Index

Certificate -

Declaration -

Acknowledgement -

Preface -

Executive Summary 2

Research Methodology 4

Introduction to GBS 6

Ch-1: Introduction to Equity Valuation 6-8

Ch-2: Fundamental Analysis 9-47

Global Economy 10-12

Indian Economy 13-19

Industry Analysis 20-35

Company Analysis 36-42

Ratio Analysis 43-46

Ch-3: Technical Analysis 47-73

Historical Data Analysis 48-62

Upcoming News Effect 63-69

Analysis using Technical Tools 70-73

Findings and Analyses 74

Limitations 75

Conclusion 76

Bibliography 77

Page 1
 Executive Summary:

During the course of my internship at Gulf Bulls Securities Pvt. Ltd, I have very well realized
the fact that practical learning is far better than classroom teaching. For the last one year, I
have been studying so many financial terms but their practical implication was understood
only when I started doing my project in the company.

My project ‘Equity valuation of IndiaBulls Financial Services Ltd’ involves a complete

research on IndiaBulls Financial Services Ltd. and understands the movement of company’s
shares listed in BSE and NSE. The company is a subsidiary of IndiaBulls group which is one
of India’s top Business houses with businesses spread over Real Estate, Infrastructure,
Financial Services, Securities, Retail, Multiplex and Power sectors.

The project is broadly divided into two analyses: fundamental and technical analysis. The
fundamental analysis answers the question whether the share is worth investing or not at the
present time as compared to its competitors. In Fundamental analysis, the performance of the
company in the last year is considered. The performance of the company is a crucial factor
behind taking the decision of investment in that particular company on a long term basis.
Every investor wants to get the maximum return on his/her investment and that’s why it is
always good to see the growth prospects of the company in the future.

The fundamental analysis gives vital information about the valuation of the company, whether
the company is undervalued or overvalued. With a market capitalisation of more than Rs.
5,000 crore, the share of IBFSL is grossly undervalued and it is the time to invest in the
share, though the bottom phase has gone. The investment in March this year in this share
would have yielded a return of 125.6% by the end of May. But still there is very decent
chance of gaining a good return on the share if someone invests in the share for the period of
at least 3-6 months. This is because of the fact that the last quarter of the previous financial
year was not good at all for the company as the profit was in the negative territory for the
company. The sales were down and the cost of borrowing was high and therefore the
company had to incur much higher cost as compared to previous quarters. Because of which
the EPS came down to a historic low and the confidence of the investors in the share was
reduced.

But the economy is recovering and with the rise in demand and easily available credit at a
lower cost than last few months, the company should be able to gain some lost grounds in the
coming quarters and this will again make the share of the company a lucrative proposition.
Therefore, the investors should take a long position if they want to invest their money in this
particular share.

Page 2
The technical analysis on the other hand, answers the question like when to buy and when to
sell. A good technical analysis helps to gain in either movement of the price of the share. The
main basis of technical analysis is the historical charts that show the past trends of a particular
share. The technical analysis is carried out mainly on the belief that the trends repeat
themselves.

The share of IBFSL has shown a certain trend over six to eight months. The share of the
company shows a sustained movement of an average of 5-6 days either side and the duration
of upward movement is very much equal to the duration of succeeding downward movement
with a little difference that ultimately decides the gain or loss over that period . This trend is
continued and right now the share is showing downward movement which is looking to be
bottomed out when the company’s share plunged from a level of Rs. 220 at the start of this
month to the level of Rs. 166.75 on 19th June, 2009. Earlier too, the share showed a
continuous upward movement from 18th May, 2009 and reached above Rs. 200 mark from Rs.
145 that day.

This clearly shows that it is the time to invest in this share as the upward movement is about
to start in the next one or two trading sessions. The impact of Budget will also be there and
the maximum chances of it are being positive. Hence, in the couple of week’s time the scrip is
ready to touch Rs. 200 mark again and the investors should go ahead and buy the shares of
IBFSL.

Hence, collectively speaking the share is going to be a good option to invest in, and will
yield a return in the range of 35-40% over the next 2-3 months.

Page 3
 Research Methodology:

There was hardly any need of collection of primary data neither there was any scope for it.

The data collected for the purpose of the study was secondary data. The secondary data was
collected mainly through:

• Websites like yahoo finance, Rediff money, Google finance etc.

• Newspapers like Economic Times, The Business Standard, Business Line

• Magazines like Dalal Street, Business World and Business Today

The main sources of data collection were different financial websites and the government
websites like websites of RBI, Ministry of Finance, and Ministry of Planning Commission etc.
The data collected through these sites then utilised for the detailed analysis.

Mode of Analysis:

For fundamental analysis, the main focus was on going through the past details and the signal
that a change in a particular data over a particular period was giving. The comparison of data
over the past few years was very important.

For technical analysis, the main tools that were used were Bollinger Band, MACD, and
Relative Strength Index. The explanations of these tools are given with the analysis later in
the project report. These tools were of great help for predicting the future movement in the
price of the share.

The study of these tools was done with the help of the websites of BSE, Yahoo Finance and
Wikipedia.

Page 4
Page 5
 Introduction to Gulf Bulls Securities Pvt. Ltd:
Gulf bulls Securities Pvt. Ltd. is a company registered under the Companies Act, 1956 .It is a
professionally managed group headed by the directors, having vast experience in the stock
market.

The company is serving a diverse customer base of institutional and retail investors The
Company has a balanced mix of revenues from emerging markets and is well positioned to
leverage the growth potential offered by these markets.

GBS provides investors a robust platform to trade in Equities in NSE and BSE, and
derivatives in NSE. The company has a worldwide vision and it along with its associates is
currently providing state of the art stock broking services through all the major stock
exchanges, trading through NSE & BSE, depository services through CDSL and all the
services are available under the one roof. With its ability to evolve with the changing
environment the Company has been able to put itself to the forefront of stock broking
activities. With its network spreading across various parts of India, it has made a distinct mark
among the stock broking houses and high net worth corporate as well as individuals.

The company offers financial information, analysis, investment guidance, news & views,
which are designed to meet the requirements of everyone from a beginner to a savvy and well-
informed trader.

“Our vision is to grow our business and make our presence across the world.”

“Our mission is to create and introduce the new definition of investments around the globe.”

Management Team:

Name Designation
Mr. Vivek Rana Chairman / Managing Director

Mr Rajiv Balhara Director

Mr. Kuldeep Sharma Director

Mr. Yajur Chaudhary Director

Mr. Rajneesh Aggarwal Director

Mr. Vipin Kumar Director

Mr. Gajraj Singh Director

Mr. Anil Kaushik Director

Page 6
Ch-1:

Introduction

To

Equity Valuation

Page 7
Equity:
Equity is generally defined as ownership interest in a corporation in the form of common
stock or preferred stock. As a unit of ownership, common stock typically carries voting rights
that can be exercised in corporate decisions. Preferred stock differs from common stock in
that it typically does not carry voting rights but is legally entitled to receive a certain level
of dividend payments before any dividends can be issued to other shareholders.

What is Equity Valuation?

In recent times, the market has become volatile like never before and the investors are at risk
of losing money if they won’t invest carefully with proper research and analysis. The market
is not a place to gamble and the investors who look it that way definitely lose money in the
market.

Therefore, it is well advised for the investors to go into the details before investing his/her
hard earned money in the stocks of a particular. She/he should see whether the company is
worth investing or not and if it is, then what should be the duration of investment so that the
return on investment is maximum.

The equity valuation is a method by which a particular company is analysed on different

parameters and the decision on investment as well as the duration of it, is taken on that basis
to maximise the return on the investment. Equity valuation mainly consists of two types of
analysis:

1. Fundamental Analysis

2. Technical Analysis

Fundamental Analysis:

Fundamental Analysis is a method of evaluating a security by attempting to measure its

intrinsic value by examining related economic, financial and other qualitative and quantitative
factors. Fundamental analysis of a business involves analyzing its financial statements and
health, its management and competitive advantages, and its competitors and markets.

Fundamental analysis is performed on historical and present data, but with the goal of making
financial forecasts. There are several possible objectives:
• To conduct a company stock valuation and predict its probable price evolution,
• To make a projection on its business performance,
• To evaluate its management and make internal business decisions
• To calculate its credit risk

Page 8
Fundamental analysis maintains that markets may misprice a security in the short run but that
the "correct" price will eventually be reached. Profit scan be made by trading the mispriced
security and then waiting for the market to recognize its "mistake" and re-price the security.
The end goal of performing fundamental analysis is to produce a
value that an investor can compare with the security's current
price in hopes of figuring out what sort of position to take with
that security (underpriced = buy, overpriced = sell or short).
In fundamental analysis, one can use either a top-down or bottom-up approach:
• The top-down investor starts his analysis with global economics, including both
international and national economic indicators, such as GDP growth,
inflation, interest rates, exchange rates, productivity, and energy prices. He or she
narrows his search down to regional/industry analysis of total sales, price levels, the
effects of competing products, foreign competition, and entry or exit from the industry.
Only then does he narrow his search to the best business in that area. This is basically
known as EIC analysis.
• The bottom-up investor starts with specific businesses, regardless of their
industry/region.

Technical Analysis:

Technical Analysis is a method of evaluating securities by analyzing statistics generated by

market activity, such as past prices and volume. In its purest form, technical analysis
considers only the actual price and volume behavior of the market or instrument. Technical
analysts may employ models and trading rules based on price and volume transformations,
such as the relative strength index, moving averages, regressions, inter-market and intra-
market price correlations, cycles or, classically, through recognition of chart patterns.
Technical analysts do not attempt to measure a security's intrinsic value, but instead use charts
and other tools to identify patterns that can suggest future activity. Technical analysts believe
that the historical performance of stocks and markets are indications of future performance.

Technical analysis is widely used among traders and financial professionals, and is very often
used by active day traders, market makers, and pit traders.

Though the two methods are completely different in nature, analysis of both is essential to
take the best decision regarding the investment of money in a particular security.

In our valuation, we are starting with Fundamental analysis based on Top-Down

approach and therefore, our research starts with the EIC analysis.

Page 9
Ch- 2:

Fundamental

Analysis

Page 10
 EIC Analysis:

Global Economy:
The global economy is largely governed by the economic giant USA, which is the largest
economy in the world. The happenings in USA have a major impact on most of the economies
in the world because we are living in the era of Globalisation in which no country in the world
is isolated.

According to the estimates of CIA World Fact Book, World GDP (Purchasing Power Parity),
also known as world gross domestic product or GWP - gross world product, calculated on a
nominal basis, was at $67.2 trillion in 2007. The estimated figure for the year 2008 is $69.49
trillion. This shows that the world GDP was doing well and the growth was led by the
economies like China, India and Russia. But the financial tsunami that started from USA took
every country in the world into its waves and created a scenario never seen before.

The Wall Street crumbled and the concept of investment banking almost vanished from the
USA. Suddenly, everything starts looking gloomy and fear of yet another depression caught
the world. With all the major economies of the Europe and the USA were in recession, the
economist world over were looking optimistically towards Asian Giants China and India.

But going by the figure of WTO, International Trade Statistics, 2007 it can be seen that the
US accounts for 30% of world demand in 2007 and that is precisely the reason why the
economies that were export oriented like Germany felt the pinch of recession to a much
greater extent. Therefore the path to recovery must start from the US itself.

The severity of the recession can be understood by the fact that the business giants that stood
the testing times of Depression and the World Wars, fell prey to this financial earthquake that
had its epicentre in USA. The governments, world over started taking steps to revive their
economies and the stimulus package were announced. The US government announced a
stimulus package of $787 Billion to pull out its economy from the financial crisis because of
which about 3.6 million jobs were lost till the package was announced on 17th February,
2009(source: cbc news).

Germany, Europe’s largest economy launched a new recovery plan in January to bring its
economy out of recession. Same was the case with Britain which had to unveil a fresh
package for its banking sector. The EU leaders agreed on a €200 Billion stimulus plan to
snap the European economy out of recession. But the measures taken by the countries didn’t
go in vain. The world economies started showing signs of recovery and this was evident from
the fact that recently IMF revised its earlier estimates for the growth of world economy from
-2.2% in November 2008 (source: Economic Times, Nov 7, 2008) to -1.3%, according to the
official site of IMF. On the similar lines, IMF upgraded the quantum of contraction that the
world economies would be facing in the coming financial year.

