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TERM PAPER

FOUNDAMENTAL & TECHNICAL ANALYSIS

Securities Analysis & Portfolio Management

SUBMITTED TO:

Ms.Sukhwinder Kaur

SUBMITTED BY:-

Priya kapil

Reg.no-10902091

RT1901 A 14

MBA-III



FUNDAMENTAL ANALYSIS

Fundamental analysis attempts to find the actual value of a stock -- ie, its ability to generatefuture cash flows -- to make investment decisions. Fundamental analysis thus focuses on a

company's financial results. Specifically, fundamental analysis emphasizes forecasts of company's earnings and revenue growth rates, valuation ratios like price to earnings, andfinancial ratios like profit margins. Fundamental analysis also looks to conditions in the industrysector(s) in which the company operates and the broader economic outlook. Fundamentalanalysis stands in stark contrast to technical analysis, which ignores company fundamentals andlooks only at the movement of stock prices and market activity. Both fundamental analysis andtechnical analysis have their doctrinaire adherents who consider the opposing approach useless.Most market pros, however, recognize that both fundamental analysis and technical analysishave their role in forecasting stock prices.

Definition:-

Fundamental analysis of a business involves analyzing its financial statements and health,

its management and competitive advantages, and its competitors and markets.

If the price of a security at the market place is higher than the one, which is justified by thesecurity fundamentals, sell that security. This is because, it is expected that the market willsooner or later realize its mistake and price the security properly. A deal to sell this security

should be based on its fundamentals; it should be both before the market correct its mistake byincreasing the price of security in question. The price prevailing in market is called "market price' (MP) and the one justified byits fundamentals is called 'intrinsic value' (IV) session rules/recommendations.1. If IV > MP, buy the security2. If IV < MP, sell the security3. If IV = MP, no actionThe fundamental factors mentioned above may relate to the economy or industry or company or all some of this. Thus, economy fundamentals, industry fundamentals and companyfundamentals are considered while prizing the securitiesfor taking investment decision. In fact, the economy-industry-company framework forms integral

part of this approach. This framework can be properly utilized by making suitable adjustments ina regular context.



ECONOMIC ANALYSIS

Economic analysis involves impact of macroeconomic factors on the performance of the

company. It is important to do economic analysis so that one can know whether economy is

capable of encouraging growth of a sector or not. Following are the important economic

indicators by which one can understand that Indian economy is growing but not at very high rate.

ECONOMICINDICATORS 2005 2006 2007 2008 2009 2010

GDP 9.5 8.4 9.0 8.5 7.2 8.6

INFLATION RATE 4.4 5.4 6.5 8.3 3.6 8.3

CRR (%) 5 6 9 5 6

PLR (%) 11-11.5

12.5-12.5

13.25-14 11-12



Fiscal Balance -6.5 -5.4 -4.0 -8.5 -9.7 -4.7

Export Growth 23.4 22.6 28.9 13.7 -15.0 -13.2

Import Growth 32.1 21.4 35.1 19.4 -17.0 -34.3

Current Account

Balance(% OF GDP)

-1.2 -1.0 -1.3 -2.5 -1.9 -13

External Debt(% OFGNI)

16.7 15.3 14.7 18.5 17.2

Unemployment(%) 8.90 7.80 7.20 6.8 6.8

Interest Rates 5% 5% 6% 6% 4.5% 3.25%

Foreign Exchange Rate(as on 1

stJan each year)

44.2337INR

39.4175INR

48.7525INR

46.62INR

Analysis:

In 2006, G.D.P was 8.4% and it has increased in 2007. That¶s why R.B.I has also increased

C.R.R by 9% in 2008. C.R.R is lagging indicator which is used after economy has changed.

Similarly, when G.D.P has come down to 7.2% in 2009, C.R.R has been reduced to 6% in 2010.

Reduction in cash reserve ratio in 2010 shows that it is a lagging indicator as it has been used

only after economy has taken change. Similarly prime lending rates are lagging indicators. In the

data given above, it is clear that changes in PLR also have been brought only after changes in

economic growth. While with the growth of economy unemployment has also been reduced.

