accordingly. 1st HDFC BANK LTD. Showing the best growth sign, HDFC bank has kept the long term as well as the short term investors satisfied. 2nd ICICI BANK LTD. After HDFC, if any bank provides satisfaction to long term investors, then its ICICI bank. But from the point of view of short term investors, this bank cannot be considered as a good investment place. 3rd STATE BANK OF INDIA. The state bank of India showing a very miniscule growth pattern in the mid year phase and the growth in later part only puts it in the third place. But taking in mind the short term investors, this bank can for once be placed at the second position. 4th PUNJAB NATIONAL BANK. PNB performed very unexpectedly this year as it faced a steep negative in the beginning, then stability and then a growth pattern which is not at all a favorable pattern.
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Hence, after analyzing the various banks on basis of the various criterias, a solid decision is required which will tell as to which banks would be the best on an average for investment into. Hence, a table is prepared which will provide the various rankings provided to various banks in various criterias and hence, its average can be treated as a base for decision.
SECTORAL ANALYSIS (BANKING SECTOR) SBI HDFC ICICI Ratio analysis 3 1 2 Market news analysis 1 2 4 Shareholding pattern analysis 2 1 4 Sharekhan Acceptance 3 1 2 Analysis Mutual Fund preference 1 3 2 Analysis Price Chart Movement 3 1 2 Analysis AVERAGE / RANKING 2 1 3
PNB 3 3 3 4 4 4 4
Hence, after analyzing the various banks on various criterias and analyzing them properly, a conclusion can be drawn which provides a result that HDFC BANK can be the best for investing into in near future and presently, followed by SBI, then ICICI and finally PNB.
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CONCLUSION AND PORTFOLIO PREPARATION.

Fundamental analysis is a very typical and complex procedure in which a minor change in any of the factors can cause a great change in all around situation and the whole work out can be scrap in the right next moment. Assuming that all the calculations done in this project are correct and complete, a conclusion should be drawn as to which company / companies would be the best for investing into. As an inter sectoral comparison on a company basis would not be very feasible as different factors affect different industries, it would not be possible to create or find out a single company which would be best for investing into and at the same time if found out would not be very safe. Hence, instead of a company, a portfolio can be created which will provide a list as to which companies would be the best for investing into. The portfolio can be built keeping in mind the profitability to the investor which can be provided by only those companies which have achieved a good ranking among the sectors. The portfolio created as per this project keeping in mind the profitability for the investor, would be as follows;
INVESTMENT PORTFOLIO IT SECTOR INFOSYS TECHNOLOGIES LTD. AUTO SECTOR BAJAJ AUTO LTD. BANKING SECTOR HDFC BANK LTD.
Among these sectors, the heaviest weightage of investments can be given to IT sector as it is expected to perform the best in near future due to its growth period as it is a recent market and a lot keeps happening in it
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and along with the heavy government support being provided to it is also further helping it. After IT, Banking can be considered as the second best weightage sector as it has been performing very brilliantly recently, plus a lot has been happening in it which will keep the field very interesting. And lastly, Auto sector. Auto sector is facing very tough competition in current era. Plus the increasing govt. regulations and other market and political factors are expected to suppress the market a bit in future also. Hence, the minimum weightage should be given to it in the portfolio. In order to add a few companies more to the portfolio, as it would be lowering the risk further, company like TCS from IT, HHML from Auto and SBI from BANKING can also be added as wider the portfolio more diversified get the risks. Satyam and ICICI can also be preferred, if one wants to but these companies can not be expected to perform as well as others recorded in portfolio above.

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FUNDAMENTAL ANALYSIS FOR PORTFOLIO PREPARATION.

B.R.C.M. COLLEGE OF BUSINESS ADMINISTRATION.