Page 11
The projected growth by IMF for Japan, Russia, Germany, UK, USA and
Brazil was -6.2%, -6%, -5.6%, -4%, -2.8% and -1.3% respectively. However, these figures
were upwardly revised by IMF in the last few months.

Page 12
Let’s take a look at the performance of the key economies in the recent
months of FY 2008-09:

US Economy:
The economy of the United States is the largest national economy in the world. Its gross
domestic product (GDP) was estimated as $13.8 trillion in 2009. But the economic situation
of the country deteriorated heavily because of the recession that started in December 2007.
According to the National Economic Accounts, BEA the US economy contracted by 5.1% in
the last quarter of this financial year 2008-09 which was more severe than 1% contraction in
the Q3 of FY 2008-09.

Economy of Japan:
The economy of Japan is the second largest economy in the world, after the United States at
around US$4.5 trillion in terms of nominal GDP and third after the United States
and China when adjusted for purchasing power parity. According to country-data.com, for
three decades, Japan's overall real economic growth had been spectacular: a 10% average in
the 1960s, a 5% average in the 1970s, and a 4% average in the 1980s. However, this trend
changed dramatically when the recession pulled its economy in red. According to the
Bloomberg.com, in the first quarter of FY 2008, the economy of Japan contracted by 3.3% as
recessions in the U.S. and Europe triggered a record drop in exports.

Economy of China:
The economy of the People's Republic of China is the second largest in the world after that of
the United States with a GDP of$7.8 trillion (2008) when measured on a purchasing power
parity (PPP) basis. It is the third largest in the world after the US and Japan with a
nominal GDP of US$4.4 trillion (2008) when measured in exchange-rate terms. China has
been the fastest-growing major nation for the past quarter of a century with an average annual
GDP growth rate above 10%. But the impact of recession was also evident as the economy
grew by 6.8% and 6.1% in the last two quarters of FY 2008, according to chinadaily.com.

Economy of Germany:
Germany has the world's fourth largest economy in USD exchange-rate terms and the largest
economy in Europe. The German economy is heavily export-oriented; as of 2008, Germany is
the world's leading exporter of merchandise, and exports account for more than one-third of
national output. As a result, exports traditionally have been a key element in German
macroeconomic expansion. This is the reason why Germany was one of the worst affected
economies because of the sharp fall in the consumption in the US and other markets all over
the world during the recession. GDP growth in 2006 was 2.9% and in 2007 was 2.5%.
However in 2008 GDP slowed down to a growth of 1.3%.

As we go through the GDP growth trend of one of the key economies in the world in the
recent months, the impact of the recession becomes clear. However, the global economy has

Page 13
started showing signs of recovery with several macroeconomic indicators are
turning green in the past two months. Now, we will take a detailed look at the Indian
economy.

The Indian Economy:

Indian Economy has covered a long ground since it was liberalized in 1991.Today, The Indian
economy is the twelfth largest in the world by market exchange rates and the fourth largest in
the world by GDP measured on a purchasing power parity (PPP) basis behind only the USA,
China, and Japan, according to the CIA, The World Fact Book. It is slated to overtake Japan
and become the third major economic power in the next ten years. India is also one of the few
markets in the world which offers high prospects for growth and earning potential in
practically all areas of business. Indian economic growth has been among the fastest in the
world in the recent years, growing 9.2% in 2007 and 9.6% in 2006. However, like most of the
countries all over the world Indian economy is also facing tough times because of the
recession. But, Indian economy is largely driven by the domestic demand and this is the
reason why Indian managed a GDP growth rate of 6.7% in the FY 2008, which is a
commendable figure considering the fact that most of the economies were in the red during
this financial year. Only China managed a higher growth rate than India in the year 2008-09.

The rapid growth seen in the recent year can largely be contributed to the liberalisation of the
Indian economy in 1991. India was a highly protected, semi-socialist autarkic economy till
1991. There were numerous structural and bureaucratic impediments in setting up a new
business and foreign investment was not welcomed. The opening up of the Indian economy in
1991, unleashed the latent entrepreneurial talent of the Indian and in less than two decades
India has established itself as the next economic superpower of the world. The Indian
economy was also able to attract the foreign invest that is quite necessary to bridge the saving-
investment gap and put the economy on the right track.

Despite robust economic growth, India continues to face several major problems. The recent
economic development has widened the economic inequality across the country. Despite
sustained high economic growth rate, approximately 80% of its population lives on less than
$2 a day (PPP), more than double the same poverty rate in China, according to Human
Development Report, UN published in 2007/08.

Gross Domestic Product:

The gross domestic product (GDP) or gross domestic income (GDI), a basic measure of an
economy's economic performance, is the market value of all final goods and services made
within the borders of a nation in a year. it is equal to the sum of the value added at every stage
of production (the intermediate stages) by all the industries within a country, plus taxes less
subsidies on products, in the period. GDP is commonly used as an indicator of the economic
health of a country, as well as to gauge a country's standard of living.

Page 14
According to the CIA, The World Fact Book, the estimated figure of GDP of
India was $1.209 trillion. The nominal per capita income was calculated to be $1016 per
annum. Traditionally, Indian economy is considered to be agriculture based economy and
despite a steady decline of its share in the GDP, is still the largest economic sector and plays a
significant role in the overall socio-economic development of India. Industry accounts for
29.1% of the GDP and employ 17% of the total workforce. However, about one-third of the
industrial labour force is engaged in simple household manufacturing only. In absolute terms,
India is 16th in the world in terms of nominal factory output. The chart below shows the
contribution of different sectors to the GDP. The service sector is growing rapidly in the past
few years. It provides employment to 23% of work force, and it is growing fast, growth rate
7.5% in 1991–2000 up from 4.5% in 1951–80. It has the largest share in the GDP, accounting
for 53.7% in 2007 up from 15% in 1950.

Source: CIA, World Fact

The dynamics of Indian economy is changing and one of the landmark structural changes
achieved by Indian economy is that today services sector contributes more than 50% of India's
GDP, which is a general characteristic of any developed economy.

The recent trends in GDP growth:

The Indian economy has been on high growth trajectory for the past five years. The usual
Hindu growth rate of 4-5% is a thing of past now with the economy registering about 9%
growth for three consecutive year 2006-08. The recent development in the world economy
pulled the growth substantially in the FY 2009 but still India is the second fastest growing
major economy in the world. The march of the elephant is expected to continue as the steps

Page 15
taken by the government is showing the results and the world economy is on
the path of recovery.

The graph below shows the growth trend in the past five years.

Source:

During the ninth five year plan (1997-02), the GDP growth was modest at 5.5% (source:
indiabudget.nic.in) but the economic activities picked up in the tenth plan and the growth rate
surged to 7.8%, the highest so far for any plan period which is only marginally short of the
target figure of 8% and if we overlook the dismal performance during the year 2002-03, the
figure could be even higher.

A notable feature of growth during the Tenth Five Year Plan was the resurgence of
manufacturing. There was a sharp acceleration in the growth of manufacturing from 3.3%
during the Ninth Five Year Plan to 8.6 per cent during the Tenth Five Year Plan. The average
growth of manufacturing during the five years ending 2007-08 is expected to be about 9.1 per
cent. The contribution of manufacturing to overall growth increased from about 9.6% during
the Ninth Five Year Plan to about 17.7% during the Tenth Five Year Plan. The target growth
rate of 9% in the eleventh five year plan might be revised because of the recent slump in the
growth but still the revision should not be too much on the downside

Page 16
The following table gives a comprehensive detail of the performance of the
various sectors of Indian economy in the past five years.

Source:
indiabudget.nic.in

Inflation:

Page 17
Technically speaking, inflation is the persistent rice in the price of
commodities. A moderate amount of inflation is important for the proper growth of an
economy like India because it attracts more private investment. The RBI has followed a policy
of keeping the inflation in the range of 4-5% over the past decade.

There are several methods to measure inflation. In India, the inflation is measured generally
on the basis of wholesale price index (WPI) and the data released by the RBI every Thursday
on inflation is based on the WPI only. However, there are other methods like Consumer Price
Index is also there which gives more accurate picture of the amount of impact the rise in
inflation has on the common people. In India, all the commodities are broadly categorised into
three groups namely Primary Articles (which include food products), Fuel Products and the
Manufactured Products (such as steel, cement etc). The Weightage given to these groups are
22.02, 14.23, and 63.75 respectively on a scale of 100.

The inflation has been more or less under control over the past decade but rise in the prices of
fuel and the food articles last year pushed the inflation rate to an unprecedented high level of
12.91% for the week ended 02nd August, 2008. The average inflation rate for the year 2008
was seen at 9.11% (the average of 52-week inflation rate) and was even higher if we consider
the period Jun-Oct last year when the average was 12.09% with the figure of inflation for the
entire period was in double-digit. This was the time when the price of crude oil reached to a
peak of $145 per barrel and the government had no other price but to hike the price of fuel for
the Indian consumers also as India imports about 70% of its annual fuel demand. This further
pushed the price of other commodities and the inflation reached to 16 year high level of
almost 13%.

The trend of inflation for the past 17 months is quite evident in the following graph:

Source: Office of Economic

The rise in the price, however, could not sustain over long period of time as the contraction in
demand the world over pulled down the prices of commodities with the price of crude oil fell
down to as low as $30 per barrel. Also, the close monitoring of prices and appropriate policy
interventions initiated in the last year and a half by RBI helped in maintaining price stability

Page 18
and reducing the impact of increase in global prices on domestic consumers.
The inflation rate for the week ended 04th April, 2009 was 0.18% and after that there has been
a moderate upward movement in the WPI.

Index of Industrial Production:

Index of Industrial Production (IIP) is an abstract number, the magnitude of which represents
the status of production in the industrial sector for a given period of time as compared to a
reference period of time. In simplest terms, it is an index which details out the growth of
various sectors in an economy. The index seeks to reflect the growth in the country’s
industrial activity and excludes all kinds of services. Also base year needs to be decided on
the basis of which all the index figures would be arrived at. In case of India the base year has
been fixed at 1993-94 hence the same would be equivalent to 100 Points.

There is visible link between trends in IIP and the growth in revenues of the CNX-500
companies over the past six years. According to an article published in Business Line, dated
April 6, 2008 the two parameters were said to be positively correlated with a correlation co-
efficient of close to 0.79. The correlation indicates that if the IIP numbers point to a possible
slowdown, then corporate earnings numbers may well be headed the same way, unless higher
agricultural growth or a far superior performance from the services sector offsets such a
slowdown. Over the period of analysis, IIP and revenue growth have moved mostly in
tandem, with only a few quarters of divergence. From a period of slow growth in early 2001,
both the parameters have made a sharp comeback, accelerating sharply since 2005; the latest
numbers once again bring the hint of a slowdown in the economy. Macro-economic factors
such as inflation and interest rates also appear to have influenced the growth in both these
variables.

In 2001-02, both IIP and corporate revenue growth remained modest, with India Inc’s growth
just about matching the IIP readings. A high base and a spike in inflation numbers the
preceding year appear to have contributed to this challenging period. By 2002-03 however,
both industrial production and corporate India’s sales were firmly on the recovery path.

Over the next couple of years, sales growth for corporate India began to accelerate and
comfortably outpace the growth in IIP. By June 2004, the CNX 500 revenue growth was
almost four times the IIP growth number. The increasing role of service industries such as
construction, engineering services and IT, not captured in the IIP, could have aided corporate
earnings in this period. The economy’s boom phase, starting 2005, was reflected in all the key
indicators. By the quarter ended September 2006 GDP grew by 10.1 per cent over the
previous year, IIP jumped to a 12 per cent growth and revenues of CNX 500 companies
surged by 33 per cent for this quarter.

The above trends clearly suggest that boom phases in the IIP have corresponded with those in
corporate earnings, while slow phases have been reflected in a sales slowdown. In this
context, the recent slowdown in IIP is a cause for concern on the pace of growth likely in
India Inc.

Page 19
Source: The Business Line, April 6, 2008

Now, we take a look at the IIP data released by the Central Statistical Organisation of the
Ministry of Statistics and Programme Implementation on May 12, 2009. The data gives a
detailed picture of IIP for the Fiscal year 2008-09.