Such kinds of indicators are called co-incidental indicators. Co-incidental indicators are those

which tend to move in the same direction in which economy moves.



At constant (2004-05) prices the gross national income at factor cost in 2008-09

is estimated at Rs 41,38,174 Crores as against Rs. 38,76,386 Crores in 2007-08 showing

a rise of 6.8 per cent during the year. At current prices, the gross national income in2008-09 is estimated at Rs. 52,07,534 Crores as compared to Rs 45,21,099 Crores in

2007-08, showing a rise of 15.2 per cent during the year.

The per capita income (per capita net national income at factor cost) in real terms,

i.e. at 2004-05 prices, is estimated at Rs. 31,821 for 2008-09 as against Rs. 30,316 in

2007-08, registering an increase of 5.0 per cent during the year. The per capita income at

current prices is estimated at Rs. 40,141 in 2008-09 as against Rs. 35,430 for the previous

year depicting a growth of 13.3 percent.

The number of registered foreign institutional investors (FIIs) was 1710 as on

May 31, 2010and the total FII inflow in equity during January to May 2010 was US$

4606.50 million while it was US$ 5931.80 million in debt. Net investment made by FIIs

in equity between June 1, 2010 and June 14, 2010 was US$ 530.05 million while it was

US$ 875.73 million in debt.

According to the latest statistics from the Association of Mutual Funds in India

(AMFI), the assets under management (AUM) of mutual funds were worth US$ 170.46

billion in May 2010 as compared to US$ 135.58 billion in May 2009.



As per NASSCOM¶s Strategic Review 2010, the BPO sector continues to be the

fastest growing segment of the industry and is expected to reach US$ 12.4 billion in

2009-10, growing at 6 percent.

GROWTH POTENTIAL STORY

The data centre services market in the country is forecast to grow at a compound annual

growth rate (CAGR) of 22.7 per cent between 2009 and 2011, to touch close to US$ 2.2

billion by the end of 2011, according to research firm IDC India¶s report published in

March 2010. The report further stated that the overall India data centre services market in

2009 was estimated at US$ 1.39 billion.

According to a report by research and advisory firm Gartner published in March 2010,

the domestic BPO market is expected to grow at 25 per cent in 2010 to touch US$ 1.2

billion by 2011. Further, the BPO market in India is estimated to grow 19 per centthrough 2013 and grow to US$ 1.8 billion by 2013. According to the report, the domestic

India BPO services market grew by 7.3 per cent year-on-year in 2009

The BMI India Retail Report Quarter 3, 2010 released in May 2010, forecasts that total

retail sales will grow from US$ 353.0 billion in 2010 to US$ 543.2 billion by 2014.

According to a report titled 'India 2020: Seeing, Beyond', published by domestic broking

major, Edelweiss Capital in March 2010, stated that India's GDP is set to quadruple over

the next ten years and the country is likely to become an over US$ 4 trillion economy by

2020.

India will overtake China to become the world's fastest growing economy by 2018,

according to the Economist Intelligence Unit (EIU), the research arm of London-based

Economist magazine.

Industry Analysis

Communication Industry in India is one of the rapidly emerging sectors in India and is estimated

to surface as the second biggest international telecom market. As per the report carried out by

Telecom Regulatory Authority of India (TRAI), Indian communication industry has registered a

3.5% increase in its total telecom subscribers in December 2009. The sector touched 562.21



million in its total number of subscribers within a month, against 543.20 million in November

2009.

The growth in communication industry was triggered by an increase in the revenues generatedfrom both landline and mobile facilities. On December 31, 2009 the sector earned the revenue of

USD 8.56 billion. As per the Business Monitor International report, the nation is all set toinclude 8 to 10 million cellular phone subscribers on monthly basis. At this pace thecommunication industry is expected to encompass more than half of India's population i.e. 612millioncellular phone subscribers by mid 2012.

In addition, as per a research carried out by Nokia, the communications sector is estimated tosurface as the biggest driving component in India's GDP with a contribution of about 15.4% bythe FY2014.

India as an emerging value added service marketAs per a research conducted by Stanford University, Indian mobile value-added services(MVAS) are expected to reach USD 2.74 bn by the FY2010. To benefit from the emergingMVAS market in India, Reliance Communications and Bharti Airtel Limited are all set tointroduce online cellular phone applications in Indian retail stores. While Bharti Airtel will offer around 1,250 applications, Reliance Communications' applications will soon be accessible to itsGSM customers by feb 2010.

India as an emerging Telecom equipment manufacturing market

The manufacturing of Cellular phone in India is predicted to expand at an annual rate of 28.3%till the FY 2011 which can be translated as a production of 107 million mobile handsets by 2010.The production would automatically generate profits and is predicted to increase at an annualrate of 26.6% till 2011, reaching the target of USD13.7 billion

Chief investments in the communication industry in India.

Over the past one decade, the flourishing Indian Communication industry has been successful indrawing the attention of conglomerates that have invested and are willing to invest more in thesector. With the influx of new telecom giants in Indian market, the investments are likely to gain

immense momentum:

y Investment of USD 6 bn by Vodafone Essar for the next 3 fiscal years in order to expandits list of cellular phone subscribers to 100 million against the existing 40 million.

y By 2010, Reliance Communications (RCom) is expecting to increase the total number of telecom towers by constructing 56,596 telecom towers and attaining the preset target of 100,000.



y Telenor, Norway based telecom giant has purchased 7% of shares in Unitech Wireless andnow possesses 67.25% by bringing in an investment of USD 431.70 million

y Indian government owned telecom player, BSNL will invest USD1.17 billion in itsWiMax scheme

y A proposal of foreign direct investment worth USD 660.1 million by Federal Agency for

State Property Management of the Russian Federation has been recently approved by theIndian government. The Agency would be acquiring 20% stake in Sistema-Shyam after bringing in the investment.

A USD 1 billion investment will be brought in by Tata Teleservices in its newly introduced

GSM facility by TATA DOCOMO.

Future of communication industry in India.

Indian Communication Industry has a flourishing future in its value-added services market. The

pre-set target of the 11th plan from FY 2007 - 12 is to provide 600 million cellular phone

connectivity aided by an investment of USD 74 billion.

Moreover, it is estimated that by the FY 2012 the profits generated by Indian Communication

Industry will touch USD 55 billion against the current USD 31 billion.

After conducting an analysis of the economy and identifying the direction it is likely to take inthe short, interim andlong-term, the analyst must look into various sectors of the economy in terms of variousindustries. An industry is a homogenous group of companies. That is, companies with similar

characteristic can be divided into one industrial group.

Key Players In Indian Telecom Industry

The telecom industry of India has registered manifold growth in the recent years. Personalizedtelecom access is essential necessity of life for increasing number of the people. The sector offersunlimited prospects when we consider future growth. Both Public Players and Private Players areenhancing their technologies and taking the telecom industry to a much higher growth state. Notonly service providers but also handset manufacturers are contributing significantly to theindustry and economy of India.

1) Reliance Communications Limited2) Bharti Airtel Limited3) BSNL4) MTNL5) Hutchison Essar 6) Ericsson7) Nokia8) Siemens Communications



9) Idea Cellular Limited10) Tata Teleservices

CompetitionLast Price Market Cap.

(Rs. cr.) Sales

Turnover

Net Profit Total Assets

Bharti Airtel 343.95 130,616.05 35,609.54 9,426.16 41,776.11

Reliance Comm 163.15 33,674.60 12,290.61 478.93 74,977.17

Idea Cellular 71.65 23,648.84 11,895.77 1,053.66 17,983.66

Tata Comm 340.85 9,714.23 3,218.04 483.18 9,919.69

TataTeleservice 23.20 4,401.50 2,249.10 -298.01 2,943.10

MTNL 63.70 4,013.10 3,770.41 -2,514.87 12,059.38

Spice Comm 56.95 3,929.12 1,585.34 -1,015.22 1,875.94

Tulip Telecom 175.10 2,538.95 1,608.28 249.58 2,116.15

Nu Tek India 32.40 111.84 185.98 15.87

Goldstone Infra 25.70 92.73 65.61 6.73 110.56

Analysis:-y Sales turnover of bharati Airtel is more than any other tele companies.Reliance

communication is second in sales where as Idea lies 3rd

in position

y Bharati Airtel is earning more net profit than any other.Idea lies 2nd in thisrank.MTNL,Spice communication & TATA Teleservice are occurring heavy loss.

