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SUMMARY
The automobile industry, one of the core sectors, has undergone metamorphosis with the advent of new business and manufacturing practices in the light of liberalization and globalization. The sector seems to be optimistic of posting strong sales in the couple of years in the view of a reasonable surge in demand. The Indian automobile market is gearing towards international standards to meet the needs of the global automobile giant sand become a global hub. A detailed analysis of Automobile industry has been covered in respect of past growth and performance. Under this project to better understand the Industry I have used Fundamental tools to make it more authentic and meaningful. An economy-industrycompany (E.I.C) approach has been followed under Fundamental Analysis which covers effect of Recession, the impact of inflation, FDIs, Export, and GDP etc. on Automobile Industry. The Industry Analysis has been done with the help of SWOT analysis and industry life cycle. For Company Analysis as a part of Fundamental tool we have undergone with the comparative analysis of TATA Motors the leading company, Marti Suzuki Indias largest Car manufacturer and Mahindra and Mahindra along with the help of ratio analysis. The fundamental aspect consists of financial and Non-Financial analysis of these companies. At the end conclusion and recommendations have been specified so as to make the project work more meaningful and purposeful. Equity Analysis
METHODOLOGY
Research design or research methodology is the procedure of collecting, analyzing and interpreting the data to diagnose the problem and react to the opportunity in such a way where the costs can be minimized and the desired level of accuracy can be achieved to arrive at a particular conclusion. The methodology used in the study for the completion of the project and the fulfilment of the project objectives. The sample of the stocks for the purpose of collecting secondary data has been selected on the basis of Random Sampling. The stocks are chosen in an unbiased manner and each stock is chosen independent of the other stocks chosen. The stock sari chosen from the automobile sector. The sample size for the number of stocks is taken as 3 for fundamental analysis of stocks as fundamental analysis is very exhaustive and requires detailed study.
LIMITATIONS
This study has been conducted purely to understand Equity analysis for investors. The study is restricted to three companies based on Fundamental analysis. The study is limited to the companies having equities. Detailed study of the topic was not possible due to limited size of the project. There was a constraint with regard to time allocation for the research study i.e. for a period of 45 days. Suggestions and conclusions are based on the limited data of five years.
FUNDAMENTAL ANALYSIS
Fundamental analysis is a method of forecasting the future price movements of a financial instrument based on economic, political, environmental and other relevant factors and statistics that will affect the basic supply and demand of whatever underlies the financial instrument. It is the study of economic, industry and company conditions in an effort to determine the value of a companys stock. Fundamental analysis typically focuses on key statistics in companys financial statements to determine if the stock price is correctly valued. The term simply refers to the analysis of the economic well-being of a financial entity as opposed to only its price movements. Fundamental analysis is the cornerstone of investing. The basic philosophy underlying the fundamental analysis is that if an investor invests re.1 in buying a share of a company, how much expected returns from this investment he has. The fundamental analysis is to appraise the intrinsic value of a security. It insists that no one should purchase or sell a share on the basis of tips and rumours. The fundamental approach calls upon the investors to make his buy or sell decision on the basis of detailed analysis of the information about the company, about the industry, and the economy. It is also known as top-down approach. This approach attempts to study the economic scenario, industry position and the company expectations and is also known as economic-industry-company approach (EIC approach). Thus the EIC approach involves three steps: 1. Economic analysis 2. Industry analysis 3. Company analysis Equity Analysis 1.
ECONOMIC ANALYSIS
The level of economic activity has an impact on investment in many ways. If the economy grows rapidly, the industry can also be expected to show rapid growth and vice versa. When the level of economic activity is low, stock prices are low, and when the level of economic activity is high, stock prices are high reflecting the prosperous outlook for sales and profits of the firms. The analysis of macroeconomic environment is essential to understand the behaviour of the stock prices. The commonly analyzed macro economic factors are as follows: Gross Domestic Product (GDP): GDP indicates the rate of growth of the economy. It represents the aggregate value of the goods and services produced in the economy. It consists of personal consumption expenditure, gross private domestic investment and government expenditure on goods and services and net exports of goods and services. The growth rate of economy points out the prospects for the industrial sector and the return investors can expect from investment in shares. The higher growth rate is morefavorable to the stock market. Savings and investment: It is obvious that growth requires investment which in turn requires substantial amount of domestic savings. Stock market is a channel through which the savings
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are made available to the corporate bodies. Savings are distributed over various assets like equity shares, deposits, mutual funds, real estate and bullion. The savings and investment patterns of the public affect the stock to a great extent. Equity Analysis Inflation: Along with the growth of GDP, if the inflation rate also increases, then the real growth would be very little. The effects of inflation on capital markets are numerous. An increase in the expected rate of inflation is expected to cause a nominalise in interest rates. Also, it increases uncertainty of future business and investment decisions. As inflation increases, it results in extra costs to businesses, thereby squeezing their profit margins and leading to real declines in profitability. Interest rates: The interest rate affects the cost of financing to the firms. A decrease in interest rate implies lower cost of finance for firms and more profitability. More moneys available at a lower interest rate for the brokers who are doing business with borrowed money. Availability of cheap funds encourages speculation and rise in the price of shares. Tax structure: Every year in March, the business community eagerly awaits the Governments announcement regarding the tax policy. Concessions and incentives given to a certain industry encourage investment in that particular industry. Tax reliefs given to savings encourage savings. The type of tax exemption has impact on the profitability of the industries. Infrastructure facilities: Infrastructure facilities are essential for the growth of industrial and agricultural sector. A wide network of communication system is a must for the growth of the economy. Regular supply of power without any power cut would Equity Analysis boost the production. Banking and financial sectors also should be sound enough to provide adequate support to the industry. Good infrastructure facilities affect the stock market favourably.
2. INDUSTRY ANALYSIS
An industry is a group of firms that have similar technological structure of production and produce similar products and Industry analysis is a type of business research that focuses on the status of an industry or an industrial sector (a broad industry classification, like "manufacturing"). Irrespective of specific economic situations, some industries might be expected to perform better, and share prices in these industries may not decline as much as in other industries. This identification of economic and industry specific factors influencing share prices will help investors to identify the shares that fit individual expectations Industry Life Cycle: The industry life cycle theory is generally attributed to JuliusGrodensky. The life cycle of the industry is separated into four well defined stages. Pioneering stage: The prospective demand for the product is promising in this stage and the technology of the product is low. The demand for the product attracts many producers to produce the particular product. There would be severe competition and only fittest companies survive this stage. The producers try to develop brand name, differentiate the product and create a product image. In this situation, it is difficult to select companies for investment because the survival rate is unknown.
Rapid growth stage: This stage starts with the appearance of surviving firms from the pioneering stage. The companies that have withstood the competition grow strongly in market share and financial performance. The technology of the production would have improved resulting in low cost of production and good quality products. The companies have stable growth rate in this stage and they declare dividend to the shareholders. It is advisable to invest in the shares of these companies. Maturity and stabilization stage: The growth rate tends to moderate and the rate of growth would be more or less equal to the industrial growth rate or the gross domestic product growth rate. Symptoms of obsolescence may appear in the technology. To keep going, technological innovations in the production process and products should be introduced. The investors have to closely monitor the events that take place in the maturity stage of the industry. Decline stage: demand for the particular product and the earnings of the companies in the industry decline. It is better to avoid investing in the shares of the low growth industry even in the boom period. Investment in the shares of these types of companies leads to erosion of capital. Growth of the industry: The historical performance of the industry in terms of growth and profitability should be analyzed. The past variability in return and growth in reaction to macro economic factors provide an insight into the future. Equity Analysis Nature of competition: Nature of competition is an essential factor that determines the demand for the particular product, its profitability and the price of the concerned company scraps. The companies' ability to withstand the local as well as the multinational competition counts much. If too many firms are present in the organized sector, the competition would be severe. The competition would lead to a decline in the price of the product. The investor before investing in the scrip of a company should analyze the market share of the particular company's product and should compare it with the top five companies.
SWOT analysis:
SWOT analysis represents the strength, weakness, opportunity and threat for an industry. Every investor should carry out a SWOT analysis for the chosen industry. Take for instance, increase in demand for the industrys product becomes its strength, presence of numerous players in the market, i.e. competition becomes the threat to a particular company. The progress in R & D in that industry is an opportunity and entry of multinationals in the industry is a threat. In this way the factors are to be arranged and analyzed. Equity Analysis
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3. COMPANY ANALYSIS
In the company analysis the investor assimilates the several bits of information related to the company and evaluates the present and future values of the stock. The risk and return associated with the purchase of the stock is analyzed to take better investment decisions. The present and future values are affected by a number of factors. Competitive edge of the company: Major industries in India are composed of hundreds of individual companies. Though the number of companies is large, only few companies control the major market share. The competitiveness of the company can be studied with the help of the following; Market share: The market share of the annual sales helps to determine companys relative competitive position within the industry. If the market shares high, the company would be able to meet the competition successfully. The companies in the market should be compared with like product groups otherwise, the results will be misleading. Growth of sales: The rapid growth in sales would keep the shareholder in a better position than one with stagnant growth rate. Investors generally prefer size and growth in sales because the larger size companies may be able to withstand the business cycle rather than the company of smaller size. Stability of sales: If a firm has stable sales revenue, it will have more stable earnings. The fall in the market share indicates the declining trend of company, Even if the sales are stable. Hence the stability of sales should be compared with its market share and the competitors market share. Earnings of the company: Sales alone do not increase the earnings but the costs and expenses of the company also influence the earnings. Further, earnings do not always increase with increase in sales. The companys sales might have increased but its earnings per share may decline due to rise in costs. Hence, the investor should not only depend on the sales, but should analyze the earnings of the company. Financial analysis: The best source of financial information about a company is its own financial statements. This is a primary source of information for evaluating the investment prospects in the particular companys stock. Financial statement analysis is the study of a companys financial statement from various viewpoints. The statement gives the historical and current information about the companys operations. Historical financial statement helps to predict the future and the current information aids to analyze the present status of the company. The two main statements used in the analysis are Balance sheet and Profit and Loss Account. The balance sheet is one of the financial statements that companies prepare every year for their shareholders. It is like a financial snapshot, the company's financial situation ate moment in time. It is prepared at the year end, listing the company's current assets and liabilities. It helps to study the capital structure of the company. It is better for the investor to avoid a company with excessive debt component in its capital structure. From the balance sheet, liquidity position of the company can also be assessed with the information on current assets and current liabilities. Ratio analysis: Ratio is a relationship between two figures expressed mathematically. Financial ratios provide numerical relationship between two relevant financial data. Financial ratios are calculated from the
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balance sheet and profit and loss account. The relationship can be either expressed as a percent or as a quotient. Ratios summarize the data for easy understanding, comparison and interpretations. Ratios for investment purposes can be classified into profitability ratios, turnover ratios, and leverage ratios. Profitability ratios are the most popular ratios since investors prefer to measure the present profit performance and use this information to forecast the future strength of the company. The most often used profitability ratios are return on assets, price earnings multiplier, price to book value, price to cash flow, and price to sales, dividend yield, return on equity, present value of cash flows, and profit margins. a) Return on Assets (ROA) ROA is computed as the product of the net profit margin and the total asset turnover ratios.ROA = (Net Profit/Total income) x (Total income/Total Assets) this ratio indicates the firm's strategic success. Companies can have one of two strategies: cost leadership, or product differentiation. ROA should be rising or keeping pace with the company's competitors if the company is successfully pursuing either of these strategies, but how ROA rises will depend on the company's strategy. ROAshould rise with a successful cost leadership strategy because the companys increasing operating efficiency. An example is an increasing, total asset, turnover ratio as the company expands into new markets, increasing its market share. The company may achieve leadership by using its assets more efficiently. With a successful product differentiation strategy, ROA will rise because of a rising profit margins) Return on Investment (ROI)ROI is the return on capital invested in business, i.e., if an investment Rs 1 core in men, machines, land and material is made to generate Rs. 25 laths of net profit, then the ROI is 25%. The computation of return on investment is as follows: Return on Investment (ROI) = (Net profit/Equity investments) x 100As this ratio reveals how well the resources of a firm are being used, higher the ratio, better are the results. The return on shareholders investment should be compared with the return of other similar firms in the same industry. The inert-firm comparison of this ratio determines whether the investments in the firm are attractive or not as the investors would like to invest only where the return is higher) Return on Equity Return on equity measures how much an equity shareholder's investment is actually earning. The return on equity tells the investor how much the invested rupee is earning from the company. The higher the number, the better is the performance of the company and suggests the usefulness of the projects the company has invested in. The computation of return on equity is as follows: Return on equity = (Net profit to owners/value of the specific owners Contribution to the business) x 100The ratio is more meaningful to the equity shareholders who are invested to know profits earned by the company and those profits which can be made available to pay dividend to themed) Earnings per Share (EPS) This ratio determines what the company is earning for every share. For many investors, earnings are the most important tool. EPS is calculated by dividing the earnings (net profit) by the total number of equity shares. The computation of EPS is as follows: Earnings per share = Net profit/Number of shares outstanding The EPS is a good measure of profitability and when compared with EPS of similar other companies, it gives a view of the comparative
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earnings or earnings power of affirms. EPS calculated for a number of years indicates whether or not earning power of the company has increased. e) Dividend per Share (DPS) The extent of payment of dividend to the shareholders is measured in the form of dividend per share. The dividend per share gives the amount of cash flow from the company to the owners and is calculated as follows: Dividend per share = Total dividend payment / Number of shares outstanding the payment of dividend can have several interpretations to the shareholder. The distribution of dividend could be thought of as the distribution of excess profits/abnormal profits by the company. On the other hand, it could also be negatively interpreted as lack of investment opportunities. In all, dividend payout gives the extent of inflows to the shareholders from the companys) Dividend Payout Ratio From the profits of each company a cash flow called dividend is distributed among its shareholders. This is the continuous stream of cash flow to the owners of shares, apart from the price differentials (capital gains) in the market. The return to the shareholders, in the form of dividend, out of the company's profit is measured through the payout ratio. The payout ratio is computed as follows: Payout Ratio = (Dividend per share / Earnings per share) * 100The percentage of payout ratio can also be used to compute the percentage of retained earnings. The profits available for distribution are either paid as dividends or retained Internally for business growth opportunities. Hence, when dividends are not declared, the entire profit is ploughed back into the business for its future investments) Dividend Yield Dividend yield is computed by relating the dividend per share to the market price of the share. The market place provides opportunities for the investor to buy the companys share at any point of time. The price at which the share has been bought from the market is the actual cost of the investment to the shareholder. The market price is to be taken as the cum-dividend price. Dividend yield relates the actual cost to the cash flows received from the company. The computation of dividend yield is as follows Dividend yield = (Dividend per share / Market price per share) * 100High dividend yield ratios are usually interpreted as undervalued companies in the market. The market price is a measure of future discounted values, while the dividend per share is the present return from the investment. Hence, a high dividend yield implies that the share has been under priced in the market. On the other hand a low dividend yield need not be interpreted as overvaluation of shares. A company that does not pay out dividends will not have a dividend yield and the real measure of the market price will be in terms of earnings per share and not through the dividend payments. Price/Earnings Ratio (P/E) the P/E multiplier or the price earnings ratio relates the current market price of the share to the earnings per share. This is computed as follows: Price/earnings ratio = Current market price / Earnings per share This ratio is calculated to make an estimate of appreciation in the value of a share of accompany and is widely used by investors to decide whether or not to buy shares in a
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particular company. Many investors prefer to buy the company's shares at a low P/Ratio since the general interpretation is that the market is undervaluing the share and there will be a correction in the market price sooner or later. A very high P/E ratio on the other hand implies that the company's shares are overvalued and the investor can benefit by selling the shares at this high market prices) Debt-to-Equity Ratio Debt-Equity ratio is used to measure the claims of outsiders and the owners against the firms assets. Debt-to-equity ratio = Outsiders Funds / Shareholders Funds Tthe debt-equity ratio is calculated to measure the extent to which debt financing has been used in a business. It indicates the proportionate claims of owners and the outsiders against the firms assets. The purpose is to get an idea of the cushion available to outsiders on the liquidation of the firm.
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fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes. The important financial derivatives are the following: Forwards: Forwards are the oldest of all the derivatives. A forward contract refers to an agreement between two parties to exchange an agreed quantity of an asset for cash at a certain date in future at a predetermined price specified in that agreement. The promised asset may be currency, commodity, instrument etc. Futures: Future contract is very similar to a forward contract in all respects excepting the fact that it is completely a standardized one. It is nothing but standardized forward contract which is legally enforceable and always traded on an organized exchange. Options: A financial derivative that represents a contract sold by one party (option writer) to another party (option holder). The contract offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security or other financial asset at an agreed-upon price (the strike price) during a certain period of time or on a specific date (exercise date). Call options give the option to buy at certain price, so the buyer would want the stock to go up. Put options give the option to sell at a certain price, so the buyer would want the stock to go down. Swaps: It is yet another exciting trading instrument. Infect, it is the combination of forwards by two counterparties. It is arranged to reap the benefits arising from the fluctuations in the market either currency market or interest rate market or any other market for that matter. Foreign Exchange Market It is a market in which participants are able to buy, sell, exchange and speculate concurrencies. Foreign exchange markets are made up of banks, commercial companies, central banks, investment management firms, hedge funds, and retail for brokers and investors. The fore market is considered to be the largest financial market in the world. It is a worldwide decentralized over-the-counter financial market for the trading of currencies. Because the currency markets are large and liquid, they are believed to bathe most efficient financial markets. It is important to realize that the foreign exchange market is not a single exchange, but is constructed of a global network of computers that connects participants from all parts of the world. Commodities Market It is a physical or virtual marketplace for buying, selling and trading raw or primary products. For investors' purposes there are currently about 50 major commodity markets worldwide that facilitate investment trade in nearly 100 primary commodities. Commodities are split into two types: hard and soft commodities. Hard commodities are typically natural resources that must be mined or extracted (gold, rubber, oil, etc.), whereas soft commodities are agricultural products or livestock (corn, wheat, coffee, sugar, soybeans, pork, etc.)
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drastic measures to plug many loopholes that were exploited by certain market forces to advance their vested interests. After this initial phase of struggle SEBI has grown in strength as the regulator of Indias capital markets and as one of the countrys most important institutions.
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It can be used for passive fund managements in case of Index Funds. Two broad approaches of SEBI is to integrate the securities market at the national level, and also to diversify the trading products, so that there is an increase in number of traders including banks, financial institutions, insurance companies, mutual funds, primary dealers etc. to transact through the Exchanges. In this context the introduction of derivatives trading through Indian Stock Exchanges permitted by SEBI in 2000 Addis a real landmark.SEBI has enjoyed success as a regulator by pushing systemic reforms aggressively and successively (e.g. the quick movement towards making the markets electronic and paperless rolling settlement on T+2 bases). SEBI has been active in setting up the regulations as required under law.
and its index, SENSEX, is also tracked worldwide. Earlier it was an Association of Persons (AOP), but now it is demutualised and corporatized entity incorporated under the provisions of the Companies Act, 1956, pursuant to the BSE (Corporatisation and Demutualization) Scheme, 2005 notified by the Securities and Exchange Board of India (SEBI).BSE Vision The vision of the Bombay Stock Exchange is to "Emerge as the premier Indian stock exchange by establishing global benchmarks." BSE Management Bombay Stock Exchange is managed professionally by Board of Directors. It comprises of eminent professionals, representatives of Trading Members and the Managing Director. The Board is an inclusive one and is shaped to benefit from the market intermediaries participation. The Board exercises complete control and formulates larger policy issues. The day-to-day operations of BSE are managed by the Managing Director and its school of professional as a management team. BSE Network the Exchange reaches physically to 417 cities and towns in the country. The framework of it has been designed to safeguard market integrity and to operate with transparency. It provides an efficient market for the trading in equity, debt instruments and derivatives. Its online trading system, popularly known as BOLT, is a proprietary system and it is BS 7799-2-2002 certified. The BOLT network was expanded, nationwide, in 1997. The surveillance and clearing & settlement functions of the Exchange are ISO 9001:2000 certified. BSE FactsBSE as a brand is synonymous with capital markets in India. The BSE SENSEX is the benchmark equity index that reflects the robustness of the economy and finance. It was the First in India to introduce Equity Derivatives First in India to launch a Free Float Index First in India to launch US$ version of BSE SensexFirst in India to launch Exchange Enabled Internet Trading Platform First in India to obtain ISO certification for Surveillance, Clearing &Settlement'BSE On-Line Trading System (BOLT) has been awarded the globally recognized the Information Security Management System standardBS7799-2:2002.First to have an exclusive facility for financial training Moved from Open Outcry to Electronic Trading within just 50 days BSE with its long history of capital market development is fully geared to continue its contributions to further the growth of the securities markets of the country, thus helping India increases its sphere of influence in international financial markets.
NATIONAL STOCK EXCHANGE OF INDIALIMITED The National Stock Exchange of India Limited has genesis in the report of the High-powered Study Group on Establishment of New Stock Exchanges, which recommended promotion of a National Stock Exchange by financial institutions (FIs) to provide access to investors from all across the country on an equal footing. Based on the recommendations, NSE was promoted by leading Financial Institutions at the behest of the Government of India and was incorporated in November 1992 as a tax- paying company unlike other stock Exchange in the country. On its recognition as a stock exchange under the Securities Contracts (Regulation) Act, 1956 in April 1993, NSE commenced operations in the Wholesale Debt Market (WDM)
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segment in June 1994. The Capital Market (Equities) segment commenced operations in November 1994 and operations in Derivatives segment commenced injure 2000.NSE GROUP National Securities Clearing Corporation Ltd. (NSCCL) it is a wholly owned subsidiary, which was incorporated in August 1995 and commenced clearing operations in April 1996. It was formed to build confidence in clearing and settlement of securities, to promote and maintain the short and consistent settlement cycles, to provide a counter-party risk guarantee and to operate a tight risk containment system.NSE.IT Ltd.It is also a wholly owned subsidiary of NSE and is its IT arm. This arm of the NSE is uniquely positioned to provide products, services and solutions for the securities industry. NSE.IT primarily focuses on in the area of trading, broker front-end and back-office, clearing and settlement, webbased, insurance, etc. Along with this, it also provides consultancy and implementation services in Data Warehousing, Business Continuity Plans, Site Maintenance and Backups, Stratus Mainframe Facility Management, Real Time Market Analysis & Financial News. India Index Services & Products Ltd. (IISL) it is a joint venture between NSE and CRISIL Ltd. to provide a variety of indices and index related services and products for the Indian Capital markets. It was set up in May 1998. IISL has a consulting and licensing agreement with the Standard and Poors (S&P), world's leading provider of investible equity indices, for co-branding equity indices. National Securities Depository Ltd. (NSDL) NSE joined hands with IDBI and UTI to promote dematerialization of securities. This step was taken to solve problems related to trading in physical securities. It commenced operations in November 1996. NSE Facts It uses satellite communication technology to energize participation from around 400 cities in India. NSE can handle up to 1 million trades per day. It is one of the largest interactive VSAT based stock exchanges in the world. The NSE- network is the largest private wide area network in India and the first extended C- Band VSAT network in the world. Presently more than 9000 users are trading on the real time-online NSEapplication.Today; NSE is one of the largest exchanges in the world and still forging ahead. At NSE, we are constantly working towards creating a more transparent, vibrant and innovative capital market. OVER THE COUNTER EXCHANGE OF INDIAOTCEI was incorporated in 1990 as a section 25 company under the companies Act1956 and is recognized as a stock exchange under section 4 of the securities Contracts Regulation Act, 1956. The exchange was set up to aid enterprising promotes in raising finance for new projects in a cost effective manner and to provide investors with a transparent and efficient mode of trading Modelled along the lines of the NASDAQ market of USA, OTCEI introduced many novel concepts to the Indian capital markets such as screen-based nationwide trading, sponsorship of companies, market making and scrip less trading. As a measure of success of these efforts, the Exchange today has 115 listings and has assisted in providing capital for enterprises that have gone on to build successful brands for themselves like VIP Advantage, Sonora Tiles & Brilliant mineral water, etc.Need for OTCEI:Studies by NASSCOM, software technology parks of India, the venture capitals fundsand the governments IT tasks Force, as well as rising interest in IT, Pharmaceutical, Biotechnology and Media shares have repeatedly emphasized the need for a
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national stock market for innovation and high growth companies. Innovative companies are critical to developing economics like India, which is undergoing a major technological revolution. With their abilities to generate employment opportunities and contribute to the economy, it is essential that these companies not only expand existing operations but also set up new units. The key issue for these companies is raising timely, cost effective and long term capital to sustain their operations and enhance growth. Such companies, particularly those that have been in operation for a short time, are unable to raise funds through the traditional financing methods, because they have not yet been evaluated by the financial world
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COMPANY STRUCTURE
India Info line Limited is listed on both the leading stock exchanges in India, viz. the Stock Exchange, Mumbai (BSE) and the National Stock Exchange (NSE) and is also member of both the exchanges. It is engaged in the businesses of Equities broking, Wealth Advisory Services and Portfolio Management Services. It offers broking services in the Cash and Derivatives segments of the NSE as well as the Cash segment of the BSE. It is registered with NSDL as well as CDSL as a depository participant, providing a one-stop solution for clients trading in the equities market. It has recently launched its Investment banking and Institutional Broking business. A SEBI authorized Portfolio Manager; it offers Portfolio Management Services to clients. These services are offered to clients as different schemes, which are based on differing investment strategies made to reflect the varied risk-return preferences of clients. India Info line Media and Research Services limited the services represent a strong support that drives the broking, commodities, mutual fund and portfolio management services businesses. It undertakes equities research which is acknowledged by none other than Forbes as 'Best of the Web' and 'a must-read for investors in Asia'. India Info lines research is available not just over the internet but also on international wire services like Bloomberg (Code: IILL),Thomson First Call and Internet Securities where India Info line is amongst the most read Indian brokers. India Info line Commodities Limited. India Info line Commodities Put Limited is engaged in the business of commodities broking. Their experience in securities broking empowered them with the requisite Skills and technologies to allow them to offer commodities broking as a contra-cyclical alternative to equities broking. It enjoys memberships with the MCX and NCDEX, two leading Indian commodities exchanges, and recently acquired membership of DGCX. It has a multi-channel delivery model, making it among the select few to offer online as well as offline trading facilities. India Info line Marketing & Services India Info line Marketing and Services Limited is the holding company of IndiaInfoline Insurance Services Limited and India Info line Insurance Brokers Limited. India Info line Insurance Services Limited is a registered Corporate Agent with the Insurance Regulatory and Development Authority (IRDA). It is the largest Corporate Agent for ICICI Prudential Life Insurance Co Limited, which is Indias largest private Life Insurance Company. India Info line was the first corporate agent to get licensed by IRDA in early 2001.India Info line Insurance Brokers Limited India Info line Insurance Brokers Limited is a newly formed subsidiary which will carry out the business of Insurance broking. India Info line Investment Services Limited Consolidated shareholdings of all the subsidiary companies engaged in loans and financing activities under one subsidiary. Recently, Orient Global, a Singapore-based investment institution invested USD 76.7 million for a 22.5% stake in India InfolineInvestment Services. This will help focused expansion and capital rising in the said subsidiaries for various lending businesses like loans against securities, SMEfinancing, distribution of retail loan products, consumer finance business and housing finance business. India Info line Investment Services Private Limited consists of the following step-down subsidiaries. India Info line Distribution
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Company Limited (distribution of retail loan products)Money line Credit Limited (consumer finance)India Info line Housing Finance Limited (housing finance)IIFL (Asia) Private LimitedIIFL (Asia) Private Limited is wholly owned subsidiary which has been incorporated in Singapore to pursue financial sector activities in other Asian markets. Further to obtaining the necessary regulatory approvals, the company has been initially capitalized at 1 million Singapore dollars.
requisite skills and technologies. The Companies commodities business provides a contracyclical alternative to equities broking. The Company was among the first to offer the facility of commodities trading in Indias young commodities market (the MCX commenced operations in 2003). Average monthly turnover on the commodity exchanges increased from Rs 0.34 ban to Rs20.02 bn. Insurance An entry into this segment helped complete the client's product basket; concurrently, it graduated the Company into a one stop retail financial solutions provider. To ensure maximum reach to customers across India, it has employed a multi pronged approach and reaches out to customers via our Network, Direct and Affiliate channels. IndiaInfoline was the first corporate in India to get the agency license in early 2001.Invest Online India Info line has made investing in Mutual funds and primary market so effortless. Only registration is needed. No paperwork no queues and No registration charges. India Info line offers a host of mutual fund choices under one roof, backed by in-depth research and advice from research house and tools configured as investor friendly. Wealth Management The key to achieving a successful Investment Portfolio is to have a carefully planned financial strategy based on a thorough understanding of the client's investment needs and risk appetite. The IIFL Private Wealth Management Team of financial experts will recommend an appropriate financial strategy to effectively meet customers investment requirements. Asset Management India Info line is a leading pan-India mutual fund distribution house associated with leading asset management companies. It operates primarily in the retail segment leveraging its existing distribution network to reach prospective clients. It has received the in-principle approval to set up a mutual fund. Portfolio ManagementIIFL Portfolio Management Service is a product wherein an equity investment portfolio is created to suit the investment objectives of a client. India Infolineinvests the clients resources into stocks from different sectors, depending on clients risk-return profile. This service is particularly advisable for investors who cannot afford to give time or don't have that expertise for day-to-day management of their equity portfolio.NewslettersAs a subscriber to the Daily Market Strategy; clients get research reports of IndiaInfoline research team on a priority basis. The Indiainfoline Weekly Newsletter is the flashback for the week gone by. A weekly outlook coupled with the best of the web stories from Indiainfoline and links to important investment ideas, Leader Speak and features is delivered in the clients inbox every Friday evening.
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1. ECONOMY ANALYSIS
Economic analysis is the analysis of forces operating the overall economy a country. Economic analysis is a process whereby strengths and weaknesses of an economy are analyzed. Economic analysis is important in order to understand exact condition of aneconomy.GDP and Automobile Industry In absolute terms, India is 16th in the world inters of nominal factory output. The service sector is growing rapidly in the past few years. This is the pie- chart showing contributions of different sectors in Indian economy. Today, automobile sector in India is one of the key sectors of the economy in terms of the employment. Directly and indirectly it employs more than 10 million people and if we add the number of people employed in the auto-component and auto ancillary industry then the number goes even higher. As the world economy slipped into recession hitting the demand hard and the banking sector takes conservative approach towards lending to corporate sector, the GDPgrowth has downgraded it to 7.1 per cent for 2008-09 and it has increased to 8.6% in2010 by overcoming the setbacks of recession. Recession Auto industry in India had been hit hard by ongoing global financial recession. But its in a good shape now. Much of this optimism resulted from renewed interest being shown in India auto industry by reputed overseas car makers. Nissan Motors which Isa well known Japanese car making company regarded India automobile market as global car manufacturing hub for future and invested huge amount in our market. There are some other automobile companies of world who have shown interest in India auto market. Major names among these are General Motors, Skoda Auto and Mercedes-Benz. These companies have major plans lined up for India auto industry. These are few signs of the revolutionized auto industry after recession. Inflation The rise in inflation will have adverse impact on the industry that will not only see interest rates getting further hardened but also a drop in demand due to the squeeze in purchasing power. The effect of inflation has affected every sector which is related to car manufacturing and production. The increase in the price of fuel and the steel duet inflation has led to a slower growth rate of the car industry in India. Foreign Direct Investment The automobile sector in the Indian industry is one of the high performing sectors of the Indian economy. This has contributed largely in making India a prime destination for many international players in the automobile industry who wish to set up their businesses in India. Automatic approval for foreign equity investment up to 100 per cent of manufacture of automobiles and component is permitted.ExportsDespite recession; the Indian automobile market continues to perform better than most of the other industries in the economy in coming future; more and more MNCscoming in India to setup their ventures which clearly shows the scope of expansion. During April-January 2010, overall automobile exports registered a growth rate of 13.24 percent.
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Heavy thrust on mining and construction activity Increase in the income level Cut in excise duties 4.Threats Ignorance of Research & development Rising interest rates Cut throat competition
3. COMPANY ANALYSIS
The company analysis shows the long-term strength of the company that what is the financial position of the company in the market, where it stands among its competitors and who are the key drivers of the company, what are the future plans of the company, what are the policies of government towards the company and how the stake of the company divested among different groups of people. Here, I have taken three companies namely TATA Motors, Marti Suzuki and Mahindra and Mahindra for the purpose of fundamental analysis. Tata Motors Limited is India's largest automobile company, with consolidated revenues of Rs. 92,519 cores (USD 20 billion) in 2009-10. It is the leader in commercial vehicles in each segment, and among the top three in passenger vehicles with winning products in the compact, midsize car and utility vehicle segments. The company is the world's fourth largest truck manufacturer, and the world's second largest bus manufacturer.Maruti Suzuki is a subsidiary of Suzuki Motor Corporation Japan. More than half the numbers of cars sold in India wear Marti Suzuki badge. They offer a full range of cars from entry level Marti 800 & Alto to stylish hatchback Ritz, A star, Swift, Wagon R, Estelle and sedans Dire, SX4 and Sports Utility Vehicle Grand Vitara.Since inception, it has produced and sold over 7.5 million vehicles in India and exported over 500,000 units to Europe and other countries. Its turnover for the fiscal2008-09 stood at Rs. 203,583 Million & Profit after Tax at Rs. 12,187 Million. The Mahindra Groups Automotive Sector is in the business of manufacturing and marketing utility vehicles and light commercial vehicles, including three-wheelers. Its the market leader in utility vehicles in India since inception, and currently accounts for about half of Indias market for utility vehicles. The Automotive Sector continues to be a leader in the utility vehicle segment with a diverse portfolio that includes mass transport as well as new generation vehicles like Scorpio, Bolero and the recently launched Xylem.
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%TATAMARUTIMAHINDRAInterpretationsThis ratio is widely used by investors to decide whether or not to buy shares in a particular company. As per the graph, in 2008, the P/E ratio of the three companies was the lowest compared to the previous years. TATA has the highest P/E ratio in2009 which indicates that it is overvalued, so the investors can benefit by selling the shares. An investor can go for Mahindra as its P/E ratio is the lowest in 2009 which indicates that it is undervalued and there is a scope for growth in the future.
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Mahindra have outperformed in the industry. From the company analysis, we can know that Mahindra would be a better option for an investor compared to TATA and Marti. In view of the slump in the domestic and international market, TATA has recorded a slowdown insoles and income level. Its Earnings per share has also declined drastically. It has reduced its dividend per share from rs.15 in the previous year to rs.6 in2009. The return on investment is also very low. In view of all these, TATA is not a better option for an investor. The global turmoil in financial markets has affected Marti also. The company is maintaining a stable position. Its sales have grown over past five years. Inspire of the general economic slowdown, the sales of Marti Suzuki increased from Rs 21200 Core to Rs 23381 Core. As it is maintaining actable position, it can be recommended that for now Marti share price shows That its a time to hold the position or buy more shares as there is scope of further rise in share prices. Despite the challenging business environment, Mahindra has maintained its upward sales level. Its Return on Investment is much higher compared to TATA and Marti. The dividend per share is rs.10 which is higher amongst the three companies. The company has potential to grow. It would be the best option for the investor. Investing in Marti Suzuki for long time could be a good option whereas in TATA motors there is a chance of getting correction, as it already went on high side in a very short period of time and is experiencing a downfall from2008. Holding the shares for long time could be a wrong step and at this point of time those who invested earlier can book their profits. As Mahindras shareware undervalued, the investor can buy these shares. This is because a relatively lower P/E would save investors from paying a very high price that does not justify the value of an investment. Few Suggestions for Right Stock Selection There are three factors which an investor must consider for selecting the right stocks. Business: An investor must look into what kind of business the company is doing, visibility of the business, its past track record, capital needs of the company for expansion etc. Balance Sheet: The investor must focus on its key financial ratios such as earnings per share, price-earnings ratio; debt-equity ratio, dividends per share and he must also check whether the company is generating cash flows. Bargaining: This is the most important factor which shows the true worth of the company. An investor needs to choose valuation parameters which suit its business. Investment rules Invest for long term in equity markets Align your thought process with the business cycle of the company. Set the purpose for investment. Long term goals should be the objective of equity investment. Disciplined investment during market volatility helps attains profits. Planning, Knowledge and Discipline are very crucial for investment.
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CONCLUSION The Automobile industry inIndiais the seventh largest in the world with an annual production of over 2.6 million units in 2009. In 2009, India emerged as Asias fourth largest exporter of automobiles, behind Japan, South Korea and Thailand. The collapse in market place witnessed unprecedented turbulence in the wake of global financial meltdown. A runaway inflation touching a high point of 12% early in the year, the tight monetary policies followed by the authorities for most of the year to control inflation with the consequent high interest rates and weak consumer demand, have collectively had a devastating effect on the automotive sector.Maruti Suzuki India LTD. company has a trend of growth from till 2008.During the financial year 2008-09 the there is downfall in the growth of the company. The main reason behind this downfall is because of the global recession. The downfall of net profit during the financial year 2008-09 is 29.6% over the financial year 2007-2008.TATA Motors, which was trying to consolidate its leadership, position in the market, also had to face the impact of global meltdown. Amid the crippling economic crisis, Tata purchased Britains Jaguar Land Rover (JLR) from Ford Motor Company. Acquiring JLR saddled Tata with some tough losses. Dividends and earnings remain low. Inspire of it being a tough year for all the companies across the globe and in India, Mahindra has given a satisfactory performance. At present its shares are undervalued giving it a potential for growth. Global recession had a dampener effect on the growth of automobile industry but it was a short term phenomenon. The industry is bouncing back. One factor favoringthis point is that India has become a hot destination for companies of diverse nature to invest in. Cut throat competition among top companies, lots of new car and vehicle model launches at regular intervals keeps the Indian auto sector moving. A continuous effort at cost cutting and improving productivity will help the companies in making reasonable profits despite the impact of higher commodity prices and weaker rupee. The analysis gives an optimistic view about the industry and its growth which recommends the investors to keep a good watch on the major players to benefit inters of returns on their investments.
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BIBLIOGRAPHY Text Books Security Analysis and Portfolio ManagementbyPunithavathy Pandean, VikasPublications. Security analysis and portfolio managementbyV.A. Avadhani Financial Markets and Servicesby Gordon and Natarajan, HimalayaPublications. Financial Managementby Shahs K Gupta and R. K Sharma, KalyaniPublications.Newspapers Economic times Business line Websites www.nseindia.com www.bseindia.com www.investopedia.com
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