INDEX OF INDUSTRIAL PRODUCTION – SECTORAL

(Base : 1993-94=100)
Mining Manufacturing Electricity General
Mont Weightage 793.58 101.69 1000
h 104.73
2007- 2008- 2007- 2008- 2007- 2008- 2007- 2008-
2008 2009 2008 2009 2008 2009 2008 2009
Apr 161.2 171.1 267.1 285 215.2 218.2 250.7 266.3
May 168.1 177.4 280.5 293.1 225.6 230.1 263.1 274.6
Jun 158.6 158.8 273.6 290.4 211.7 217.1 255.3 269.2
Jul 157 161.4 272.9 291.6 216.2 225.9 255 271.3
Aug 156 160.4 279.2 284 219.9 221.6 260.3 264.7
Sep 154 162.9 281 298.4 210.1 219.3 260.5 276.2
Oct 169.6 175.1 280.2 278.6 221.4 231.2 262.6 262.9
Nov 174.2 175.4 278.9 286.3 210.9 216.4 261 267.6
Dec 184.1 188.1 306.3 304.5 219.6 223.1 284.7 284
Jan 186.7 187.4 301.9 302.7 223.8 227.9 281.9 283
Feb 183.6 182.2 296.8 294.2 211.3 212.7 276.2 274.2
Mar* 205.8 206.7 327.9 317.2 227.1 241.3 304.9 297.9
Average
Apr- 171.6 175.6 287.2 293.8 217.7 223.7 268 274.3
Mar
Growth over the corresponding period of previous year
Mar 4.9 0.4 5.7 -3.3 3.7 6.3 5.5 -2.3
Apr- 5.1 2.3 9 2.3 6.4 2.8 8.5 2.4
Mar
* Indices for Mar 2009 are Quick Estimates.
NOTE: Indices for the months of Dec'2008 and Feb'2009 incorporate
updated production data.
Source: The Central Statistical Organisation, Ministry of Statistics and Programme
Implementation.

Page 20
 Source:
mospi.gov.in

The recent trend in IIP is quite dismal as far as the performance of India Inc. is concerned.
The IIP data in the latter half of the financial year shows the declining trend in the Indian
economy. Index of Industrial Production (IIP) for March 09 draws its worst performance since
January 1993. The number has come at -2.3% against economists projection of a contraction
in the range of 0.5% to 0.7%. As we look at the table, the cumulative growth for the FY 2008
was 2.4% which is way below than the cumulative growth figure of 8.5% in FY 2007.

The number for the month of March this year was negative even as the six core industries
which constitute 26.7% of the industrial output data grew at 2.9% in March, same as a year
ago, raising hopes about a better factory output data for this month. This was the highest
sequential core sector growth rate since September last year when it grew at 3.9%.
During the Full year, April-March 2008-09, the six core sector industries registered a growth
of 2.7% as against 5.9% during the corresponding period of the previous year. India's
industrial production in March was squeezed down due to a sharp decline in the Capital
Goods, Manufacturing and consumer durables even as Electricity and Mining components
reported decent growth.

The following figure shows a comparative performance of different sectors of industry with
the last year.

Page 21
 Source: RBI Bulletin June,

Unemployment:
According to International Labour Organization, Unemployment is a state when a person is
available to work and seeking work but currently without work. It is one of the most pressing
problems of any economy especially the underdeveloped ones. This has macroeconomic
implications too such as reduction in the output, reduction in tax revenue, and rise in the
government expenditure.

Unemployment was recognised as a problem in India as early as 1950s but faster economic
growth, with special emphasis on employment intensive sectors like the small scale industry,
was considered adequate to tackle it. But it was only during the seventh five year plan (1985-
90) that the government started taking concrete steps to tackle the unemployment. The
decades of 1980s showed a relatively higher GDP growth but the growth in unemployment
outpaced it. Therefore, the government undertook a detailed assessment of employment and
unemployment trends in 1990s and on the basis of the findings of this study, a new strategy to
overcome the problem of rising unemployment rate in India. The subsequent five year plans
saw an increased emphasis on the reduction of unemployment rate if not the complete
abolishment. Therefore, government of India took a new initiative and came up with National
Rural Employment Guarantee Act in 2005 to provide more employment opportunities to the
rural people.

The unemployment trends on a yearly basis are shown in the graph given in the next page.

Source: CIA, World Fact

Book

Clearly, the unemployment rate has been declining in the recent years but there is a lot to be
done as the rate of increase in the labour force may outpace the growth rate in employment
generation in the coming years.

Page 22
Balance of Payment:
According to IMF, "Balance of Payments is a statistical statement that summarizes
transactions between residents and non-residents during a period." The balance of payments
(or BOP) measures the payments that flow between any individual country and all other
countries. It reflects all payments and liabilities to foreigners (debits) and all payments and
obligations received from foreigners (credits). Balance of payments is one of the major
indicators of a country's status in international trade, with net capital outflow.

The Indian economy is facing tough times because of the recession. The Global financial
crisis has been affecting India’s foreign trade since end-2008. It has been affecting investment
flows too.

The table below shows India’s Balance of Payment for the period April-December 2008.

India's Overall Balance of Payments

(Rs. crore)
Items Apr-Dec 2007 P Apr-Dec 2008 PR
Credit Debit Net Credit Debit Net
A. CURRENT ACCOUNT
I. Merchandise 4,58,503 7,38,051 - 5,92,438 10,65,211 -
2,79,548 4,72,773
II. Invisibles (a+b+c) 4,17,131 2,00,422 2,16,709 5,49,295 2,41,569 3,07,726
Total Current Account 8,75,634 9,38,473 -62,839 11,41,733 13,06,780 -
(I+II) 1,65,047
B. CAPITAL ACCOUNT
1 Foreign 7,38,587 5,76,753 1,61,834 6,11,039 5,96,891 14,148
Investment (a+b)
a) FDI (i+ii) 89,215 61,253 27,962 1,24,896 59,091 65,805
i) In India 81,230 329 80,901 1,21,036 461 1,20,575
Equity 58,184 329 57,855 94,670 461 94,209
Reinvested 21,723 — 21,723 21,225 — 21,225
Earnings
Other Capital 1,323 — 1,323 5,141 — 5,141
ii) Abroad 7,985 60,924 -52,939 3,860 58,630 -54,770
Equity 7,985 50,355 -42,370 3,860 44,138 -40,278
Reinvested — 3,284 -3,284 — 3,636 -3,636
Earnings
Other Capital — 7,285 -7,285 — 10,856 -10,856
b) Portfolio 6,49,372 5,15,500 1,33,872 4,86,143 5,37,800 -51,657
Investment
i) In India 6,48,643 5,15,307 1,33,336 4,85,861 5,37,180 -51,319
of which
FIIs 6,14,025 5,15,307 98,718 4,81,070 5,37,180 -56,110
GDRs/ADRs 33,428 — 33,428 4,790 — 4,790
ii) Abroad 729 193 536 282 620 -338
2 Loans (a+b+c) 2,34,081 1,15,441 1,18,640 2,11,403 1,69,749 41,654
3 Banking Capital 1,40,548 1,16,600 23,948 2,34,655 2,38,261 -3,606
(a+b)
Total Capital Account 11,73,954 8,43,830 3,30,124 10,94,141 10,31,387 62,754
(1 to 5)
C. ERRORS & 2,892 — 2,892 3,685 — 3,685
OMISSIONS
D. OVERALL BALANCE 20,52,480 17,82,303 2,70,177 22,39,559 23,38,167 -98,608
(Total Current

Page 23
 Account, Capital
Account and Errors &
Omissions (A+B+C))
E. MONETARY — 2,70,177 - 98,608 — 98,608
MOVEMENTS (i+ii) 2,70,177
i) I.M.F. — — — — — —
ii) Foreign Exchange — 2,70,177 - 98,608 — 98,608
Reserves (Increase 2,70,177
– / Decrease +)
P= Provisional, PR= Partially Revised
Source: RBI Bulletin, May 2009.

India’s Trade deficit on a balance of payments (BoP) basis has widened significantly by 52.04
percent to $ 105.33 26 billion in the nine months (April-December) of fiscal year*2008-09
from $ 68.28 billion in the comparable period in previous fiscal. The widening trade deficit is
attributed to significant growth in imports. During the nine-month period (April-December,
2008) imports were up 30.60 percent to $ 238.86 billion from $ 182.89 percent in the
comparable period in fiscal 2007-08.

The key features of India’s BoP that emerged at the end of Q3 of fiscal 2008-09 were: the key
features of India’s BoP that emerged in April-December 2008 were: (i) widening of trade
deficit led by high growth in imports and slowdown in exports, (ii) increase in invisibles
surplus, led by remittances from overseas Indians and software services exports, which
financed about 65 per cent of trade deficit, (iii) higher current account deficit due to large
trade deficit, (iv) lower net capital flows mainly led by large net outflows under portfolio
investment and large repayments under short-term trade credit, and (v) sharp decline in
reserves.

Some of the major highlights of BoP for the Q3 2008 can be stated as follow:

(i) Export growth turned negative during Q3 of 2008-09 for the first time after 2001-02
due to global economic slowdown.
(ii) Import growth on BoP basis decelerated to a single digit during Q3 of 2008-09 after a
gap of almost 6 years mainly led by lower crude oil prices and non-oil imports.
(iii) The current account deficit at US$ 14.6 billion during Q3 of 2008-09 was the
highest quarterly deficit since 1990.
(iv)For the first time since Q1 of 1998-99, the capital account balance turned negative
during Q3 of 2008-09 mainly due to net outflows under portfolio investment,
banking capital and short term trade credit.
(v) The foreign exchange reserves on BoP basis (i.e., excluding valuation) declined due to
widening of current account deficit combined with net outflows under the capital
account. The largest decline in reserves during any one quarter in earlier years at
US$ 4.7 billion was last observed in Q3 of 2005-06.
(vi)On a BoP basis India’s Merchandise exports recorded a decline of 10.4% in the Q3 of
2008-09 as against an increase of 33% in the same quarter of 2007-08.

Page 24
 (vii) Import payments, on a BoP basis, registered a lower growth rate of
8.9% in the Q3 of 2008-09 as compared to a high growth of 41.9% in the same
quarter of the previous financial year. The slowdown in import growth is mainly
attributed to oil import payment due to sharp fall in the prices of crude oil during
this quarter.
(viii) Capital account balance turned negative showing outflows of US$ 3.7 billion
during the Q3 of 2008-09 (net inflows at US$ 31.0 billion during Q3 of 2007- 08)
for the first time since Q1 of 1998-99 mainly due to net outflows under portfolio
investment, banking capital and short-term trade credit.
(ix)The gross capital inflows to India during Q3 of 2008-09 amounted to US$ 70.0 billion
(US$ 127.3 billion in Q3 of 2007-08) as against gross outflows from India at US$
73.6 billion (US$ 96.3 billion inQ3 of 2007-08). Other components of the capital
account which recorded a fall during the quarter were inflows and outflows under
foreign direct investment and external commercial borrowings, while inflows
under short term trade credit also declined during the quarter.
(x) Net FDI flows (net inward FDI minus net outward FDI) amounted to US$ 0.8 billion
in Q3 of 2008-09 (US$ 2.0 billion in Q3 of 2007-08). Net inward FDI stood at
US$ 6.7 billion during Q3 of 2008-09 (US$ 7.9 billion in Q3 of 2007-08). Net
outward FDI remained buoyant at US$ 5.9 billion in Q3 of 2008-09 (US$ 5.8
billion in Q3 of 2007-08).

Exchange Rate:
The foreign trade in India is done in terms of US Dollar and therefore the US Dollar is
considered to be hot currency in India. The Indian rupee is not a prominent one in the world.
But it is a currency used by the people of a dynamic economy. Over the years the Indian
government has maintained the exchange rate of Indian Rupee vis-a-vis US Dollar in the
range of Rs. 40-47/US $ and this policy was adopted mainly to support export and improve
trade balance. But last year rupee appreciated to a level of Rs. 37/US $ and then because of
the impact of recession it depreciated to an unprecedented low of almost Rs. 52/US $. After
then it gained some lost ground and appreciated to reach to a level which can be called a
satisfactory level.

The table below gives the trend of exchange rate of Indian Rupee in terms of Dollar for the
last one year.

Page 25
Rupee/1$
Indian

The rupee was exchanged at the level of below Rs. 40/US $ for the first three months and for
most part of the fourth month of last year. Then there was a sharp depreciation in Indian
Rupee in terms of US $ and it reached to a level of Rs. 49.76 on October 24th, 2008. Then INR
gained some ground in November to reach to a level of Rs. 47.5/US $ on 7th November, 2008.
But the depreciation continued after that as INR reached a new low of Rs. 51.68/US $ on 6th
March, 2009 and after that a gradual appreciation is seen over the past few months this year.
The situation is likely to remain the same and the rupee might see a level of Rs. 46-47/US $
for the rest of this year.

Foreign Trade:
The export took a great hit during the last financial year because of the recession that gripped
the world economy. The first six months of the last financial year was quite good as the export
showed a steady growth but in October last year the export turned negative for the first time in
a decade and since then it has not turned positive. The export target of $200 Bn for this
financial year was not achieved. The imports were also down to single digit from January this
year because of the fall in the prices of crude oil but the overall trade balance was not
favourable as it grew more in negative territory.

The following table gives details of India’s foreign trade in the last Financial Year.

Foreign Trade (Annual and Monthly)

2009-10(Provisional)
Month US dollar million

Page 26
 Export Import
Balance
April 15,961 24,823 -8,862
May 15,550 26,684 -11,134
June 16,522 25,734 -9,213
July 17,072 29,054 -11,982
August 15,900 29,040 -13,140
September 14,131 26,417 -12,285
October 12,814 22,724 -9,910
November 10,206 22,405 -12,198
December 12,151 18,419 -6,267
January 11,422 16,415 -4,993
February 11,913 16,823 -4,910
March 11,516 15,561 -4,045
Source: DGCI & S and Ministry of Commerce & Industry.

The following graph shows India’s Foreign Trade since the Liberalisation of the economy:

Monetary Policy: Source: DGCI & S and Ministry of Commerce

Monetary policy is the process by which the government, central bank, or monetary authority
of a country controls (i) the supply of money, (ii) availability of money, and (iii) cost of
money or rate of interest, in order to attain a set of objectives oriented towards the growth and
stability of the economy.

In India, the main objective of the monetary policy has been to control the inflation and ensure
availability of credit to the common people. The monetary measures are taken by RBI from
time to time to ensure the smooth functioning of Indian Economy. This was quite evident in
the last year when the prices of commodities were rising to an unsustainable level; RBI
gradually tightened the monetary measures and hiked the key rates like CRR, Repo Rate to
suck the excess liquidity out of the system to ensure that it doesn’t reach to an unmanageable
level. The Repo Rate and the CRR were hiked to 9% in August last year. This was the first

Page 27
time since October 2000 that repo has touched 9 per cent while CRR touched
9 per cent for the first time since late November 1999.

After September last year, the scenario changed a bit and the market world over faced the
credit crunch and there was contraction in demand because of which crude oil prices touched
a new low of $ 32 per Barrel. The RBI responded to this new situation by reversing its stance
taken on the monetary policy for the country and eased the liquidity flow by reducing the key
rates like CRR and Repo rate in s gradual manner.

From a level of 9% last August, the CRR was reduced to 5% this January and the total amount
of liquidity released in the market because of this reduction was Rs. 1,60,000 crore. The SLR
was also reduced, for the first time since 1997, to 24% from earlier level of 25% in November
last year. The expansionary monetary policy approach, however, is yet to show concrete
results as the credit growth has not picked up yet.

The table shows the key rate cuts by RBI in recent months:

Date Repo- CRR Date Repo- Reverse CRR

Rate Rate Repo-
26-Apr- 7.75 Rate
08 25-Oct- 6
10-May- 8 09
08 03-Nov- 7.5
12-Jun-08 8 09
25-Jun-08 8.5 08-Nov- 5.5
05-Jul-08 8.5 09
19-Jul-08 8.75 08-Dec- 6.5 5
29-Jul-08 9 09
30-Aug- 9 05-Jan- 5.5 4
10
08
17-Jan- 5
11-Oct- 7.5
10
08
05-Mar- 5 3.5
Fiscal
11-Oct-Policy: 6.5
08
The Indian economy is driven ahead by strong fundamentals and despite the global slowdown
the economic growth was second highest in the world.

The fiscal policy for the year 2009-10 will continue to be guided by the objectives of keeping
the economy on the higher growth trajectory amidst global slowdown by creating demand
through increased public expenditure in identical sectors.

The growth trends for the last four years indicate a continuous upswing in the economy.
Increasing productivity, growth of service sector and buoyancy in tax receipts associated with
the growth and to some extent, improvement in tax compliance and enforcement as a result of
a more rational, liberal and efficient tax system, have contributed toward achieving
quantitative goals set under the FRBM Act. Reduction of fiscal deficit has been achieved from
4.5 per cent of GDP in 2003-04 to 3.1 per cent of GDP in RE 2007-08. During the same
period, revenue deficit has declined from 3.6 per cent of GDP to 1.4 per cent. But because of

Page 28
the expansionary fiscal policy adopted by the government in the latter half of
last year the fiscal deficit came to a level of 11% of the GDP for the FY 2008.
The Government announced two fiscal stimulus packages, first on 7th December, 2008 of Rs.
3,00,000 core- including additional plan expenditure of Rs 20,000 crore and a 4-percentage-
point cut in excise duty and then on again 3rd January, 2009. The government did not reveal
the cost of second fiscal incentive, except to add that tax cuts would involve revenue foregone
of Rs 40,000 crore in the current fiscal.

Tax Collection:

Net direct tax collection during the fiscal 2008-09 stands at Rs.338,212 crore, up from
Rs.312,202 crore during 2007-08, registering a growth of 8.33 percent. Growth in Corporate
Taxes was 10.84% , while Personal Income Tax (including FBT, STT and BCTT) grew at
9.09%. Despite economic slow-down and substantial relief to non-corporate taxpayers, direct
tax collections exceeded the previous year's collection by about Rs.26,000 crore.

Net direct tax collections during first two months of the current fiscal (2009-10) stood at
Rs.24,158 crore, up from Rs.22,840 crore, registering a growth of 5.77%. Growth in
Corporate Taxes was 5.56% (Rs.8,578 crore as against Rs.8,126 crore), while Personal
Income Tax (including FBT, STT and BCTT) grew at 5.92% (Rs.15,559 crore as against
Rs.14,690 crore). Overall refund outgo during the period increased by 26.19% (Rs.11,375
crore as against Rs.9,014 crore) while refunds to non-corporate taxpayers grew by 61.7%
(Rs.2,149 crore against Rs.1,329 crore), spurred by faster processing of returns on the new
national computer network.

Source: IT Department, Govt. of India

Industry Analysis:
Target Industry: Financial Services Industry

The financial services refer to the services provided by the finance industry. The finance
industry encompasses a broad range of organizations that deals with money. Among these
organizations are Banks, credit card companies, consumer finance companies, stock
brokerages, investment funds and some government supported and sponsored enterprises.

The Indian Financial services industry is very diversified in nature with every domain of
finance is covered by the industry. The main emphasis of our analysis will be on Non Banking
Financial Companies (NBFCs) and Insurance sector. IBFSL is basically an NBFC which is
also planning to offer insurance services apart from providing finance to the people as well as
private companies and partnership firms.

Industry of Non Banking Financial Companies:

Page 29
 A non-banking financial company (NBFC) is a company registered under the
Companies Act, 1956 and is engaged in the business of loans and advances, acquisition of
shares/ stock/ bonds/ debentures/ securities issued by government or local authority or other
securities of like marketable nature, leasing, hire-purchase, insurance business, chit business,
but does not include any institution whose principal business is that of agriculture activity,
industrial activity, sale/ purchase/ construction of immovable property.

A non-banking institution which is a company and which has its principal business of
receiving deposits under any scheme or arrangement or any other manner, or lending in any
manner is also a non-banking financial company (residuary non-banking company).

NBFCs are doing functions akin to that of banks; however there are a few differences:

• (i) An NBFC cannot accept demand deposits (demand deposits are funds deposited at
a depository institution that are payable on demand -- immediately or within a very
short period -- like your current or savings accounts.)
• (ii) It is not a part of the payment and settlement system and as such cannot issue
cheques to its customers; and
• (iii) Deposit insurance facility of DICGC is not available for NBFC depositors unlike
in case of banks.

Initially, the NBFCs that are registered with RBI are:

 Equipment leasing company;
 Hire-purchase company;
 Loan company;
 Investment Company.

With effect from December 6, 2006 the above NBFCs registered with RBI have been
reclassified as
 Asset Finance Company (AFC)
 Investment Company (IC)
 Loan Company (LC)

Overview of NBFC Sector in India:

The following diagram depicts a brief snap of the structure of Non-Banking sector in India.

Page 30
Non-banking financial companies (NBFCs) have seen considerable business model shift over
last decade because of regulatory environment and market dynamics.

In the early 2000s, the NBFC sector in India was facing following problems:

1. High cost of funds

2. Slow industrial growth
3. Stiff competition with NBFCs as well as with banking sector
4. Small balance sheet size resulting in high cost of fund and low asset profile
5. Non-Performing Assets

Majority of NBFCs were not able to face the pressure created on and were wiped out.
However, since FY2001-2002, there has been significant improvement in the business model
of existing NBFCs with improvement in overall business environment. NBFCs have been able
to expand their resource profile by diversifying the funding avenues. Further a strict control
on asset quality and overheads, coupled with use of innovative borrowing tools such as
securitization has resulted in improved profitability of NBFCs.

But the recent developments in the world financial market have posed a great challenge to the
survival of NBFCs. The companies in this sector have to formulate new strategies to survive
in this rapidly changing market.

Page 31
Apart from mergers, other options waiting for NBFCs are to change the tracks
and explore new areas. They have to extend their product portfolio to include asset
management companies, housing finance firms and to venture into newly opened insurance
sector for private participation. Examples of such initiatives are launch of associate company
of Sundaram Finance to disburse housing loans, which has been the domain of HDFC and
LIC Housing Finance. Entry of Kotak Mahindra Finance Limited, Sundaram Finance and
Lakshmi General Finance into the insurance business is another example. In the medium term
most NBFC's are looking at developing niche areas and concentrating on fee based income to
offset the loss in fund based activities. Examples include the move of Ashok Leyland Finance
to launch a finance portal that would be used to sell products of other financial intermediaries
and to use its skill in collection to derive a pure service income. The benefits of such
horizontal integration would be a diversification of the company's revenue stream which goes
with the old saying of putting one's egg in different baskets.

In the market of retail finance and financial loans, in order to beat the competition, NBFCs
have to increase the quality of their service which is described as the convenience offered to
the customer in terms of speed, accuracy and product features. Investors in future will also be
looking for certain qualitative details like reputation of the management and the financial
track record of the NBFC before they invest their monies. NBFCs stands a good chance to
succeed as they have an advantage of being lower in operating cost as compared with other
financial intermediaries because of their small size, efficient operation and fast decision
making. NBFC's aggressive collection mechanism and lower proportion of big corporate loans
gives them an edge in containing risk and also results in fewer amounts of NPAs which is
critical in the financial sector.

The role of NBFCs has become increasingly important from both the macroeconomic
perspective and the structure of the Indian financial system. Over a period of time, one has to
accept; that it is only those which are big enough and serious about being in the finance
business will and must grow, survive and constantly grows, NBFCs have to focus on their
core strengths while improving on weaknesses. They have to constantly search for new
products and services in order to remain competitive. The coming years will be testing ground
for the NBFCs and only those who will face the challenge and prove themselves will survive
in the long run.

Recent Developments:
Total number of NBFCs registered with the Reserve Bank, consisting of NBFCs-D (deposit-
taking NBFCs), RNBCs, and mutual benefit companies (MBCs), miscellaneous non-banking
companies (MNBCs) and Nidhi companies, declined from 12,968 at end-June 2007 to 12,809
at end-June 2008. The number of NBFCs-D declined from 401 at end-June 2007 to 364 at
end-June 2008, mainly due to the exit of many NBFCs from deposit taking activity. The
number of RNBCs declined to two at end-March 2008.

Page 32
Of the 364 deposit-taking NBFCs, 335 NBFCs filed annual return for the year
ended March 2008 by the cut-off date of September 30, 2008. Even though the public deposits
declined by Rs.304 crore in 2007-08 over the previous year, partly reflecting the decline in
number of reporting NBFCs, total assets increased significantly by Rs.23,019 crore (32.1 per
cent), while net owned funds increased by Rs.3,974 crore (48.0 per cent) during the same
period (Table VI.14). The rise in total assets and net owned funds reflected partly the
restoration of IFCI Ltd. and TFCI Ltd. to the NBFC category. The share of public deposits
held by RNBCs in the total deposits of all NBFCs remained constant at 91.6 per cent in 2007-
08 as compared with 2006-07. However, the share of RNBCs in total assets of NBFCs
declined to 25.8 per cent at end-March 2008 from 32.3 per cent at end-March 2007.

The ratio of deposits of reporting NBFCs to the aggregate deposits of scheduled commercial
banks dropped to 0.73 per cent at end-March 2008 from 0.92 per cent at end- March 2007
mainly due to the decline in deposits of reporting NBFCs. The share of NBFC deposits in
broad liquidity aggregate also declined during the period.

Profile of NBFCs*: (Amount in Rs. Crore)

Page 33
 Source: RBI.org.in

Operations of NBFCs (excluding RNBCs):

Total assets/liabilities of NBFCs (excluding RNBCs) expanded at a much higher rate of 44.8
per cent during 2007-08 compared with 28.4 per cent during 2006-07Borrowings, which is the
major source of funds for NBFCs, increased by 55.3 per cent during the year, while public
deposits declined by 1.9 per cent indicating the continuing shift in the pattern of resources
raised. On the assets side, hire purchase assets witnessed a deceleration, while loans and
advances witnessed a sharp rise during 2007-08. Total investments of NBFCs decelerated
mainly due to deceleration in investments in approved securities. Other investments, which
had declined during 2006-07, has increased sharply by 33.1 per cent during 2007-08. Among
NBFC groups, asset finance companies (AFCs) held the largest share in total assets/liabilities
(64.1 per cent), followed by loan companies (27.5 per cent), hire purchase companies (7.5 per
cent) and investment companies (0.6 per cent).

Page 34
Entry Barriers:
The Reserve Bank of India on 2nd June 2008 asked non-deposit taking NBFCs to raise the
minimum Capital to Risk-weighted Assets Ratio (CRAR) from 10% now to 12% with
immediate effect and further to 15% with effect from April 1, 2009.
NBFCs operate almost like banks, except for running a checking account, or accounts, where
money can be easily withdrawn by writing checks, or using a debit card. Although the capital
adequacy norm for NBFCs is higher than what is required for a regular bank, they do not have
any statutory liquidity ratio (SLR)—the amount of money banks are required to invest in
government bonds— and cash reserve ratio (CRR)— the amount of money banks are required
to keep with RBI—requirements.

The following guidelines are provided by RBI for a company venturing into NBFC sector:

• A minimum net owned fund (NOF) of Rs. 2 crore

• A minimum investment grade Credit Rating from CRISIL, CARE, ICRA, Fitch etc.

• Maximum rate of interest offered on deposit is 11%

• Minimum duration of deposit is 1 year while the maximum is 6 years.

Besides these regulations, there are several other regulations imposed by RBI on NBFC like
exposure norms, corporate governance requirement, NPA and provisioning for bad debts,
statutory audit as per RBI guidelines, transfer of certain amount of profit to reserves and
others.

Some of the important regulations relating to acceptance of deposits by NBFCs are as under:

• The NBFCs are allowed to accept/renew public deposits for a minimum period of 12
months and maximum period of 60 months. They cannot accept deposits repayable on
demand.
• NBFCs cannot offer interest rates higher than the ceiling rate prescribed by RBI from
time to time. The present ceiling is 11 per cent per annum. The interest may be paid or
compounded at rests not shorter than monthly rests.
• NBFCs cannot offer gifts/incentives or any other additional benefit to the depositors.
• NBFCs (except certain AFCs) should have minimum investment grade credit rating.
• The deposits with NBFCs are not insured.
• The repayment of deposits by NBFCs is not guaranteed by RBI.
• There are certain mandatory disclosures about the company in the Application Form
issued by the company soliciting deposits.

Page 35
 Competition:
The industry is mainly governed by a very few big brand names like Reliance Capital, Bajaj
Auto Finance, Indiabulls Financial Services Ltd, M&M Financial Services Ltd, Sundaram
Finance, IFCI and others. Besides, the industry faces stiff competition from Banking sector
which controls majority of the market.

Let’s take a look at the performance of various players in this sector in the FY 2009-10.

Balance Sheet ------------------- in Rs. Cr. -------------------

Indiabull India Edelweis Motilal Future
s Infoline s Cap Oswal F Capital
Mar '10 Mar '10 Mar '10 Mar '10 Mar '10
Sources Of Funds
Total Share Capital 207.55 57.1 37.73 14.2 63.23
Equity Share Capital 50.69 57.1 37.47 14.2 63.23
Share Application 0 59.77 0.6 0 0
Money
Preference Share 156.87 0 0.26 0 0
Capital
Reserves 3,198.22 932.75 1,312.03 385.72 660.87
Revaluation Reserves 0 0 0 0 0
Networth 3,405.77 1,049.62 1,350.36 399.92 724.1
Secured Loans 3,883.59 0 127.12 0 50
Unsecured Loans 7,433.01 130.57 975.81 0 50
Total Debt 11,316.6 130.57 1,102.93 0 100
0
Total Liabilities 14,722.3 1,180.19 2,453.29 399.92 824.1
7

The company has faced tough times recently and particularly the last quarter was very dismal
as far as the performance of the company is concerned. The small regional players also
present tough challenges for the company.

The entry of new players in the industry is also making this sector more and more competitive
everyday with new challenges to confront. However, only the best players who adapt to the
changing environment with innovative mechanism and quick decision making will be able to
survive.

Page 36
 Company Analysis:
Company Profile:
Indiabulls Group is one of the top business houses in the country with business interests in
Real Estate, Infrastructure, and Financial Services, Retail, Multiplex and Power sectors.
Indiabulls Group companies are listed in Indian and overseas financial markets. The Networth
of the Group exceeds USD 2 billion. Indiabulls has been conferred the status of a “Business
Superbrand” by The Brand Council Superbrands India.

Indiabulls Financial Services is an integrated financial services powerhouse providing

Consumer Finance, Housing Finance, Commercial Loans, Life Insurance, Asset Management
and Advisory services. Indiabulls Financial Services Ltd is a registered Non-Banking
Financial Corporation. Indiabulls Financial Services Ltd is amongst 68 companies constituting
MSCI - Morgan Stanley India Index. Indiabulls Financial is also part of CLSA’s model
portfolio of 30 Best Companies in Asia. Indiabulls Financial Services signed a joint venture
agreement with Sogecap, the insurance arm of Societé Generale (SocGen) for its upcoming
life insurance venture. Indiabulls Financial Services in partnership with MMTC Limited, the
largest commodity trading company in India.

Today it enjoys a leading position in finance and real estate services in India. Presently its
expanse includes around 640 branches and over 4.5 Lacs customers. Indiabulls Financial
Services Ltd. has listings in National Stock Exchange (NSE), Bombay Stock Exchange (BSE)
and Luxembourg Stock Exchange. The net worth of Indiabulls in the present financial year is
510 million US Dollars. Some of the largest financial institutions like Fidelity Funds,
Goldman Sachs, Merrill Lynch, Morgan Stanley, and Farallon Capital are the majority
shareholders.

Company History:
Indiabulls Financial Services Limited was incorporated on January 10, 2000 as M/s Orbis
InfoTech Private Limited at New Delhi under the Companies Act, 1956 with Registration No.
55 - 103183. The name of Company was changed to M/s. Indiabulls Financial Services
Private Limited on March 16, 2001 due to change in the main objects of the Company from
InfoTech business to Investment & Financial Services business. It became a Public Limited
Company on February 27, 2004 and the name of Company was changed to M/s. Indiabulls
Financial Services Limited.

The Company was promoted by three engineers from IIT Delhi, and has attracted more than
Rs.700 million as investments from venture capital, private equity and institutional investors
such as LNM India Internet Ventures Ltd., Transatlantic Corporation Ltd., Farallon Capital
Partners, L.P., R R Capital Partners L.P., and Infinity Technology Trustee Pvt. Ltd. and has
developed significant relationships with large commercial banks such as Citibank, HDFC
Bank, Union Bank, ICICI Bank, ABN Amro Bank, Standard Chartered Bank, Lord Krishna
Bank and IL&FS.

Page 37
The Company and its subsidiaries have facilities from the above mentioned
banks and financial institutions aggregating to Rs. 1760 million. The Company headquarters
are co-located in Mumbai and Delhi, allowing it to access the two most important regions for
Indian financial markets, the Western region including Mumbai, rest of Maharashtra and
Gujarat; and the Northern region, including the National Capital Territory of Delhi, nearby
cities, parts of Haryana, Uttar Pradesh and Punjab; and access the highly skilled and educated
workforce in these cities. The Marketing and Sales efforts are headquartered out of Mumbai;
with a regional headquarter in Delhi; and its back office, risk management, internal finances
etc. are headquartered out of Delhi, allowing the company to scale these processes efficiently
for the nationwide network.

IBFSL fixes an issue price of Rs. 19 per share for its IPO which was oversubscribed 18.5
times. The response was quite impressive from all categories of investors. The book was
finally subscribed 18.5 times with over 1.3 lakh bids. The institutional portion was subscribed
more than 12 times, the retail portion 25 times and the non-institutional portion 24 times.

Source: Religare Technova

Listing Details - Indiabulls Financial Services

Key Dates
Year Ending Month Mar
AGM Date (Month) Sep
Book Closure Date (month) Aug/Sep

Subsidiaries:
• Indiabulls Housing Finance Ltd

Indiabulls Housing Finance Limited provides home loans and loans against property.
The company also offers plot loans and loans against residential, commercial, and
rental property.

The company is headquartered in New Delhi, India. Mr. Gagan Banga is the Director
of the company.

• Indiabulls Credit Services Ltd

Indiabulls Credit Services, Ltd. operates as a financial services company in India. It

offers personal loans, and broking and financial services. The company is based in
New Delhi, India with additional offices in Chandigarh, Ludhiana, Amritsar, and
Ambala in India.

Mr. Amit Talgeri is the chief operating officer of the company.

Page 38
 • Indiabulls Commercial Credit Ltd

Indiabulls Commercial Credit Services Ltd offers commercial credit loans and
Business Loans for the customers. The company is based in New Delhi, India.

Products and Services Offered:

• Home Loan:

Home loans by Indiabulls can be availed for

 Purchasing a already constructed house/flat
 Purchasing a residential plot
 For re-financing existing loans taken from other banks or housing finance
companies.
The minimum amount that can be availed is Rs. 5 Lakhs. Loan against property is
provided against:
 Residential,
 Commercial and
 Rental properties
• Commercial Vehicle Loan:

Indiabulls Commercial Vehicle Loans offers commercial auto loans to a variety of

business owners. The Commercial Vehicle Finance provided by us helps the small and
medium operators to acquire vehicles with minimum hassle and documentation. We
provide customized financing options to suit your needs.

1. Product Offering

• Finance for new commercial vehicles

• Finance for used vehicles
• Tractor Loans

2. Proposed Finance

• Tyre Funding
• Accidental Funding
• Engine Funding
• Take over loans

3. Features of Loan Offering

• Loan for up to 15 years old vehicles.

Page 39
 • The best loan offering in the market – up to 95% for
used vehicles & 100% for new commercial vehicle chassis
• Max tenure of up to 48 months for used vehicles 60 months for new
commercial vehicle chassis
• Max tenure of up to 48 months for used vehicles 60 months for new
commercial vehicle chassis
• Customized loan to suit customers’ needs
• Door Step Services
• Easy Documentation
• Quick & Hassle free services
• Attractive Rate of Interest
• No intermediary or Direct Marketing Agent for loan processing

• Business Loans:

IBFSL also provides SME loans for the budding entrepreneurs as well as the
established partnership firms and pvt. Limited Companies.

The key features of Business Loans can be summed up as follow:

 Attractive interest rates

 Monthly repayment mode ranging from 12 to 48 months

 Borrow from Rs. 5 Lacs to Rs. 50 Lacs

 Speedy loan approvals.

Apart from the above mentioned services, the company also offer services like loan
against property, commercial credit loan, loan against shares, and insurance
distribution.

Top Competitors:
The financial services industry in India is very competitive with the presence of some very
good brand names in the domain. The competition is quite tough here.

The top competitors of the company are:

1. Reliance Capital Ltd.

2. Mahindra Financial Services Ltd.

3. Religare Enterprises Ltd.

4. Motilal Oswal Financial Services Ltd

Page 40
 5. India Infoline

Updates on New Business Ventures

Indiabulls Societe Generale Life Insurance Company Ltd

• Company expects Life Insurance Business to be a key growth driver over the
next few years and is looking at making substantial investments to scale up the
business soon after completing the regulatory process.

• Company will leverage on its strong capital base and large distribution strength
to rapidly gain market share.

• Licensing process is expected to be completed in CY2009. The global market

slowdown had caused uncertainty in the environment and resulted in delay in
regulatory approvals. The company now expects to complete the approval
process over the next 6 months.

• Appointment of Key Management Personnel has been completed.

• Set up of Project Management Office, key vendors and technology providers has
also been completed.

International Multi Commodity Exchange Ltd

• The national level multi commodity exchange being set up as a joint venture
between Indiabulls Financial Services Limited and MMTC will go live by end
of July 2009.

• In line with the Government ownership guidelines, entire paid-up capital of Rs

100 crore has been subscribed by IBFSL (40%), MMTC (26%), Indian Potash
Ltd (10%), and Others (24%)

• Recognition of the exchange from Forward Markets Commission expected

shortly.

• Technology platform for the exchange including network infrastructure is at

advanced stage of completion and membership campaign is underway.

• Exchange has identified about a dozen contracts in the first phase comprising
bullion, agro and base metals and energy with strong delivery support

Page 41
Key People:

Name Designation
Mr. Sameer Gehlaut Chairman of the Board

Mr. Gagan Banga CEO & Whole Time director

Mr. Rajeev Rattan President & CFO

Mr. Saurabh K. Mittal Non- Executive Director

Ms. Aishwarya Katoch Non- Executive Independent

Director

Mr. Shamsher Singh Non- Executive Independent

Director

Mr. Prem Prakash Mirdha Non- Executive Independent

Director

Mr. karan Singh Non- Executive Independent

Director
Source: Google Finance

Share Holding Pattern:

Promoters 29.72
Institutional Investors 27.32
Private Corporate Bodies 1.89
NRI's/OCB's/Foreign Others 16.19
General Public 6.98
Others 17.9

Page 42
 Source: Money.Rediff.com

The following graph shows the Borrowing Profile of the

company:

Source: indiabulls.com

Page 43
 Source: indiabulls.com

Analysis of Key Ratios:

1. Earnings Per Share(EPS):

EPS means the portion of a company's profit allocated to each outstanding share of
common stock. Earnings per share serve as an indicator of a company's profitability.

Calculated as:

EPS is generally considered to be the single most important variable in determining a

share's price. It is also a major component used to calculate the price-to-earnings
valuation ratio.

Page 44
 In case of the scrip IFSL, the EPS over the years has been quite
healthy as compared to other financial services companies.

The EPS for the company has been better than the rival like M&M Financial services
Ltd. but last year the income of the company saw a significant decline with the last
quarter of FY 2008 being the worst of the lot.

During this period the Basic EPS of the company saw a decline of more than 55%
from the level of 15.08 to 6.78 as on March 31st 2009. The decline in EPS can largely
be contributed to more than 53% decline in sales of the company in the last quarter of
FY 2008 itself from Rs. 544.83 Cr to Rs.253.60 Cr.

This is a significant decline when we compare the performance of the company with
other financial services giants like M&M Financial Services and Reliance Capital Ltd.
both of which registered more than 250% growth in EPS during the last quarter of FY
2008.

This happened mainly because of the fact that while the sales figure and hence the
operating profit of the two competitors went up, IBFSL registered a negative growth
in the sales while the operating profit was down by as high as 110%.

2. Dividend-Payout Ratio:

The Dividend-Payout ratio means The percentage of earnings paid to shareholders in

dividends.

It is calculated as:

The payout ratio provides an idea of how well earnings support the dividend
payments. More mature companies tend to have a higher payout ratio.

Page 45
 The Dividend-Payout Ratio, as per the company’s financial results
published for the period of 31st March, 2009 stood at 29.5%. This is a major decline
from the earlier figure of 56.36% in the FY 2007. There are mainly two reasons behind
this decline in the DPR.

• The first reason obviously is decline in the dividend announced by the

company. Last year, the company had announced a dividend of 425% on
the face value of the share, that means a dividend of Rs. 8.5 per share but
this year the dividend proposed in the annual report is 100% on the face
value of the share and that means a dividend of Rs. 2 per share.

• Secondly, the income has been affected because of the liquidity crunch
faced by the financial companies all over the world. The companies parked
its surplus money in fixed deposits and banks instead of going for mutual
funds that could have yielded high interests but were risky also. This
brought down the income earned from the interest significantly that was
reflected on the Dividend-Payout ratio.

Despite this fact, the Dividend-Payout ratio of the company is higher than rival
companies in the market. While M&M Financial Services had a DPR of 28.8% last
year the DPR was a meagre 15.41% for Reliance Capital and the company score over
these two rivals in this aspect. This can be attributed to the fact that while last year
M&M Financial Services offered a dividend of 45% and Reliance Capital 55%, IBFSL
offered a dividend of 425% far greater than its competitors. This year too, the
company offered 100% dividend while M&M Financial Services offered 55% and
Reliance Capital 65% dividend.

3. P/E Ratio:

P/E ratio is a valuation ratio of a company's current share price compared to its per-
share earnings.

Calculated as:

EPS is usually from the last four quarters (trailing P/E), but sometimes it can be taken
from the estimates of earnings expected in the next four quarters (projected or forward
P/E).

In general, a high P/E suggests that investors are expecting higher earnings growth in
the future compared to companies with a lower P/E. However, the P/E ratio doesn't tell

Page 46
 us the whole story by itself. It's usually more useful to compare the
P/E ratios of one company to other companies in the same industry, to the market in
general or against the company's own historical P/E. The P/E is sometimes referred to
as the "multiple", because it shows how much investors are willing to pay per dollar of
earnings.

The P/E ratio of IBFSL for the last FY (2007-08), which means at the end of 31 st
March, 2008 was 18.08% while for the FY ended March 31st, 2009 it was 28.28%. It is
quite higher than its competitors like Reliance Capital Ltd, Motilal Oswal Finance, and
M&M Financial Services Ltd which have P/E ratios in the range of 10-12% for the FY
2009 but the bigger cause of concern for the company is that while all the three
companies mentioned above have increased their EPS by increasing their Net Income,
the Net Income of IBFSL has dropped significantly. So, even the higher P/E ratio does
not improve the fundamental situation of the company until it returns to a higher
growth trajectory than its rivals. At this time, the P/E ratio should be even better also
because of the fact that the scrip has not been able to capitalise on the current market
rally as much as the rivals did.

4. PEG Ratio:

PEG ratio is used to determine a stock's value while taking into account earnings
growth. The calculation is as follows:

PEG is a widely used indicator of a stock's potential value. It is favoured by many over
the price/earnings ratio because it also accounts for growth. Similar to the P/E ratio,
a lower PEG means that the stock is more undervalued.

Page 47
The PEG ratio for the company is not impressive because of the
negative growth in the EPS from last year. The annual (Basic) EPS growth is –
85.98% and that itself tells the whole story. The PEG ratio for the company for this
FY comes out to be – 32.89% and this represents a very grim picture of the company
as most of its rivals have registered some amount of positive growth in EPS.

Page 48
CH-3:

Technical
Analysis

Page 49
Share Price Movement on Yearly Basis:

Support Level Resistance

Level

Year High: Rs. 374.25, Date-17/06/2008 Resistance Level: Rs.120

Year Low: Rs. 85.05, Date- 06/03/2009 Support Level: Rs. 92

Though the scrip is trading above resistance level because of huge rise in the price after the
election results were announced, these levels indicates the trend for the past months.

High Low Close

The scrip used to show a good amount of variations when the prices were in the range of Rs.
300-400 but as the price dipped the intraday variations also went down, making the share less
volatile but not too good for the stock brokers who are interested in generating brokerage. In
recent times, the scrip also showed an unusual trend. The share used to open at a level of 5%
higher and the upper circuit was applied for the rest of the day. The variations have come
down significantly.

Page 50
Sensex vs. IBFSL

BSE Bankex vs. IBFSL

Source: Google

The scrip is positively correlated with BSE sensex and the Bankex as well. This is quite
evident in the above graph and therefore, the beta value of the share is 1.08 which is justified
by the graph also. The movement of sensex and IBFSL is quite similar and to some extent
shows that the share follows the movement of the market in the long run, be it upward or
downward. Same is the case for the Bankex as well.

Page 51
Performance of BSE and IBFSL in the Recession Period:
For the analysis, the 12 month-period from January, 2009 to may ,2009 has been taken as
Recession period because this was the time when the impact of recession was most severe on
the Indian economy and the period saw a huge correction in the market as well as the price of
many overvalued share. Though the Indian economy has not recovered from the recession yet
but the several economic indicators have started showing positive signals in the last three
months, which is from March, 2009 with the sensex is on the road to recovery. The inflation
(CPI) has come down; IIP is showing signs of improvement in the industrial sector.

The year didn’t start too well for the scrip and though the market gained 341.69 points and
continued its long rally, the scrip crashed by 260 points, more than 26% in spite of the
positive sentiment in the market at that time. The signs of global slowdown were surfacing
slowly but surely as the credit crunch in USA forced the FIIs and other big players, who had
invested a huge sum of money in the market; started booking profit and drove their money
back from the market. The SENSEX as a result crashed from an all time high of 20873.33 on
8th January, 2008 to 8451.01 on 20th November, 2008. It was a tremendous decline of about
60% which was a result of factors like Credit Crunch in the Global Market, Net sales by FIIs
on a large scale on a continuous basis throughout the year, high inflation rate at that time that
reduced the purchasing power of investors and the volatility in the market that made the
customers more and more apprehensive about the safety of their money. The total outflow of
the Foreign institutional investment was Rs.53,051.70 Crore (Source: Moneycontrol.com)
during this year and comparing this figure of net inflow of Rs. 70,940 Crore of FII in the
previous year, one can easily see through the grave situation. The share prices of many
companies like ICICI Bank, DLF, Reliance Communications Ltd. and others came down to a
historic low. The fall of Wall Street had a significant impact on the market and the economies
world over felt the pinch.

The share price of IBFSL is very much positively correlated with the movement of the market
and it behaved in almost the same way as the market did during the whole year. The scrip
remained volatile so did the SENSEX. The share price of IBFSL reached to Rs. 922 on 3 rd
January, 2008 and the successive fall in the market brought the price back to Rs. 87 on 10 th of
October the same year, which was a fall of more than 90% in a span of just 10 months. The
price of the scrip started moving upwards towards the end of the year thanks to the
improvement in the consumer demand and some signs of recovery in Indian Market.

Now, let’s take a close look at the movement of share prices of IBFSL in different months of
the year 2008.

Page 52
Charting for the month of January 2009:

News Analysis:

A: (02/01/2009): The Indian government announced much awaited second fiscal

stimulus package to pull the economy out of recession.

B: (06/01/2009-23/01/2009): The FIIs kept sucking their money out of the market and
the market reached below 8,000 mark after initial recovery at the start of the month.

B: (06/01/2009-23/01/2009): Indiabulls Financial services announced its results for the

quarter ended 31st December, 2008 showing a 26.2% growth in revenues.

Resistance and Support Level:

The share price of the company slipped during this month but recovered after the company
announced its third quarter result for the financial year 2009. This put the scrip on the upward
movement in the end of the month. The month-high figure was Rs. 144.9 on 06/01/2009 while
the month-low figure was Rs. 88.75 on 22/01/2009. The resistance and support level were Rs.
125 and Rs. 91 respectively for the month.

Charting for the month of February 2009:

Page 53
 A B

News:
A: 03/02/2009: IndiaBulls securities board approved share buy-back plan

B: 26/02/2009: SEBI fines IndiaBulls for Fraudulent practices

The bear market in the month ensured that share of IBFSL stay in the range of Rs. 90 – Rs.
120 for most of the period of the month. Though, the share showed signs of upward
movement towards the end of the month. The month-high figure was Rs. 132.6 on 05/02/2009
and the month-low figure of Rs. 91.8 on 24/02/2009. The resistance and support level were
Rs. 108 and Rs. 91.

Analysis of the scrip for the period during March-May

2009:
This period is very crucial for our analysis. There are mainly two reasons behind that:

• First reason is that the trend in the recent months give a better view of the
behaviour of a particular share in the stock market

• Second is that the Indian economy is getting on the path of recovery from
the period after February 2009 and the confidence of the foreign investors is
coming back again.

Page 54
To illustrate the last point, the following graph has been taken that shows the
investment of FIIs in the equity market from March 2009.

Purchase Sales Net Source:

Purchase/sales Moneycontrol.com

Clearly, the trend is favourable and this is continued in June also. The FIIs have done net
investment to the tune of Rs. 4,446.50 Crore till 20th June itself.

For a detailed analysis of this period, we have done weekly charting of the share for this
period and monthly charting at the end as well.

Weekly Charting for March 2009:

High: Rs. 92.25 (02-03-09)

Low: Rs. 85.05 (06-03-09)

Page 55
The downward trend of the share continued this week. This is the time to stay
away from the share as the share is quite volatile.

High: Rs. 89.15 (09-03-09)

Low: Rs. 80.95 (13-03-09)

The share started recovering from this week. But yet it is not advisable to invest in the share
as the upward motion may be short lived and hence it is advisable stay away from the share.
The investment might be seen if it sustains its growth path.

High: Rs. 95.25 (19-03-09)

Low: Rs. 88.25 (16-03-09)

Page 56
The upward trend of the share could not continue this week. The share is quite
volatile and the movement is quite uncertain. The investor should wait for further movement.

High: Rs. 93.2 (23-03-09)

Low: Rs. 88.1 (26-03-09)

The share again showed a mixed movement this week. The position of short could be
beneficial for this week for intraday trading as the share kept opening at a higher price than
the closing price on the same day.

High: Rs. 92.65 (30-03-09)

Low: Rs. 88.5 (02-04-09)

The movement of the share is still not clear and the volatility continues. The intraday
movement is too low to invest in the share.

Monthly Charting for the month of March 2009:

Page 57
 A

News:
A: 26/03/2009: The fourth largest commodity exchange is going to start operation from June.
IndiaBulls financial Services Ltd. is a partner in this venture.

Apart from this news no big news came in the market and the movement in the share was
mainly governed by the activities of FIIs as evident in the 1st half of the graph. The month
High figure was Rs. 95.25 on 19/03/2009 while the month low figure was Rs. 80.95 on
09/03/2009. The resistance and support level were Rs. 92 and Rs. 88.5 respectively.

Weekly Charting for the month of April 2009:

High: Rs. 102.15 (09-04-09)

Low: Rs. 92.6 (06-04-09)

Page 58
The scrip has started to show upward movement and it seems that the share
price has bottomed out. So, this is the time to invest in the share of IBFSL.

High: Rs. 122.5 (17-04-09)

Low: Rs. 107.3 (13-04-09)

The upward trend of the share continued this week. This is the time to buy or hold the share as
the share is on the growth trajectory.

High: Rs. 121.1 (20-04-09)

Low: Rs. 116.15 (23-04-09)

The movement was quite uncertain this week. But the scrip will recover from the loss this
week as it is the phase of consolidation.

Page 59
High: Rs. 122.75 (27-04-09)

Low: Rs. 112.2 (29-04-09)

The movement was quite uncertain this week. But the scrip will recover from the loss this
week as it is the phase of consolidation. Right now, it is the time to keep away from the stock
and see the trend until it shows a certain movement.

Monthly Charting for April 2009:

News:

Page 60
A: (25/04/09): Indiabulls to raise $600 Mn for power projects via QIP.
The month of April marked a constant rise in the prices of the scrip for the first time since
December last year. Though the rally in the initial phase of the month could not sustain for the
entire month, the share gained 26.65% on the overall basis. The month High figure was Rs. 89
on 01/04/2009 while the month low figure was Rs. 122.75 on 27/04/2009. The resistance and
the support level were Rs. 121 and Rs. 110 respectively.

Weekly Charting for the month of May 2009:

High: Rs. 138.1(08-05-09)

Low: Rs. 116.75 (04-05-09)

The upward trend of the share continued this week. The investment on the share earlier could
have fetched good returns. The new investors might go for investing at this level.

Page 61
High: Rs. 157.3 (13-05-09)

Low: Rs. 144.9 (11-05-09)

The downward trend of the share started again at the end of this week. This is the time to stay
away from the share as the share is quite volatile.

High: Rs. 153.05 (18-05-09)

Low: Rs. 185.95 (22-05-09)

The election results made a great impact on the scrip and it started moving upwards but the
behaviour of the stock was so different that no one would get a chance to invest in the stock as
the upper circuit was applied each time the stock opened.

High: Rs. 216.55 (29-05-09)

Page 62
Low: Rs. 195.2 (25-05-09)

The stock reached to a new high and this is the right time to book the profit and wait for the
next movement of the share.

Monthly Charting of May 2009:

A B

News:

A: (18/05/09): Election results were announced in which the Congress led UPA almost got
the magic figure of 272 and the market closed more than 2000 points up. For the first time in
the history the upper circuit was applied in the sensex.

B: (26/05/09): USE to acquire stake in IndiaBull’s promoted commodity exchange; Morgan

Stanley buys 7.68% stake in IndiaBulls real estate through QIP

Resistance and Support Level:

The month of May was historic as the sensex for the first was locked in upper circuit. The
election results pulled the market and along with the share of almost every company
northwards. The share IBFSL gained more than 60% in the next 10 trading sessions. The
share showed a constant and gradual upward movement towards the end of the month. The
month High figure was Rs. 216.55 on 29/05/2009 while the month low figure was Rs. 116.75

Page 63
on 04/05/2009. The resistance and support level were Rs. 140 and Rs. 185
respectively.

Upcoming News Effect:

Effect of Change in CRR on the share price of IBFSL

For understanding the trends and behaviour of the scrip in the last one year, only recent
changes in CRR (i.e, from 2008) has been considered here. The buoyancy of money in the
system in the first half of the previous year coupled with the rising inflation rate ensured
prompted the central bank to follow contractionary monetary policy while because of the
global slowdown and the credit crunch RBI used expansionary policy to bring the Indian
economy back on track.

Inference:
The share price of IBFSL is not quite responsive to change in the Cash Reserve Ratio. From
the above table we can easily make out that the scrip didn’t respond to the rise in the CRR by
RBI too much, instead it continued trading at the same sentiment as it was trading in the past
few days. One might infer that when CRR was being hiked continuously from April 2008 to
August 2008, the price of the scrip was going down because of this but this might not be

Page 64
 justified at all. When we look at the liberal policy followed by RBI from the
third quarter of last financial year, the share price should have been gone up during this period
but rather than going up, it continued the recent movement be it upward or downward. Same
is the case with the SLR, reduction of which on 11th November, 2008 didn’t have an impact on
the share price.

This might be because of the fact that IBFSL is an NBFC and being an NBFC, the company
doesn’t have to keep a certain amount of money of the total deposits with RBI as the banks in
India, and hence change in these two rates won’t have much impact on either the lending or
borrowing policy of the company.

Therefore, the changes in these two key rates don’t affect the movement of the share price of
IBFSL.

Effect of Change in Repo-Rate on the share price of IBFSL:

Date Action taken by RBI Movement of share

of IBFSL
Date Closing
Price
09-06- 311.1
2008
10-06- 306.2
2008
11-06-2008 Repo-Rate was hiked by 25 basis points to 8% 11-06- 311
2008
12-06- 316
2008
13-06- 318.1
2008
20-06- 305.5
2008
23-06- 277
2008
24-06-2008 Repo-Rate was hiked by 50 basis points to 8.5% 24-06- 272.9
2008
25-06- 274.5
2008

Page 65
 26-06-
2008 274.85
25-07- 279.5
2008
28-07- 276.2
2008
29-07-2008 Repo-Rate was hiked by 50 basis points to 9% 29-07- 254
2008
30-07- 293
2008
31-07- 294.6
2008
16-10- 104.65
2008
17-10- 97
2008
20-10-2008 Repo-Rate was reduced by 100 basis points to 8% 20-10- 98.3
2008
21-10- 108.2
2008
22-10- 105.4
2008
29-10- 105
2008
31-10- 109.15
2008
03-11-2008 Repo-Rate was reduced by 50 basis points to 7.5% 03-11- 117.15
2008
04-11- 126.5
2008
05-11- 120.55
2008
04-12- 95.5
2008
05-12- 95.75
2008
06-12-2008 Repo-Rate was reduced by 100 basis points to 6.5%
08-12- 95.9
2008
10-12- 100.05
2008
31-12- 132.25
2008
01-01- 139.65
2009
02-01-2009 Repo-Rate was reduced by 100 basis points to 5.5% 02-01- 138.85
2009
05-01- 142
2009
06-01- 144.9
2009

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 03-03-
2009 89.8
04-03- 90.6
2009
05-03-2009 Repo-Rate was reduced by 50 basis points to 5% 05-03- 89.95
2009
06-03- 85.05
2009
09-03- 80.95
2009
17-04- 122.05
2009
20-04- 121.1
2009

Effect of Change in Reverse Repo-Rate on the share price of

IBFSL:

Date Action taken by RBI Movement of

share of IBFSL
Date Closing
Price
04-12- 95.5
2008
05-12- 95.75
2008
06-12-2009 Reverse Repo-Rate was reduced by 100 basis points to
5%
08-12- 95.9
2008
10-12- 100.05
2008
31-12- 132.25
2008
01-01- 139.65
2009
02-01-2010 Reverse Repo-Rate was reduced by 100 basis points to 02-01- 138.85
4% 2009
05-01- 142
2009
06-01- 144.9
2009
03-03- 89.8
2009
04-03- 90.6
2009
05-03-2010 Reverse Repo-Rate was reduced by 50 basis points to 05-03- 89.95
3.5% 2009

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 06-
03-2009 85.05
09-03- 80.95
2009
17-04- 122.05
2009
20-04- 121.1
2009
21-04-2010 Reverse Repo-Rate was reduced by 25 basis points to 21-04- 116.9
3.25% 2009
22-04- 117.05
2009
23-04- 116.15
2009

Inference:
The change in Repo-rate affects the borrowing policy of the financial services provider in the
short-term as the upward change will make the borrowing costlier and will directly have an
impact on the profit of the company.

Surprisingly, the changes in the repo-rate and the reverse repo-rate as well don’t have much
impact on the share price of IBFSL. While, in the last year the share price showed a
downward movement whenever the Repo-rate was hiked by RBI and went up whenever the
Repo-rate was reduced making the credit available at a lesser cost in the short-term. But this
year the trend seems to have changed as the share showed just the opposite movement, it has
shown in the past with the change in Repo and Reverse Repo-rate.

This year RBI reduced Repo-rate on three occasions and each time the share price dipped
showing insensitivity towards the change in the rates. The rate cut didn’t have much impact
on the share price of IBFSL.

Hence, we should not expect too much movement, on the either side; with the change in these
two rates.

Effect of dividend announcement on the share price of IBFSL

Announceme Dividend Dividend Movement of share of

nt Date Type (%) IBFSL
Date Closing Price
06-Oct-05 172.8
07-Oct-05 183.95
10-10-2005 Interim 50 10-Oct-05 187.7
11-Oct-05 189.55
13-Oct-05 184.55
09-Jan-06 197.45

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 10-Jan-06
193.45
12-01-2006 Interim 25 12-Jan-06 186.55
13-Jan-06 194.85
16-Jan-06 209.8
20-Apr-06 254.35
21-Apr-06 256.4
24-04-2006 Final 15 24-Apr-06 249.25
25-Apr-06 248.05
26-Apr-06 276.9
25-Jan-07 341.05
29-Jan-07 382.1
31-01-2007 Interim 100 31-Jan-07 364.65
01-Feb-07 387.1
02-Feb-07 420.05
12-Apr-07 503.45
13-Apr-07 503.9
16-04-2007 Final 50 16-Apr-07 514.35
17-Apr-07 489.65
18-Apr-07 477.75
22-Apr-08 516.25
23-Apr-08 507.85
24-04-2008 Final 425 24-Apr-08 497.4
25-Apr-08 504.45
28-Apr-08 516.9
04-Jun-09 201.25
05-Jun-09 193.6
08-06-2009 Final 100 08-Jun-09 184.65
09-Jun-09 188.2
10-Jun-09 180.35
Source: Religare Technova, Google
Finance

The following graph shows the impact of Dividend on the share of

IBFSL:

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Inference:
The company has followed better dividend policy than its competitors in the industry. For the
last three years, the company has followed annual dividend policy unlike the past when it used
to announce interim dividend as well.

The share has been quite responsive to the announcement of dividend by the company. Each
time the company announced dividend which was on the expected line, the share has moved
up. Here we are talking about the expected line because in April 2007 when the company
announced 50% dividend on the face value of the share which was less than the interim
dividend announced in January that year, the share price fell by almost 5% in the next trading
session.

But apart from that single incident, each time the company announced dividend, the share has
shown an upward movement. Despite the dismal performance in the last quarter of FY 08, the
company announced 100% dividend on the face value of the share and the price of the share
went up by Rs. 3.55 the next day.

market the share of IBFSL didn’t respond to these positives of the Budget in the desired
manner and fell, though by a very small price; by Rs. 0.70 on the Budget Day.

Inferences:

The Budget is seen with the keen interest by every investor as it gives a broader view of the
economic developments in the previous year and also set the tone for the growth in the next
year. Therefore, the market responds to the outcome of the budget and so does the share of

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IBFSL. Each time the budget failed to deliver less than the expectations of the
market, the price of the share price fell. This year, because the budget provided sufficient
relief to the NBFC sector the share of IBFSL remained more or less stable.

KEY POINT: The budget that is going to be presented this year in the 1st week of July is
being waited eagerly as the government is expected to come up with a very favourable budget
and the scrapping of STT is on the cards. If these decisions are taken by the government, the
share price will definitely show upward movement as the sentiments in the market is also
quite positive.

Effect of election results on the share price of IBFSL

The election results do have certain impact on the share market and so does on the share price
of IBFSL. The political condition of the country certainly affects the economy as well. In
2004, when NDA government was voted out of power and the UPA, led by Indian National
Congress came to power it was perceived as the negative result as the government was backed
by the Left Front and they are known for their tough stand against reforms. This resulted in
the huge fall in the market. The sensex fell from the level of 5399.47 to 4505.16. Though the
market recovered in the consequent trading sessions, the immediate effect was there for all to
see. The share of IBFSL was not listed at that time.

This year when the election results was announced on16th May and the UPA government
came to the power again without the support of the Left Front, this was seen as a positive
development. On May 18, 2009, the sensex surged 2110.79 points from the previous closing
of 12174.42 this leading to the suspension of trade for the whole day. This event created
history in Dalal Street, by being the first ever time that trade had been suspended for an
increase in value. The one-sided win for the UPA government (lead by 262 seats) in the 15th
Lok Sabha election, which shrugged off the exit polls results drastically, brought great cheers
for the markets in early trade. The benchmark indices locked at upper circuit. The BSE and
NSE have decided that the trade will start at 11:55 am (i.e. after two-hour halt).

In the first 30 seconds of trade, the Sensex crossed the 13,000 mark and inched up towards
14,000 levels. This was the first time since October 2008 that the Sensex surpassed the 13,000
mark and the Nifty crossed the 4000 level. Huge upsurge of 420 points or 11.4% in the SGX
Nifty was suggesting the same trend.

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The share of IBFSL opened 5% up and the circuit was applied, but the share
kept showing upward movement and eventually gained 50% from Rs. 145.8 on 15th May to
Rs. 2142.4 on 27th May, 2010. Hence, it can be inferred that a pre-reformist government push
the price of the share to north.

Technical Analysis:
The main focus of our analysis will be the behaviour and movement of the share price of
IBFSL from March onwards. The current trends are the best tool to understand the behaviour
of the share in the short term. The following graph shows the closing price of IBFSL from
March to May 2009.

Analysis:
The share is recovering well for the last three months and is on a growth trajectory. The
announcement of election results on 16th May acted as a launching pad and the scrip gained
about 50% in a matter of just one week that followed. The coming months will decide whether
the bull phase in the scrip will contine or not.

Now, we use some technical tools to analyse the scrip for the last three months.

Bollinger Band Analysis:

Bollinger Bands are curves drawn in and around the price structure that define high and low
on a relative basis. The base of the bands is a simple moving average. A measure of volatility,

Page 72
standard deviation, is used to set the width of the bands making them fully
adaptive to changing market conditions. The defaults are bands spread above and below a 20-
day simple moving average by two standard deviations. Bollinger Bands are used in numerous
ways. They can be used to aid chart pattern recognition. They can be combined with other
indicators to identify entry and exit points. They can be used to identify areas of compression
and to spot the ends of extended moves.

The purpose of Bollinger Bands is to provide a relative definition of high and low. By
definition, prices are high at the upper band and low at the lower band. This definition can aid
in rigorous pattern recognition and is useful in comparing price action to the action of
indicators to arrive at systematic trading decisions.

The following graph shows the movement of share price of IBFSL from March 2nd to June
19th, 2009 along with the Bollinger Band.

While analysing the historical price and volumes, a very interesting trend has been seen in this
scrip. The share has shown downward trends most of the times whenever the volumes have
been rising while the upward trend is led by relatively less volume. This is quite critical as the
volumes have been rising over the past few days and the share has started showing downward
movement already. Contrast this to the fact that the volumes were quite low when the price of
the share was moving up the ladder. To put this into the numbers, when the price of the share
rises to more than 50% from a level of Rs. 145.8 to Rs. 220.45, the average volume for this 12
trading session was 2.47 Lakhs while when the rally stopped and the scrip lost about 8% in 6
trading session from 12th June; the average volume was 8.5 Lakhs.

This consequent rise in the volume, with the last two trading session registered volume of
more than 1.1 million, is indicating further downtrend in the prices. This belief is further
strengthened by the analysis of Bollinger Band over the past few months. The Band is
narrowing at the end of the month with the price of the scrip touching the lower band. This
gives an indication of movement out of the range of Bollinger Band and probably the
downward movement will be seen in the coming week.

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Analyst’s Recommendation:

The price will come down for the week and the price will stabilise at the level of Rs. 158-160
for the week June 22nd – June 26th, 2009 and the surge in the prices will be neutralised till
the share reach to that level. But the share will quickly move upwards after this. However, the
Budget is going to be announced in two weeks that is on 6th July, 2009 and the positive
measures taken by the government might result in significant improvement in the prices of the
share.

MACD Analysis:
Moving Average Convergence Divergence (MACD) is a trend-following momentum indicator
that shows the relationship between two moving averages of prices. The default MACD is
represented as the difference between a 26-day and 12-day EMA of the price. A 9-day EMA
of the MACD, referred to as the signal (or trigger) line, is plotted on top of the MACD to
indicate buy/sell opportunities. Divergence, the difference between the MACD and the signal,
is also plotted as a histogram. The MACD is most effective in wide-swinging trading markets.

The following graph shows the movement of share price of IBFSL

from March 2nd to June 19th, 2009 along with the MACD.

Page 74
Analyst’s Recommendation:

Over the last few days, the scrip is falling continuously and the MACD line is justifying that
trend as the line crossed down through the red line (signal line) on 4 th June. The divergence
between the lines has also not shown any signs of bottoming out and the share might drop a
bit before rising again in the week succeeding the Budget. The correction would be to the
level of Rs. 158-160 for the week June 22nd to June 26th, 2009 and then the price will pick
up.

The government is considering to scrap the STT and that might push the positive sentiment for
the market as a whole and ultimately the share will benefit from that. Therefore, the price of
the share may see an upward revision in the budget week.

RSI Analysis:
The Relative Strength Index ("RSI") is a popular oscillator. It was first introduced by Welles
Wilder in an article in Commodities (now known as Futures) Magazine in June; 1978.The
Relative Strength Index (RSI) measures the price of a security against its past performance in
order to determine its internal strength (in an attempt to quantify the security’s price
momentum).

When Wilder introduced the Relative Strength Index, he recommended using a 14-day
Relative Strength Index. Since then, the 9-day and 25-day Relative Strength Indexs have also
gained popularity. The Relative Strength Index is a price-following oscillator that ranges

Page 75
between 0 and 100. A popular method of analyzing the Relative Strength
Index is to look for a divergence in which the security is making a new high, but the Relative
Strength Index is failing to surpass its previous high. This divergence is an indication of an
impending reversal. When the Relative Strength Index then turns down and falls below its
most recent trough, it is said to have completed a "failure swing." The failure swing is
considered a confirmation of the impending reversal.

Tops and Bottoms. The Relative Strength Index usually tops above 70 and bottoms below
30. It usually forms these tops and bottoms before the underlying price chart.

Analyst’s Recommendation:

The RSI has reached to a level not seen since April 1, 2009 as the index has moved up in
the recent past from a much higher level but due to recent surge in the share price since
April could bring the index a bit down farther. Again, the tool is giving an indication of
slight correction before the upward movement of the share starts after correcting to the
level of Rs. 158-160.

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 Findings & Analyses:

The detailed study of the share of IndiaBulls Financial Services Ltd provided many crucial
things related to the behaviour of the share.

The Key Findings can be grouped as follow:

• The scrip is positively correlated with the BSE sensex and the movement of the
sensex do affect the movement of the share.

• Despite the positive correlation, the scrip could not keep up with the pace of sensex in
the recent times. This is because of the fact that there is circuit limit of 5% on the
scrip that restricts its sudden movement either side.

• The scrip lost more than 75% of its value between mid August to mid October, 2008
and that was the worst phase for the share.

• The investment in the share a year ago would have yielded a return of – 47.63%
which is quite lower than – 12.16% decline in the value of sensex.

• Despite global slowdown that affected the Banking sector all over the world, the
Bankex is among the four sectoral indices that yielded a positive return of 7% on the
investment done a year ago. (1st June, 2008 – 29th May, 2009).

• The BSE-PSU was the major gainer of 19.04% while the Realty index showed a
decline of 45.50%.

• One of the major findings of the research was that despite the correlation of a
particular share with various indices, the share behaves in its own particular manner
and the correlation can lead to wrong calculations while investing or intra-day trading
in that particular share.

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 • The news plays a very important role in deciding the movement of a
share or the sensex as a whole on a particular day.

• The global market, especially the US market affects the movement of sensex
significantly.

Limitations:

Since my project deals with the research on a listed company, the limitations were very few
because of the availability of sufficient data for the technical analysis. But for the fundamental
analysis the current data for many key analyses were not available.

The major limitations of the project can be grouped as follow:

• The Balance sheet of the company for the FY 2008-09 was not available. This was
a big limitation for the ratio analysis. Also, the Balance sheet of the competitors
was not published yet.

• The company does not provide a detailed analysis of its product portfolio and this
was a big limiting factor while analysing the growth of the company over the last
year in different sector of financing viz. Housing Finance, Vehicle Finance etc.

• The economic survey for this year has not been done yet and because of that the
key statistics like the expenditure on infrastructure, education and social sector was
not available which was vital for the economic analysis.

• Sometimes, the availability of too many data also poses a great problem and this
happened during the project work as well. The different websites use to show
different figures over the same period of time and this ambiguity in data was quite
problematic.

Despite these limitations, the project was completed in a smooth manner and the interesting
nature of the project made all these limitations too small to think of.

Page 78
Page 79
Conclusion and Suggestion:
The Indian stock market has recovered from the impact of recession and the confidence of the
investors and FIIs is restoring in the market again. The market has seen the bottom phase and
so did the share of IndiaBulls Financial Services Ltd.

The share will move upwards from here and there is strong
possibility of it, crossing Rs. 225 mark over the next three weeks.
The overall positive sentiment in the market could push the price
of the share further. With the first quarter results for FY 2009 due
to come in July that will definitely be better than the last quarter,
the share of IBFSL will definitely see an appreciation.

Page 80
 Bibliography:

Books:

• Portfolio Management : S. Kevin

• Financial Management : I M Pandey

• Financial Management : Dr. M Y Khan

Websites:

• http://www.google.com

• http://www.money.rediff.com

• http://www.finance.yahoo.com

• http://www.moneycontrol.com

• http://rbi.org.in

• http://nseindia.com

• http://bseindia.com

• http://www.indexmundi.com

• http://www.allbankingsolutions.com/Chronology-CRR-Rate-India.HTM

• http://www.economywatch.com/economy_2009/

• https://www.cia.gov/library/publications/the-world-factbook

• http://www.imf.org/external/pubs/ft/weo/2009

• http://www.country-data.com

• http://www.tradingeconomics.com/Economics/GDP-Growth.aspx?
Symbol=RUB

• http://www.thehindubusinessline.com

• http://planningcommission.nic.in

• http://labour.nic.in

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• http://indiabudget.nic.in

• http://scribd.com

• http://www.wikipedia.org/

• http://indiabulls.com/

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