y Total Assets of Reliance is more than others.Bharati lies 2nd &Idea lies 3rd.

Telecommunications Industry in India ± Porter¶s Five Forces Strategy

Analysis.

India continues to be one of the fastest growing telecom markets in the world. Reforms

introduced by successive Indian governments over the last decade have dramatically changed the

nature of telecommunications in the country. The sector ranks fifth in the world, with over 103.2

million telephone subscriptions by 2005-end.



It uses concepts developed in Industrial Organization (IO) economics to derive five forces that

determine the competitive intensity and therefore attractiveness of a market. Porter referred to

these forces as the microenvironment, to contrast it with the more general term macro-

environment. They consist of those forces close to a company that affect its ability to serve its

customers and make a profit. A change in any of the forces normally requires a company to re-

assess the marketplace

y Rivalry among Competing Firms

Rivalry among competitors is very fierce in telecom Industry. The services of Airtel offer is

more of homogeneous which makes the company to offer the same service at a lower rate and eat

their competitor market¶s share. Market Players use all sorts of aggressive selling strategies and

activities from intensive advertisement campaigns to promotional stuff. Even consumer switch

from one company to another, if there is a wide spread in the interest. Hence the intensity of

rivalry is very high.

y Potential Entry of New Competitors

Telecom Industry of India has laid out a stagnant rules and regulation for new entrant in Telecom

Industry. We expect merger and acquisition in the Telecom industry in near future. Hence, the

industry is less porn of new competitor.New competitors like virgin mobile,Samsung,Vodafone

are producing high competition to Airtel.

y Potential Development of Substitute Products

Every day there is one or the other new product in financial sector. Telecom Industry is not

limited to tradition Telecom which just offers talking.nowadays there are many companies

offering different facilities in telecommunication like 3G service.



y Bargaining Power of SuppliersEven now a days suppliers are also bargaining because of many entrants in the

telecommunication sector.

y Bargaining Power of Consumers

Now a days consumer are very price sensitive.they switch to any network where there is low

pricing

Life cycle position

The Telecom Industry in India is in its growth stage. Telecom is one area in India where significant improvementshave happened. Now the private operators also are providing services which is giving rise to more choice.

The Telecom sector in India is experiencing a stage of Mature Growth. The growth in sales is still above normal.

Due to rapid growth of sales and profit margins, new players are getting attracted to the Industry giving rise to more

and more competitors.This is leading to an increase in the level of supply and lower prices. Profit Margins will start

declining over time.

The new players in the industry are:

Datacomm

S Tel Ltd

Unitech Wireless Ltd

ByCell Telecommunications

Swan Telecom Pvt. Ltd

Alcatel Lucent

ATC Tower Company of India Pvt. Ltd.

Aster infrastructure Pvt. Limited

Nokia Siemens Networks

Telecom segments in India

India telecom market is mainly divided into two major segments namely, the Fixed Service

Provider (FSPs) and the cellular services. Fixed Service Provider network comprises land lines,

basic services, domestic and long distance call service. The two major basic operators BSNL and

MTNL comprise almost 90 % of the FSPs in the country. Around 5 % are operated by private

firms and are mostly scattered in the urban areas. In most cases, the private basic service

telephone operators cater to offices, business firms, schools and the corporate sector.



In case of the cellular services, there are mainly two sub divisions: Code Division Multiple

Access (CDMA) and Global System for Mobile Communications (GSM). In the GSM sector, the

major players are Vodafone, Airtel, Idea Cellular, and Aircel and so on. The national company

BSNL also has its GSM service named "Cellone" which has a major share in the semi urban and

rural areas. The major companies which dominate the CDMA scenario are Reliance

Communications and Tata Indicom. In both the sectors of cellular services, perfect competition

exists according to the demand supply chains.

Recent trends in the Indian telecom market

The Indian economy is greatly benefited by the growth of the telecom industry in the country.

With the growth in the demand and customer base, more and more multinational companies are

entering the telecom market. The India telecom market is expected to grow by Rs 344,921 crore by the year 2012. The rate of growth will be around 26 % and the sector will also generate

employment to around 10 million people.

The number of telephone subscribers is expected to grow by around 650 million by 2012 from

the current number of 250 million.

Company analysis

Introduction to Bharati tele- venture

Bharti Tele-Ventures is one of the leading private sector telecommunication services provider of the country. The company has a subscriber base of 8.7mn at the ends of July 2004, of which about 8mn were mobile subscribers and 0.7mn were fixedlinesubscriber. The company is largest GSM Mobile service provider in the country withthe market share of 26%. The company also provides fixedline, long distance, groupdata and enterprise services. The company¶s fixedline subscribers have grown atCAGR of 118% and mobile subscribers at 121% from Mar 1999 to May 2004. Thetotal subscribers have grown at a CAGR of 121% during same period. Its mobile

telephony services are operated under ³Airtel´ brand.

Airtel comes to you from Bharti Airtel Limited, one of Asia¶s leading integrated telecomservices providers with operations in 19 countries across Asia and Africa. Bharti Airtel since its



inception, has been at the forefront of technology and has pioneered several innovations in thetelecom sector.

The company is structured into four strategic business units - Mobile, Telemedia, Enterprise andDigital TV. The mobile business offers services in India, Sri Lanka and Bangladesh. The

Telemedia business provides broadband, IPTV and telephone services in 89 Indian cities. TheDigital TV business provides Direct-to-Home TV services across India. The Enterprise business provides end-to-end telecom solutions to corporate customers and national and international longdistance services to telcos.

B ALANCE SHEET- B HARATI AIRTEL

------------------- in Rs. Cr. -------------------

Mar '05 Mar '06 Mar '07 Mar '08 Mar '09

12 mths 12 mths 12 mths 12 mths 12 mths

Sources Of Funds

Total Share Capital 19.89 19.89 19.89 21.77 21.77

Equity Share Capital 19.89 19.89 19.89 21.77 21.77

Share Application Money 0.00 0.00 0.00 0.00 0.00

Preference Share Capital 0.00 0.00 0.00 0.00 0.00Reserves 720.11 716.88 715.96 1,067.57 1,067.51

Revaluation Reserves 0.00 0.00 0.00 0.00 0.00

Networth 740.00 736.77 735.85 1,089.34 1,089.28

Secured Loans 0.00 0.00 0.00 0.00 0.00

Unsecured Loans 353.57 353.57 353.57 0.00 0.00

Total Debt 353.57 353.57 353.57 0.00 0.00

Total Liabilities 1,093.57 1,090.34 1,089.42 1,089.34 1,089.28


12 mths 12 mths 12 mths 12 mths 12 mths

Application Of FundsGross Block 0.04 0.04 0.04 0.04 0.04

Less: Accum. Depreciation 0.02 0.02 0.03 0.03 0.03

Net Block 0.02 0.02 0.01 0.01 0.01

Capital Work in Progress 0.00 0.00 0.00 0.00 0.00

Investments 1,091.41 1,091.77 1,091.72 1,091.68 1,091.64

Inventories 0.00 0.00 0.00 0.00 0.00

Sundry Debtors 0.00 0.00 0.00 0.00 0.00



Cash and Bank Balance 0.55 0.07 0.03 0.02 0.01

Total Current Assets 0.55 0.07 0.03 0.02 0.01

Loans and Advances 1.67 0.01 0.00 0.00 0.00

Fixed Deposits 0.00 0.00 0.00 0.00 0.00

Total CA, