growth of indian industry

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Chapter 1Introduction:

Capital market is the backbone of a countrys economy. It is one of the most efficient

sources for resource mobilization and allocation. The Indian capital market has seen an extensive

growth and shown its potential to the entire global market. This introduction shall give us an

overview of the past, present and future of Indian capital market.

The Indian capital market is one of the oldest capital markets in the world. It dates back

to the 18th century when the securities of the East India Company were traded in Mumbai and

Kolkata. However, the orderly growth of the capital market began with the setting up of The

Stock Exchange of Bombay in July 1875 and Ahmedabad Stock Exchange in 1984. Eventually

19 other Stock Exchanges sprang up in various parts of the country.

The Indian capital market has seen great improvements and transformation from its

inception, and has seen many major developments, which have started basically from the period

of post LPG; i.e. Liberalization, Privatization and Globalization. The Financial Sector Reforms

in general and the Capital Market Reforms in particular were initiated in India in a big way since

1991 1992. These reforms have been aimed at improving market efficiency, enhancing

transparency, checking unfair trade practices and bringing the Indian capital market up to the

International Standards. The National Stock Exchange (NSE) was incorporated in 1992 and was

given recognition as a Stock Exchange in April 1993, which has been playing a lead role as a

change agent in transforming the Indian Capital Market to its present form. To regularize the

Indian capital market, Securities and Exchange Board of India (SEBI) was established in 1998.

The basic necessity to establish this Board was to keep a track on the transactions and to have a

controlling overview over the malicious transactions that could take place.

The Harshad Mehta scam took place in 1992 which showed the loopholes that existed in

the capital market framework which was established by the scam by which Harshad Mehta, a

mere broker at the Bombay Stock Exchange, made up to Rs. 50 billion at that time. Therefore, to

prevent such incidents in the coming future, SEBI was given the statutory status in 1992. This

was positively accepted by the capital market and since 1992 SEBI has emerged as an

autonomous and independent statutory body, by which the following objectives were outlined for

SEBI which it strictly followed to avoid any further Harshad Mehta situations


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The basic objective of SEBI, which was the sole reason for its incorporation, was to

protect the interests of the investors.

There are two additional objectives of SEBI which can be enumerated as follows

Promote the development of securities market.

Regulate the securities market.

The SEBI has been given power under many statutes and the same are being exercised

under the following Acts and statutes - Securities and Exchange Board of India Act, 1992,

Securities Contracts (Regulation) Act, 1956, Depositories Act, 1996 and delegated powers under

the then Companies Act, 1956 and the current Companies Act, 2013.

The Indian capital market is now regarded as one of the worlds most strong capital

markets and the same has been achieved only due to the persistent efforts put in the process by

all the stakeholders, such as SEBI, the brokers, the customers and also the Government which

has time-to-time visited the performance and tried to make the Indian market more investment-

friendly.

There are two components of the capital market; primary and secondary. The primary

market is that part of the capital markets that deals with the issuance of new securities.

Companies, governments or public sector institutions can obtain funding through the sale of a

new stock or bond issue. This is typically done through a syndicate of securities dealers. The

process of selling new issues to investors is called underwriting. In the case of a new stock issue,

this sale is an initial public offering (IPO).

The secondary market is the financial market for trading of securities that have already

been issued in an initial private or public offering. In the secondary market, securities are sold by

and transferred from one investor or speculator to another. It is therefore important that the

secondary market be highly liquid and transparent. Before electronic means of communications,

the only way to create this liquidity was for investors and speculators to meet at a fixed place

regularly. This is how stock exchanges originated.


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The stock exchanges then developed greatly due to the increasing importance of capital

markets and therefore there started the establishment of stock exchanges across the country. The

oldest stock exchange in India is the Bombay Stock Exchange. It is believed that the oldest stock

exchange of the country is also the oldest in the Asian continent and claims to have the highest

number of listed companies in it. These are some details regarding Bombay Stock Exchange, the

oldest stock exchange in India

Bombay Stock Exchange was established in 1875 and is Asias oldest stock exchange.

It is also the worlds fastest exchange with a trade speed of 6 microseconds

(1 microsecond = 1 millionth of a second)

The Bombay Stock Exchange is the worlds 11 thbiggest stock exchange with an overall

market capitalization of Rs. 4,145,578.05 crores

More than 6,000 companies are listed on the Bombay Stock Exchange.

The stock market is influenced not just by the local economy, but also the world economy

has an impact on the stock markets which get clearly reflected in that days trade as the investors

would start liquidating their holdings to realize their money rather than losing more in the market

which seems to have taken a downhill. The same impact is also caused by the policies taken by

the government. Some policies are favorable to a certain industry and the impact of the same can

be sighted in the positive response shown by that particular industrys companies. For example,in the budget, the current government proposes for development of agriculture, then the

agricultural industry and related ancillary industries also have the potential for improvement and

such other supporting industries would be fertilizer industry, agricultural equipment like tractor,

tiller, etc. manufacturing companies etc. would also see an uptrend in their production.

Capital market has many types of instruments which can be traded under its name, the

first of all being shares (preference and/or equity), corporate bonds, swaps (shares/forex), futures

and options etc. All of these components in the capital market have their own significance in the

capital market. Therefore, while preparing this project we have focused mainly on the secondary

market for equity shares. The main reason for choosing this is because the ease of availability of

data and the analysis on the same can be easily interpreted.


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The policies made by the government have a widespread impact.These policies decide

the future of business in a sector. The annual budget proposes changes in taxes, changes of

government policy in sectors, and budgetary and other allocations for ministries. This drives the

prospects of growth in various sectors and stocks. Government policies can impact any industry -

telecom, energy, oil and gas, refinery, banking, transportation, organized retail, import/export

scenario etc. The government is also a major consumer in a country. Government spending in

any sector can provide thrust to that sector. There are many industries that are dependent on

government policies or government spending. Since different political parties have different

agenda and views, it becomes important for investors to interpret them and invest in stocks that

are in a favorable position.

Therefore this research project has been narrowed down on analyzing the economic

growth pattern of the Indian economy and the impact that it has evidently shown on the

following three industries and then a set of two to three companies in each of the following

industries will be analyzed by comparing them to their peers and the industry as a whole and also

with the growing economy

1. Telecom Industry

2. Information Technology or IT Industry

3. Automobile Industry

The reason for choosing the above industries is also enumerated as follows

1. Telecom Industry The reason for selecting telecom industry is the ever increasing

number of smartphones being purchased for which telecom operators are enjoying a

really great time by making a fortune. Also with the advent of 4G in the country while

there are plans for bringing 5G into the country by the year 2020, this is a very lucrative

sector to look at and the growth expectations that can be set for the above mentioned

sector. The companies which are under the umbrella of our analysis from the telecom

sector are

a. Bharti Airtel Limited (Airtel)

b. Mahanagar Telecom Nigam Limited (MTNL)

c. Reliance Communications Limited (RCom)


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2. IT Industry The industry is a relatively newly developing industry when compared to

that of the telecom and the automobile industry. The reason for the increasing

importance of IT industry in any economy, especially Indian economy is because of the

advent of technology in almost every single sector of the economy which makes the

industry quintessential for the growth of any economy. The Indian IT companies have a

varied demand and reputation across the globe, with special importance to its home

nation by providing employment to thousands of new engineering graduates. The

companies which are under the umbrella of our analysis from the IT sector are

a. Infosys Limited

b. Tata Consultancy Services Limited (TCS)

c. Wipro Limited

3. Automobile Industry The ever increasing population of India provides a scope for

increasing demand for vehicles which has a versatile range of products to provide the

nations population with and also shall have a growth trend for themselves. Hence the

said sector was selected for the project. The companies which are under the umbrella of

our analysis from the automobile sector are

a. Tata Motors Limited

b.

Maruti Suzuki India Limitedc. Eicher Motors Limited

The reason for selecting the above companies and the impact of their revenues, profits or

losses, the market capitalization of the sector on the whole etc. shall be explained in detail in the

data analysis section of the project. But as an overview, the companies are selected in a manner

that it covers the majority of our requirements for the secondary data.


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Indian Capital Market Future Road Map:

SEBI may go in for fresh investor survey at the earliest to understand the investment

behavior of the households during the more recent period.

Honble Union Finance Minister has proposed to set up an investor protection fund under

the aegis of SEBI which would be funded by fines and penalties recovered by SEBI.

SEBI would continue to nurture the Mutual Fund Industry and thereby attract more and

more household participation in the capital market.

Gold Exchange Traded Fund (GETF) has been introduced in India and in addition, SEBI

is also working for the introduction of the Real Estate Mutual Fund, which is likely to

mitigate the housing requirement of many households.

SEBI has been authorized to set up a National Institute of Securities Markets (NISM) forteaching and training intermediaries in the securities market and promoting research

Links:

http://www.yourarticlelibrary.com/economics/market/components-of-capital-market-

primary-market-and-secondary-market-company-management/8758/

http://www.bseindia.com/sensexview/indexview_new.aspx?index_Code=16&iname=BS

E30

http://www.forbes.com/2009/03/25/government-influence-solutions-opinions-

contributors-problems.html
http://www.yourarticlelibrary.com/economics/market/components-of-capital-market-primary-market-and-secondary-market-company-management/8758/http://www.yourarticlelibrary.com/economics/market/components-of-capital-market-primary-market-and-secondary-market-company-management/8758/http://www.yourarticlelibrary.com/economics/market/components-of-capital-market-primary-market-and-secondary-market-company-management/8758/http://www.yourarticlelibrary.com/economics/market/components-of-capital-market-primary-market-and-secondary-market-company-management/8758/http://www.yourarticlelibrary.com/economics/market/components-of-capital-market-primary-market-and-secondary-market-company-management/8758/http://www.bseindia.com/sensexview/indexview_new.aspx?index_Code=16&iname=BSE30http://www.bseindia.com/sensexview/indexview_new.aspx?index_Code=16&iname=BSE30http://www.bseindia.com/sensexview/indexview_new.aspx?index_Code=16&iname=BSE30http://www.bseindia.com/sensexview/indexview_new.aspx?index_Code=16&iname=BSE30http://www.bseindia.com/sensexview/indexview_new.aspx?index_Code=16&iname=BSE30http://www.forbes.com/2009/03/25/government-influence-solutions-opinions-contributors-problems.htmlhttp://www.forbes.com/2009/03/25/government-influence-solutions-opinions-contributors-problems.htmlhttp://www.forbes.com/2009/03/25/government-influence-solutions-opinions-contributors-problems.htmlhttp://www.forbes.com/2009/03/25/government-influence-solutions-opinions-contributors-problems.htmlhttp://www.forbes.com/2009/03/25/government-influence-solutions-opinions-contributors-problems.htmlhttp://www.forbes.com/2009/03/25/government-influence-solutions-opinions-contributors-problems.htmlhttp://www.forbes.com/2009/03/25/government-influence-solutions-opinions-contributors-problems.htmlhttp://www.bseindia.com/sensexview/indexview_new.aspx?index_Code=16&iname=BSE30http://www.bseindia.com/sensexview/indexview_new.aspx?index_Code=16&iname=BSE30http://www.yourarticlelibrary.com/economics/market/components-of-capital-market-primary-market-and-secondary-market-company-management/8758/http://www.yourarticlelibrary.com/economics/market/components-of-capital-market-primary-market-and-secondary-market-company-management/8758/


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Chapter 2 - Review Of Literature:

A lot of work is done on this topic of Capital markets. Various reports are released by

the government and the private players who deal in Capital markets in India. The review of

some references that have been useful in determining the scope of the project is as follows -

L.C Gupta (1972) has studied the working and functioning of stock exchanges in

India. In his book he has also given quite a lot of suggestions to advance the working.

The study throws light on the need to normalise and control the volume of speculation

so that the need of price continuity and liquidity is served and the people are satisfied.

It also advocates that the corporate securities should be enlisted in more than one

stock exchange at the same time so that the liquidity is improved. The cost of issues issuggested to be low, according to the study in order to protect the small investors. He

studied extensively on `Return on New Equity Issues' which states the investment

enactment of new issues of equity shares and with special significance to those of new

companies which deserves separate analysis. The factor that influences significantly

the rate of return on fresh issue of shares or securities to the buyers if the price at

which they are given, is known. The return on equity includes capital appreciation and

dividend. The overall study presents sound estimates of rates of return on equity and

also examines the variability of such returns over time. In his findings study revealed

that there is existence of wild speculation in the stock market of India. This over

speculative character of stock market in India is reflected in very high concentration

of activity in handful of shares to the neglect of remaining shares and absolutely high

trading velocities of the speculative counters. He pronounced that, short-term

speculation, if excessive in nature could lead to "artificial price". Artificial price is

one which cannot be justified by probable earnings, dividends, financial strength and

assets which is brought about by speculators through manipulations and rumours. He

opined that such artificial prices would crash sometime or other as history has proved

and repeated.

C. William Schwert (1988) In his paper analyses the relation of stock volatility with

real and nominal macroeconomic volatility, financial leverage, stock trading activity,

default risk, and firm profitability using monthly data from 1857-1986. An important

fact, previously noted by Officer, is that stock return variability was unusually high

during the 1929-1940 Great Depression. Moreover, leverage has a relatively small


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effect on stock volatility. The amplitude of the fluctuations in aggregate stock

volatility is difficult to explain using simple models of stock valuation.

Randal Smith (1992)extracted to investors the underlying principles of winning on

the stock market. He also emphasised on long term vision and a plan to reach the

goals. He advised the investors that in order to be successful, they should never be

negative about it. He revealed that, though there has been a major economic crisis

almost every year, it is reasonable that enduring investors have very steadily made

money in the equity market. He gave a view that investing in stock market should be a

practical endeavour and suggested that investors should also own a stock if they

believe that it would perform in an excellent manner.

Yasaswy N.J. (1993) unveiled how 'turnaround stocks' gives a large amount of

income to the investors and also the risks in investing in such stocks. Turnaround

stocks are stocks with unusual potential and are relatively under-priced at given point

of time. He also revealed that when there is recession in an economy and the

fundamentals are weak, the market, being a barometer of the economy, also tends to

depress. A depressed stock market is a hunting ground for 'bargain hunters', who are

usually aggressive investors. Later or sooner recovery takes place which might take

an extremely long time. He finally concluded that investors watch work is 'caution' as

he may lose if the turnaround strategy does not work out as anticipated.

Samir K. Barua, V. Raghunathan, Jayanth R. Varma (1994) in his paper

presented a review of research done in the field of Indian capital markets during the

fifteen years from 1977 to 1992. The research works included in the survey were

identified by two search procedures. Firstly, it wrote to 118 Indian university

departments and research institutions requesting information on the works done in this

field in their department/institution. After three reminders, they obtained responses

from 53 institutions. Simultaneously, they searched through various Indian journals in

our library, located books listed in the library catalogue and traced through the list of

references provided in various research works.

Considering the size, vintage and development of the Indian capital market,

the total volume of research on it appears to be woefully modest - about 0.1 unit of

work per institution per year. Moreover, a large number of works are merely

descriptive or prescriptive without rigorous analysis. Certain areas such as arbitrage

pricing theory, option pricing theory, agency theory, and signalling theory are


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virtually un-researched in the Indian context. Besides, very little theoretical work has

been done by researchers in India. However, with improved availability of databases

and computing resources, and with increasing global interest in Indian markets, they

expect an explosion of work in the near future.

Amanulla and Kamaiah (1995) in his study examines the Indian stock market value

by using Ravallion co-integration and error correction using market integration

approach. The data used are the RBI monthly aggregates share indices which relates

to five regional stock exchanges of India, viz Delhi, Calcutta, Chennai. Bombay,

Ahmedabad during the period of 1980-1983. According to the authors, the results of

the co-integration unveiled long-run equilibrium relation between the price indices of

five stock exchanges and error correction models indicated short run deviation

between the regional stock exchanges.

Philippe Jhorion and Sarkis Joseph Khouryl (1996)reviewed on the international

factors of risks and its effect on the financial markets. He also suggested that domestic

investment is a subset of the global asset allocation decision and that it is impossible

to evaluate the risk of domestic securities without any reference to the international

factors. Investors must also be aware of factors driving stock prices and the

interaction between movement in prices of the stock and also the exchange rates.According to them, the financial markets have become volatile over the last decade

due to the unpredictable speedy changes like oil price, drive towards economic and

monetary unification in Europe, the wide scale conversion of communist countries to

free market policies etc. They emphasized the need for tightly controlled risk

management measures to guard against the unpredictable trends of financial market.

Redel (1997)focuses on the integration of capital market in developing Asia during

the period of 1970 to 1994 taking into variables such as equity portfolio, capital flows,

Foreign Direct Investment and bond flows. He also closely observed that the

integration of market in Asian developing countries in 1990s was magnitude of broad-

based economic reforms specifically in financial sectors and trade which is a very

serious reason for the crises that is followed by the increased capital integration of

market in the 1970s in many countries will not get repeated in the 1990s. He also

concluded that strengthening and deepening the process of liberalization of economy

in the Asian developing countries is an essential factor for minimizing risks and

maximizing all the benefits from increased international capital market integration.


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Bhalla V. K (1997)reviewed about the various factors that influence the equity price

and price earnings ratio. He opined that equity prices are affected majorly by financial

risk considerations that, in turn, affect the earnings and dividends. He also stated that

the market risk in equity is greater than in bonds, and it influences the price to a great

extent. He disclosed that many analysts follow the price earnings (P/E) ratio to value

the equity, which is equal to the market price divided by the earnings per share. He

witnessed that higher interest rates and inflationary expectations tend to reduce the

price earnings ratios whereas growth companies tend to have higher price earnings

ratios. He recommended that an investor should examine the trends of the price

earnings ratio over time for each of the company.

William C. Dudley and R. Glenn Hubbard (2004)examined that in some cases, the

securities trade on public exchanges (for example, the New York Stock Exchange). In

other cases, the securities are traded over-the-counter. This means that prices for the

securities are established by individual securities dealers who compete with one

another to offer the best prices and execution. The capital markets intermediation

occurs via a wide array of instruments, including common and preferred equities,

convertible bonds, corporate bonds, mortgage-backed securities, other asset-backed

securities, and commercial paper. In the second case in which depository

intermediaries play a role, intermediation differs in three important respects. First, the

investor does not have a claim on the ultimate beneficiary of the funds. Instead, the

investors claim is on the depository institution that acts as the intermediary. Second,

the price of this claim does not typically fluctuate in response to shifts in supply and

demand. Instead, the investor agrees to terms with respect to the rate of interest that

will be paid and when the investment will mature. Third, the investor cannot normally

sell this claim to a third party. Instead, to end the contractual arrangement early, the

investor might suffer a penalty, such as 90 days of foregone interest in the case of

early withdrawal of a bank certificate of deposit. Or, in the case of a demand deposit

or savings account that has no maturity date, redemption can occur at any time at the

discretion of the saver, but always assuming the bank remains solvent at par value.

Robert P. Schumaker and Hsinchun Chen (2006) examines a predictive machine

learning approach for financial news articles analysis using several different textual

representations. Through this approach, they investigated 9,211 financial news articles

and 10,259,042 stock quotes covering the S&P 500 stocks during a five week period.

They applied the analysis to estimate a discrete stock price twenty minutes after a


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news article was released. Using a Support Vector Machine (SVM) derivative

specially tailored for discrete numeric prediction and models containing different

stock-specific variables, they show that the model containing both article terms and

stock price at the time of article release had the best performance in closeness to the

actual future stock price (MSE 0.04261), the same direction of price movement as the

future price (57.1% directional accuracy) and the highest return using a simulated

trading engine (2.06% return).

Debjiban Mukherjee (2007) made a comparative Analysis of Indian stock market

with International markets. His main study covers the New York Stock Exchange,

Hong Kong Stock exchange, and Tokyo Stock exchange from various socio- politico-

economic backgrounds. The Bombay Stock exchange and National Stock Exchange

of India have been used in the study as a part of Stock Market in India. The main

objective of this study is to capture the trends, resemblances and patterns in the

activities and movements of the Stock Market in India in comparison to its

international counterparts. The time period has been divided into various divisions to

test the relationship between the various exchanges to prove that the markets

functioning in India are more integrated with its global counterparts and its reaction is

in par with that which has been seen globally. Number of stock exchanges have been

compared on the basis of listed securities, listing agreements, Capitalization of

market, circuit filters, and settlement. It can safely be said that the markets do react to

global cues and any happening in the global scenario let it be macroeconomic or

country specific affecting the various markets.

Prof. Anilkumar Garag and Dr. B Ramesh(2010) Their study is an attempt to find

a relation between the change in the prices of futures contracts of specific stocks and

the change in Open Interest. Participants in the stock markets believe that the amount

of open interest in a particular contract has a bearing on the behaviour of the price of

the contract. This popular perception is put to test in the following research by

correlating the change in open interest in stock futures with the change in the futures

prices. Empirical data has been collected from copies published by the National Stock

Exchange, India and then the data is subjected to correlation analysis to find out the

significance of these parameters. The daily price data and open interest data is

collected for sixteen stocks and the index (NIFTY) for a period of 4 years. The

correlation between the change in futures price and the change in open interest is

calculated for near month contracts of these seventeen futures contracts.


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The following two hypotheses have been noted:

Hypothesis 1 - There is a strong and positive correlation between the change in open

interest and change in futures price in single stock future. The hypothesis stands

rejected as the correlations hovers around ZERO. This is substantiated by the T-test

where the hypothesis stands accepted for 12 cases out of 17 cases (64.7%)

Hypothesis 2 -There is a strong and positive correlation between the change in open

interest and nifty futures. The hypothesis stands rejected as the correlation coefficient

is nearly ZERO. This is also substantiated by the T-test.

Juhi Ahuja (2012)presents a brief picture of Indian Capital Market and the structure.

In the last decade or so, it was observed that there has been a paradigm shift in the

Capital market in India. There is application of many reforms and developments in

capital market of India which has made the Indian capital market comparable with the

international capital markets. Now, there are advanced market features and a

developed regulatory mechanism with growing capitalization of market and

mobilization of resources. The emergence of Private Corporate Debt market is also a

good modernisation replacing the banking mode of corporate finance. However, the

market has also witnessed the worst time with the recent global financial crisis thatoriginated from the United States sub-prime mortgage market and spread over to the

entire world as a taint. The capital market of India delivered an extremely sluggish

performance.

Nikunj R. Patel, Nitesh Radadia and Juhi Dhawan (2012) the purpose of this

research was to investigate the weak form of market efficiency of Asian four selected

stock markets. They have taken a daily closing price of stock markets under the study

from the 1st January 2000 to 31st March 2011 and also divided full sample in three

interval periods, and have applied various test like Runs Test, Unit Root Test,

Variance Ratio, Auto Correlation and other test. BSE Sensex has given the highest

mean returns to the investor followed by SSE Composite and HANGSENG. BSE

Sensex could be considered as high risk markets as it has reported the highest

Standard Deviation. During the period BSE Sensex, HANGSENG and SSE

Composite markets showed positive average daily returns except NIKKEI. The Runs

Test indicated BSE Sensex and NIKKEI markets are weak form inefficient whereas

HANSENG and SSE Composite hold weak form of efficiency. The time series for the


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full as well as sample period did not have a presence of unit root in the markets

understudy. On Weak-Form of Market Efficiency of Asian Stock Markets not have a

presence of unit root in the markets understudy. According to Auto correlation test it

is inferred that the equity markets of the Asian region under the study remained

inefficient for some lag whereas they were efficient for the other lag.

Dr. K. V. Ramanathan and Mr. M. Muthu Gopalakrishnan (2013)analysed that

Indian stock markets have high fluctuating stock prices. The share price fluctuations

are always reported in the news and these fluctuations are caused by various factors.

The most stock market is among the most volatile financial institutions in business,

and its the volatility that tends to be the biggest problem with stock market. Volatility

in equity market has become a matter of mutual concern in recent years for investors,

regulators and brokers. Understanding Historical volatility is important for many

investors as well as traders. For investors, this term is important, because it helps in

estimating or calculating their risk. Traders, generally use Historical volatility to

know how volatile a stock or an index will be in the future. The present paper is an

attempt to examine the volatility of sectoral indices listed in Nifty as on March 28,

2013 using daily opening price, closing price, high and low prices of 31 selected

companies. The sample period for the study is 2005-2008(1-4-2005 to 31-3-2008) and

2009-2012(1-4-2009 to 30-3-2012).The sample period chosen helps to identify

volatility relationship during pre-recession and post-recession period. The data have

been analysed by working out Yang-Zhang Estimator and the calculation carried in

excel.

Anju Dagar (2014) portrays that Stock Market is one of the most vigorous sector

which plays an important role in contributing to the wealth of an economy. Growth

rate of stock market signify growth percentage rise in economy. There is a strong

positive relationship between stock market development and economic growth & help

to efficiently direct the flow of savings and investment in the economy in ways that

make possible the stockpiling of capital. It fulfils a central function in the economy

which bring together savers and investors (providers of capital) & with companies and

the state (borrowers) on the other. The main objective is to analyse the link between

stock market performance & economic development. The Bombay Stock Exchange

(BSE), the National Stock Exchange (NSE) and the Calcutta Stock Exchange (CSE)

are the three large stock exchanges of Indian Stock Market & London stock exchange

is oldest stock market in the world. The primary function of the stock exchange is to


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play the most important role of supporting the growth of the industry and commerce

in the country.

Dr. M.Venkataramanaiah (2015): Out of three important market parameters,

capitalisation play very decisive role to understand the behaviour of stock market.

Most often capitalisation could be used as a proxy for the public opinion on stock

exchanges. In this study the relationship between number of listed companies and

Sensex and market capitalisation as a whole, market capitalisation to gross national

product, sector wise market capitalisation, security group-wise capitalisation and

company-wise capitalisation were examined. It was found that there was a positive

relationship between market capitalisation and Sensex while there was no positive

relationship between market capitalisation and listed companies and listed companies

and Sensex. Further, it marked that there was positive relation between market

capitalisation and gross national product. Furthermore, it was evident that there was a

gradual increase in sector-wise market capitalisation, security group-wise

capitalisation and company-wise capitalisation during the study period.

DR. G.Shanmugasundharam and DR. John Benedictcategorised that the Sector-

based index is designed to provide a single value for the aggregate performance of a

number of companies representing a sector of the economy. This study is an attempt

to provide an empirical support to identify the risk factors in sectoral indices and

CNX Nifty index and also to see the risk relationship in different time intervals. The

indices selected for the study are CNX Nifty index, CNX Auto index, CNX Bank

index, CNX FMCG index, CNX Infrastructure index and CNX Information

Technology index for the period from 01/01/2004 to 30/04/2012. The data has been

taken from the official website of National stock exchange. Two sample T-Test and

One way ANOVA between subjects has been used to identify the risk factor

difference across the risk of sectoral indices and CNX Nifty index. The results show

that there is no difference in the Standard deviation among various sectoral indices.

The One-way ANOVA within groups has been used to identify, if there is any

difference in the risk across time intervals. The results show that there is a significant

difference in the mean scores of various time intervals. The results exhibit important

implications to individual investors and portfolio managers in terms of reducing

portfolio risk and enhancing their returns.


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Komal Rohit Nabira (2015) explained that when Equity is said, what comes to your

mind Stock or Equity Mutual Fund? While a single stock or a mutual fund both comes

under the category of Equity and they are good option for long-term investment.

There are some differences between stock investing and mutual fund investing that is

done by a common man. Its a good idea to know where they differ and in which

situation they differ, so that one can take better investing decisions. New investors

looking to invest for the future are usually faced with two main options - mutual funds

or individual stocks. Mutual funds are actively managed baskets of stocks, designed to

beat the market with the assistance of a fund manager. Individual stocks can be

bought by any investor through a brokerage, and it becomes the responsibility of the

individual investor to maintain his or her portfolio. Mutual funds are widely regarded

as a passive form of investing, while investing in individual stocks is a more active

form.

Prof. Ninad Khuley (2015) analyses that Risk management is one of the most

important functions of financial manager today not only in financing, banking and

insurance companies but also corporate world at large. In todays competitive

environment a company/organization which is very attentive towards risk

management becomes able to survive in the market. There are many methods and

tools which can be used to cope up with the risk management. This paper is focused

on derivative market at Bombay Stock Exchange. BSE with its distinctive feature has

a long, colourful and chequered history. It enjoys a preeminent position by having a

permanent recognition from the Securities Contract (Regulation) Act, 1956. It can be

considered as an essential concomitant of the Indian economy. Coming to risk

management of derivatives in BSE, BSE has an efficient and effective risk

management system, which can be compared with any of the exchange of the world.The SPAN margining system followed by BSE for margin calculation is one of the

most efficient systems of margining. Along with this the regulatory requirement of

BSE makes the risk management system stronger and effective. Though the margin

with which BSE lags behind NSE is too much for derivatives market, but a committed

effort can help BSE to gain supremacy in this segment. This can be done by making

itself more informative, monitoring the risk management process and taking some

aggressive steps for the improvement of the derivatives segment. All it needs to do is

to take quick and timely decisions for the improvement of the derivatives segment.


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Dr. Rima Shah (2015) in her study examines that in order to meet the working and

fixed capital requirement, every business units have to raise short term and long term

funds. This aspect is covered by financial market. The financial market provides a

place or a system through which the transfer of funds by investors to the business unit.

The financial market consists of two major segments like money market and capital

market. The capital market is divided in primary and secondary market. The stock

exchange is the place where, securities are traded. To know about the investors

perception in financial market, the direct contact based on primary data collection in

the form of questionnaire is used. For that purpose 26 questions are asked to the 50

investors. The objectives for the analysis are to know the awareness level of investors,

use of financial market, investment opportunities and use of published annual reports

for investment decision. From the analysis it is revealed that, 46% investors are

pertaining to 30 to 50 years age group. From the investors, 44% investors are having

good knowledge in the area of investment. The majority investors are investing from

their own savings and they are preferred to invest majority in shares and stocks and

fixed deposit. 64% of the investors are graduates and post graduates and 52% are of

service category while 36% are self-employed. The main aim of the investment is to

earn regular income as well as capital appreciation.


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Chapter 3Research Design/ Synopsis

Title of the project:

The propinquity of Indian Economy to capital markets and its fluctuation.

Abstract:

The development of a particular economy can be determined by various measures such as the

GDP of a country, the average annual inflation rate prevailing in the country, the reserve

requirements of the Central Bank of a nation (Reserve Bank of India in the case of India) and

many other factors that get related to political, economic, social and technological factors of the

country. Here in this research project, we have concentrated on the all of the above mentioned

factors that affect the economy of the nation.

Introduction:

From the early 1980s onwards, there has been a shift in Indias economic policy regime, from

government control over the allocation of resources, towards a greater role for the markets. One

major aspect of these reforms has been the development of financial markets for determining the

allocation of capital in the economy. Several reforms have been announced to promote the

capital market and protect investor interests. Reforms in the secondary market have focused on

three main areas-

Structure and functioning of stock exchanges,

Automation of trading and post trade systems,

And the introduction of surveillance and monitoring systems.

The Capital Markets play a significant role in any economy from allocation of Capital and Risk

to Policy Making. If there is any single factor that makes a huge impact in improving the GDP of

a country, it is the effective allocation of capital to the Industry and Government. Capital Market

is the best channel to route the savings into long-term productive use. If we look into the

economy and find the enterprises that were hit by high cost of capital, one can observe that

MSME that provides highest number of employment opportunities were worst hit by it. If a


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country develops and adopts best Capital Market practices they create multiple effects and helps

in reviving the economy. The SME Exchange is a welcome move for the Small and Medium

Scale Enterprises, but it is alone not enough to revive MSME.

In this view, this project aims to explore the extent of the development in Indian Capital Markets,

the extent of efficiency achieved in allocating the resources and the future course of action to fill

in the gaps whenever necessary.

Facts and figures:

In the context of Indian economy, these are the following facts and figures that provides us

with the overview of the current scenario as of September 2015 -

The Gross Domestic Product (GDP) in India expanded 7 percent in the second quarter of

2015 over the same quarter of the previous year, slowing from a 7.50% growth in the

previous quarter and below market expectations.

Current inflation exists in the economy at 6.00%.

Current bank rate is at 7.75%.

The current CRR rate is 4.00% and SLR is 21.50%.

Repo rate and reverse repo rate at the rate of 6.75% and 5.75% respectively.

Points of cynosure:

Apart from the above details regarding the Indian economy, the topic that we have narrowed

down to the impact on capital markets in purview of the then current Indian economy scenario.

There have been many reports and research papers already existing on topics that are related to

Indian economy and Indian capital market, but in isolation. Therefore, we are here making an

attempt to do a synchronized analysis of both the Indian economy and the capital market, its

interdependencies and the overall impact of fluctuations in either of the two on each other.

There have been studies and researches on the post liberalization period of India which began in

1991 when the Indian economy was gifted with the concept of LPG, i.e; liberalization,

globalization and privatization. We have channelized our concentration on the post LPG period

and the analysis of the impact on capital market shall be addressed in this research project. This


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will basically be split in phases of collection of secondary data of government policies, market

prices of stocks and shares along with indices and an interpretation of the so formed trend and a

prediction of a possible trend on the basis of existing governmental policy (enacted or to be

enacted) by Narendra Modi led NDA Government. Capital market is the heart of any economy

through which the savings are channelized into effective long-term investments. A developed

and vibrant Capital Market will immensely contribute towards speedy economic growth and

development.

The entire project shall have a summary of the journals referred and other work of various

authors referred for determining the exact research gap currently existing which shall be

accompanied with various charts and tables which shall provide a statistical edge to the project.

Areas to be covered:

Problem of the study There has been no combined study as to how the capital market

has grown in connect with economic growth.

Scope of study 3 sectors with 3 stocks each and comparing them with overall industry

and economic growth and the possible movement in prices of stocks and revenue

numbers for FY 2015-16.

Sources of data collectionDatausedis basically secondary data. Therefore, sources of

data collection are websites such aswww.bseindia.com,www.moneycontrol.com,etc.

MethodologyThe basic methodology used is analysis by means of profitability of the

company and trend analysis with regards to share price movements and revenue-profit

earnings of the companies over the years.

Limitation The only limitation of the report is that the predictions that are made with

respect to movement of share prices and revenue generation is based on current market

scenarios, which can change at a future date.
http://www.bseindia.com/http://www.bseindia.com/http://www.bseindia.com/http://www.moneycontrol.com/http://www.moneycontrol.com/http://www.moneycontrol.com/http://www.moneycontrol.com/http://www.bseindia.com/


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Table of contents of project report:

IntroductionBasic introduction to Indian economy and capital markets.

BackgroundHistory of evolution of capital market.

Importance of capital markets

New DevelopmentsDevelopments such as formation of SEBI, etc.

Challenges (similar to the problem of the study)

Reforms in the Capital Markets

Trading Pattern in the Indian Stock Markets

Problems of Indian Stock Markets

Changes in Stock Exchange

Future Policy - Stock Markets


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Chapter 4Data Analysis:

The period for the analysis is basically selected from the period after LPG, i.e;

Liberalization, Privatization and Globalization was done in the Indian economy. There are certain

sectors which have gained enormously from this policy reform and the objective of this research

project is to analyze the said impact with regards to that sector which are represented by the giants

of that particular sector. The companies chosen for the same are varied in their service providing

clientele or manufacturing base, thus providing a complete picture of the particular sector. Each

sector represents a growth pattern which may or may not be replicated by the shares of the

companies belonging to the same industry or sector due to various reasons like technological

obsolescence, market demand changes, etc.

The type of data that has been selected for the data analysis is secondary data which is

derived from websites that host such secondary data for public references. The same have been

utilized in making an analysis of the data related to the historical share prices, revenue and profits

of the company, contribution to GDP and so on and so forth.

So, the analysis of such data is presented in the form of charts which enables the data to be

more easily comprehendible, Let us begin with the analysis of the same.

Automobile Industry:

The reason for selecting the automobile industry is because of the main factor that has

triggered the growth of this sector, which is the population of this country. The population of India

has increased multiple times and therefore, there shall be an increase in the need for more vehicles

to carry such a huge amount of population. Therefore, the concentration that has been laid down

for the analysis is more towards passenger vehicles than commercial vehicles, though both have

almost the same relevance and weightage with regards to the research that has been done. The

same can be seen by the selection of securities that are made for the analysis. The companies that

are selected and the basis for the selection of the same is as follows

1. Tata Motors Limited Tata Motors Limited is one of the companies of the Tata Group

of Companies which has more than 200 companies under its umbrella.Tata Motors is one

of the leading passenger vehicles manufacturer and also is at the top as per consumer


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choice, which are now more in utilization due to the plying of cabs for which mostly Tata

Indica cars are used (Ola Mini or Uber Go). The growth of the company has mainly been

characterized with this phenomenon of increased demand and need for cabs in the country.

Tata Motors is an automobile giant with Rs. 95,693 crores of market capitalization, which

is a huge number. The fluctuation in the share prices of Tata Motors from January 1991 to

the beginning of January 2016 has been considered and the same is as below -

A drastic fall in the prices of the shares during the period of January 2011 to January 2012

is because there was a split of shares in the ratio of 1:5 and therefore the stock prices had slashed

down to 1/5thof the then prevailing market price.

The revenue and profitability of Tata Motors from the year 2000-01 has been shown below.

We can see that the revenue had increased multiple times but the profitability of the company was

not at all in correlation with the revenue that the company is generating. This is basically due to

the increased cost of production and the increased standard of living in the country, considerably

higher that it was. This makes the company to pay more salaries and wages and therefore the cost

of production rises. The margin with which the company works is around 5%, of which the

majority portion gets eaten away as commission by middlemen and agents. The company has

reported cumulative losses of around 2,000 crores in the last 2 years which shows the plight of the

company. Despite generating high revenues, the company is unable to maintain its profitability

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Fluctuation in share prices of

Tata Motors Limited


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which questions the viability of the company for the future run. The impact of losses is reflected

in the stock prices where the company has reduced from Rs. 600 to Rs. 425, thus reducing its

market capitalization

2. Maruti Suzuki India Limited Maruti Suzuki India Limited is a joint venture of Indian

company Maruti Udyog Limited and the Japanese giant Suzuki, which has been in

existence for more than 3 decades. Maruti Suzuki is the largest Indian automobile

manufacturer and has been recording the highest sales (in units) in India, making it the

first choice of an Indian customer. It is seen that Maruti Suzuki has earned the brand

loyalty amongst majority of the Indian car owners and thus has more than 50% market

share in the Indian passenger car market. The changes in the market price of the shares is

as below. The share has consistently grown over the years and has given considerable

returns to its investors. Being Indias biggest passenger vehicle manufacturer and seller,

the company has outperformed the industry growth rate and hence is a very positive pick

for investors which is bound to yield good positive returns over a reasonable period of

time.

(10,000.00)

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Revenue and Profits ofTata Motors Limited

Revenue (in crores) Profit (in crores)


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There is a continuous rise in the prices of the shares which is the result of continuous

increase in revenue and profit margins. In contrast to Tata Motors, which is the second largest

company in the sector, Maruti Suzuki has ensured that it remains under profit in any circumstances.

In the recession of 2008-09, the company did lose out on its export sales but still managed to

remain profitable at a reasonable state and therefore shows that the company has very deep pockets

which can absorb the sudden shocks and losses. The revenue and profit chart of the company is as

follows which depicts the profitability of the company

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Fluctuations in share prices of

Maruti Suzuki India Limited

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Revenue and Profits of

Maruti Suzuki India Limited



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The company has constantly garnered profits into its reserves and therefore is the

most profitable automobile company in the Indian automobile sector. The total market

capitalization of Maruti Suzuki India Limited is 1,23,420 crores, which is the highest in

the automobile sector.

3. Eicher Motors Eicher Motors is one company that has emerged has a very strong

company after the 2000s. This company has outperformed various other companies in the

sector and thus a created a buzz around itself in the minds of the investors. This can be

equated with the market price it had 10 years ago and the market price of its share now.

The market price of one share of Eicher Motors in January 2005 was Rs. 260 and the price

per share in January 2016 is Rs. 17,100. Therefore the impact of this company can be

clearly understood with the growth it has shown in its market price. In spite of having a

market capitalization of Rs 44,600 crore, the company is still unable to capture a large

amount of share in the commercial vehicles segment where it gets stiff competition from

companies like Tata Motors and Ashok Leyland. The changes in the market price of the

companys shares can be seen in the following chart

The growth pattern of the companys revenue has not been stable and there have been ups

and downs in the revenue earnings of the company. This has impacted the companys chances of

capturing the market share in the commercial vehicles segment which also has been tumbling. The

company, despite such failures of capturing the market share, has ensured to remain profitable and

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Fluctuations in share price of

Eicher Motors Limited


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has successfully maintained its profit line from falling below par and coming into the red zone of

losses. These continuous efforts has helped Eicher Motors to increase their market capitalization

and therefore has been partially successful in maintaining the investors confidence in the

companys balance sheet. The analysis of the revenue and profits of the company is as follows

Analysis of trends in the automobile sector and the future possible movement

in share prices and revenue/profit earnings and comparison to GDP

contribution and industry growth rate

The vision of the Automotive Mission Plan 2006 - 2016 drafted by the Ministry of Heavy

Industries and Public Enterprises department of the Government of India is to emerge as the best

destination for design and manufacturing of automobiles in the market size of 145 Billion USD

which accounts for 7% to 8% of the GDPof the country. The average growth rate of the Indian

automobile industry is around 8.7%. It can be seen that the current reforms in the Indian

economy are favorable for the growth and development of the entire automobile industry. The

prediction of Indian population reaching 150 crores in a few years, there is high probability that

the demand for passenger vehicles will increase. With increase in the middle class and upper

middle class levels of individuals, a car, which was then a luxury has now become a necessity.

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Revenue and Profits of Eicher Motors Limited



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Therefore, these are the following expectations for each of the companys which were considered

in the analysis above.

Tata Motors - Tata Motors has been suffering losses for the last 2 years where it has

reportedly posted a loss of around Rs. 2,000 crores, which is a huge amount. The

expectancy of the continuance of the same trend is quite possible and therefore, despite

the indication of increase in revenue, the combination of Tata and JLRs (Jaguar-Land

Rover) revenue is expected to be reduced from that of last year, as the current 2 quarters

of the year 2015-16 have been negative. Therefore, it is expected that Tata Motors will be

reporting a loss for FY 2015-16 which would be around Rs. 1500 crores. Tata Motors,

on the overall, has a growth rate of 12.6% against the industry average of 8.7%.

Maruti Suzuki

Maruti Suzuki has had good 2 quarters for FY 2015-16, and being the

best company in the sector, the company is expected to rake in good profits just like last

year within the range of 11% to 14.5%. The company has had good sale numbers during

the past 2 quarters and the same is expected to have decent sales in the next 2 quarters.

Maruti Suzuki India Limited, on the overall, has an impressive growth rate of 14%

against the industry average, which is just at the rate of 8.7%.

Eicher Motors

Eicher Motors been struggling to maintain a steady growth trendpreviously, but has now found the path for increasing their revenues which have

consistently risen for the last 3 years. The company has shown tremendous growth in the

first 2 quarters of FY 2015-16 and is expected to post even more strong numbers in Q3.

The expectancy of such good numbers has also driven the market prices of the company

to rise for more than 5% in the last 2 trading sessions. The company has solid profit

margins in the last 3 years that have been in the range of 15% to 23%. This tremendous

margin has enabled the company to perform amazingly. Therefore, it is expected that the

company would have revenue figures growing above Rs. 5,000 crores from the current Rs.

3,500 crores with a clear cut margin of around 17& to 20% as profits. Eicher Motors, on

the overall, has a strong growth rate of 24% against the industry average of 8.7%,

which is almost thrice to that of the industry average.


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Information Technology or IT Industry:

The IT industry is one lucrative industry that has benefitted the most from the policy reform

of LPG, i.e; Liberalization, Privatization and Globalization. The attractiveness of this industry had

risen to greater heights after the 2000s, which has a great impact on the profitability of the

companies in that particular sector. Let us now look at the companies which are selected for the

analysis with respect to the IT industry.

1. Infosys Limited Infosys Limited is the biggest IT company in the Indian IT sector.

Infosys Limited has the highest market capitalization in the IT sector with an amount close

to 2,62,000 crores. Thus, this market capitalization allows the company to have a greater

exposure by not just restricting itself in the Indian market but also covering a majority of

the world market too. The company incorporated in the year 1995, had the share prices

soaring greater heights within a short span of just 5 years. The price of one share of Infosys

Limited had risen from below Rs. 300 per share in 1995 to around Rs. 14,000 in 2000. The

company had issued bonus shares at various intervals and therefore the prices of the shares

had fallen down considerably. The fluctuation in the share prices of the company is as

follows

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Infosys Limited


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The revenue earning capacity of the company has increased multiple times over the years

and has shown greater profit margins in the last 3 years. The trend of the profitability of the

company can be seen as below -

The company has steady growth rate of about 10% in increasing their revenues and around

15% in increasing the profits of the company. The company has had 2 good quarters in FY 2015-

16 with profits of Rs. 9500 crores in the past 2 quarters. This implies that the company has

probability of growing at the same rate as last year, with the revenue figures being partially

impacted in the third quarter due to the floods in Chennai, but would not be as impacted as Tata

Consultancy Services (TCS) which has been badly impacted by the Chennai floods. Therefore, the

company is expected to generate adequate profits.

2. Tata Consultancy Services (TCS)Tata Consultancy Services is the biggest IT Company

in India, Almost 60% of the revenue of the Tata Group is generated by TCS. The company

has an overall market capitalization of 4,54,000 crores which makes it the biggest company

in the IT sector, in terms of market capitalization. The company has performed exceptionally

in terms of share prices and thus has provided a fair market cap for itself. TCS has been the

pioneer in the country for export of technological services and has garnered to more of the

international market also. The domestic market is basically made of 3 giants of the IT sector,

namely TCS, Infosys and Wipro. The fluctuation in the share prices of the company has been

as follows

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Revenue and Profits of Infosys Limited



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The company has had amazing 4 years in the past where the revenue has increased by around

10% YoY, which makes the company a very profitable one too. The company has not reported

any loss in the last 10 years which is also a great achievement. TCS had performed will in the first

2 quarters in FY 2015-16 but the same is not expected to replicate in the next two quarters. The

company has contributed to the nations imports in a huge number that has made the company a

very important part of the Indian economy. TCS has major markets outside in India in developednations like the United States of America (USA), United Kingdom (UK) etc. The analysis of the

companys profit for the past 10 years is as follows -

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The company has continuously increased their revenue generating ability but is unable to

generate profits in the same ratio as the companys revenue generationcapacity. The profits of the

company have increased marginally and therefore the company is struggling to increase the profit

margins in a greater proportion as the increase in revenue.

3. Wipro Limited- The third largest IT company in terms of market capitalization with a

total market cap of 1,36,600 crores, Wipro Limited is one of the top 3 giants of the IT

sector which includes the other giants like Infosys and TCS. Wipro is regarded as a global

service provider of integrated business processes and technological solutions and is also

counted among the three leading offshore BPO service provider. In recent times, Wipro

has been facing some problems with respect to its profits. The rise in profits not met the

expectations and also the revenue growth of Wipro has been unsatisfactory. The changes

in the share prices of the company is as follows -

The dot com bubble has had a great impact on the prices of the share, wherein the stock

prices reach an all-time high of around Rs. 7,000 per share, but after that, the stock prices had a

tumbling fall and lost more than 70% of its value which was again gained in the gap of a year. But

the stock has always been subject to high volatility and therefore has paid the price for such

volatility. The current market price of the shares are around Rs. 550.

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Wipro Limited


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The revenue and profitability of the company can be seen in the following chart -

The company finally has found a track in increasing their revenues and maintaining a trend

of the same. But the profitability of the company does not support the same standing. Wipro has

had decent first 2 quarters. And the expectancy of increasing the profitability of Wipro is mostly

negated and this would have a negative impact on the share price of the company. The companys

revenues have increased at the rate of 10% YoY but the profits have not been in correlation to that

of the revenue. Looking at the trends of the last 4 years, revenue have increased by 50% over the

4 years but the profits have increased by only 39%.

Analysis of trends in the IT sector and the future possible movement in share

prices and revenue/profit earnings and comparison to GDP contribution and

industry growth rate

The contribution of services sector to the Indian economy has been around 56% of which

IT industry has contributed to more than 10%, which effectively makes the contribution of IT

sector to the overall growth of GDP at around 5.6%. The IT sector has been the most recent

and the most fast developing sector in the Indian economy. The pace at which technology evolves

has stupendously traumatized the companies which do not develop and evolve with changes in the

technological space. To ensure ones existence (with regards to a company), the company should

adopt the technological advancement in its day-to-day operations and therefore, the role of IT

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companies has come into prominence. Therefore, these are the following expectations for each of

the companys which were considered in the analysis above.

Infosys LimitedThe Company has performed well in the first 2 quarters of this financial

year 2015-16 and is expected to continue the same for the second half of the financial year

2015-16. Infosys has posted strong numbers in the first half with profits of around Rs.

9,000 crores and therefore is expected to post better numbers in the next 2 quarters, despite

the Chennai floods which has impacted the revenue of TCS, its fierce competitors. The

companys revenue is expected to grow at the same rate as last year. The growth

expectancy for this year is expected to be in the range of 9% to 11%, while the average

industry growth rate is 5.6%.

Tata Consultancy Services Limited TCS has been badly impacted by the recent

Chennai floods and therefore the Q3 numbers of the company will be definitely impacted.

The company has had good first half of FY 2015-16, but the second half shall see some

downfall due to the natural calamity caused in the city of Chennai which is the base area

of operations for TCS. The company is expected to fall short of the profit margin that was

decided for the year which was expected to be more than Rs. 19,000 crores (the profit of

last FY 2014-15). The growth expectancy of TCS for this year is expected to be in the

range of 14% to 16%, while the average industry growth rate is 5.6%.

Wipro LimitedWipro has performed on similar grounds to that of the previous year andtherefore the performance of the company is not expected to rise the bar when compared

to that of last year. The company had generated a revenue of Rs. 41,000 crores with profit

of around Rs. 8,200 crores. The same is expected to be replicated in the current year too.

Hence, it is assumed that the prices of shares shall remain stable and the profitability of the

company also remains at the same existing levels as similar to that of previous year. The

growth rate for Wipro Limited is expected to be in the range of 9% to 10%, while the

average industry growth rate is 5.6%.


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Telecom Industry:

The telecom industry has great prominence now in the life of every Indian, as no one in

this world can now survive without telecommunication, and the most important medium in

enabling the telecommunications is mobile phones. Mobile phones have become an integral part

of our lives, and it is presumed in the current scenario that there is no life without mobile phones.

And with continuous usage of mobile phones, the business of telecom companies started gaining

importance. The increased usage of phones made the necessity of installing more towers and

making the telecommunications infrastructure stronger for gaining more satisfied customers. Let

us now look at the companies which are selected for the analysis with respect to the telecom

industry.

1.

Bharti Airtel LimitedBharti Airtel or just Airtel is the biggest telecom service provider

in the country, which is the major player along with competitors like Idea, Vodafone, and

Reliance etc. Airtel has the majority of customers under its umbrella, therefore giving it a

widespread coverage and dominance in the market. It has better connectivity when

compared to other government service providers like BSNL, MTNL etc. The fluctuation

in the prices of the companys stock prices are as follows

The prices of the shares during August 2007 and December 2007 had risen to the

then all-time high of around Rs. 1,000 per share but after that the prices had taken a

-

200.00

400.00

600.00

800.00

1,000.00

1,200.00

- - - - - - - - - - - - - - - - - - - - - - - - - - - -


Bharti Airtel Limited


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downhill and never returned back to those highs. The company suffered severely during

the recession that shook the world between the period of June 2009 and December 2009,

where the company lost most of the value of its shares. The company has successfully then

maintained the levels of prices which would act as a stop loss barrier.

The revenue of the company has been on a rising stance for around 5 years, though

the profitability of the company has witnessed ups and downs. The same can be seen in

the chart below. The companys revenue has increased significantly but the profits have

not increased accordingly. Therefore, the expectancy of high profits can be reasonably

assured with the increase in the revenues greater than the previous year growth. Revenue

had previously increased by around 20% while the profits had increased by almost 100%

(YoY).

2. Mahanagar Telecom Nigam Limited (MTNL)MTNL is a government undertaking

which had been the main service provider until the advent of private service providers had

occurred. Since then, the company, unlike its counterparts has been suffering losses. The

fluctuation in the share prices of the company is as follows

-

10,000.00

20,000.00

30,000.00

40,000.00

50,000.00

60,000.00

70,000.00

Revenue and Profits of Bharti Airtel Limited



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The prices have considerably fallen down due to lack of demand for the services

provided by MTNL. The decline in the prices can be correlated with the revenue earning

pattern of the company too. The following chart depicts the revenue earning of the

company along with its profit earnings -

The upward green bar in the year 2013-14 is due to major sale of assets, which

enabled the company to report a profit in the previous 5 years. The company again posted

a loss, this signals to the possible closure or liquidation of the company or sale of the

company to a private enterprise.

-

50.00

100.00

150.00

200.00

250.00

300.00

350.00


Mahanagar Telecom Network Limited

(10,000.00)

(5,000.00)

-

5,000.00

10,000.00

15,000.00

20,000.00

Revnue and Profits for MTNL



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3. Reliance Communications Limited Reliance Communications, at the time of its

inception had been a great package of benefits to its customers, which enabled the company

to grab various customers form different service providers. But the company failed to maintain

such lucrativeness for a longer duration. The company had lost the share valuation that it had

received within a span of 3 years and had fallen from the high of around Rs. 770 to Rs. 200

and still trades around the same low price. The following chart describe the same.

The company has also lost on capturing a huge chunk of the market share despite

having a great start. The company made profits for a duration of around 3 years, after which

it started reporting lower or negative profits, i.e; losses. RCom is struggling to make a markdespite having an advantage of low costs to customers when compared to those of its

competitors like Airtel, Vodafone, etc. The profitability of the company is shown as below -

-

100.00

200.00

300.00400.00

500.00

600.00

700.00

800.00

900.00

-

J

- - -

J

- - -

J

- - -

J

- - -

J

- - -

J

- - -

J

- - -

J

- - -

J

- - -

J

- -


Reliance Communications Limited

(5,000.00)

-

5,000.00

10,000.00

15,000.00

20,000.00

25,000.00

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15

Revenue and Profits of

Reliance Communications Limited



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Analysis of trends in the telecom sector and the future possible movement in

share prices and revenue/profit earnings

India is currently the worlds second-largest telecommunications market and has registered

strong growth in the past decade and half. The Indian mobile economy is growing rapidly and hascontribute substantially to Indias gross domestic product (GDP). The total mobile services

market revenue in India is expected to touch US$ 37 billion in 2017 and is growing at the

rate 8.4%. The data till the year 2009-10 can be graphically seen as below. The then growth rate

of the telecom industry was 6.7%.

The telecomsector has now become a sensation in the Indian economy. The sector which

was highly dominated by the government enterprises which made huge profits then are now on the

verge of liquidation. The key highlights of the analysis that has been done on the stocks that have

been selected here is as follows


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Bharti AirtelThe only profit making company (in propinquity and consecutiveness) in

the entire industry has had comparatively weaker growth when compared YoY. The

company had increased it revenue in the year 2014-15 at the rate of 20% and profits had

increased by 100% (YoY). But the same is not expected in the current year as the company

has shown weaker returns in the first half of FY 2015-16. It is expected that Bharti Airtel

shall report a lesser profit when compared to last year. Also the share prices are expected

to remain in the range of Rs. 340 Rs. 400 by year end. The base of the company seems

strong as it is growing at the rate of 18% to 20%, while the industry average growth

rate is 8.4%.

MTNLMTNL has been reporting huge losses for consecutive years and it is expected

that the government wont allow the losses of the company impact its exchequer and would

either liquidate the company or sell it to a private enterprise with a fair valuation. The stock

prices are expected to decline to their new 52-week lows and possible reporting of losses

for this financial year too. The company is going in the reverse direction of the industry

with a declining growth of -8% while the industry grows at 8.4%.

Reliance Communications Limited RCom has consistently failed to deliver to its best

which can be seen from its inconsistent profitability. The company has had a combination

of profit and loss reporting timelines. Therefore, RCom is expected to post huge loss for

the FY 2015-16 as the first two quarters have been bad in terms of profitability. Hence, itcan be concluded that the company would report loss for the current year which would be

easily seen in the reduced share prices of the company. The growth rate of Reliance

Communications, in terms of revenue is in the range of 15% to 18%, but the

profitability of the company is struggling to maintain a standard trend, while the

industry grows at the rate of 8.4%.


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Chapter 5 - Conclusion:

Capital market in the Indian Economy which is the main focus of our study acts like a brake

on channeling savings to low yielding enterprises which impels enterprises to focus on

performance. It very closely observes performance through the movements of share prices in

the market and the threats of the takeovers. This further enhances efficiency of resource

utilization and thereby significantly increases returns on investment. Thus, the capital market

converts a given stock of investible resources into a larger flow of goods and services and

augments economic growth. In fact, the literature is full of empirical studies that have

established a causal robust (statistically significant) two-way relation between the

developments in the securities markets i.e., Capital market and economic growth. The Capital

Markets play a significant role in any economy from allocation ofCapital and Risk to PolicyMaking. Our Study was narrowed down to three most significant sectors of the Indian

Economy. They are as follows:

Automobile sector

Telecom sector

Information Technology sector

Automobile sector:

The primary reason for choosing the automobile industry was because of the population of this

country which is the main factor that has triggered the growth of this sector. With the increase

in the population of India there arises the need for more vehicles to carry such a huge

population. It can be seen that the current reforms in the Indian economy are favourable for

the growth and development of the entire automobile industry.


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IT sector:

The IT industry is one lucrative industry that has most benefitted the most from the policy

reform of LPG, i.e; Liberalization, Privatization and Globalization. The IT sector has been the

most recent and the most fast developing sector in the Indian economy. The pace at which

technology evolves has stupendously traumatized the companies that do not develop and

evolve with changes in the technological space.

Telecom Industry:

The telecom industry has great prominence now in the life of every Indian, as no individual in

this world can now survive without telecommunication, and thereby becoming the most

important part of our lives and the most important medium in enabling the telecommunicationsis mobile phones. This sector which was highly dominated by the public sector has now come

to the verge of liquidation the reason being stated in the data analysis of this project.

These trends of the various sectors in our economy provide a further confirmation that the

1990s will ultimately be remembered not only as the era of emerging markets, but as the decade

in which global capitalism returned to its pre-1914 frontiers. This phenomena resulting from

the rebirth of liberal economic ideas in many developing countries, and India being one of

them has expanded role of securitized forms of financial intermediation everywhere and a

search for higher asset returns by investors in the mature industrial countries.

growth of indian industry

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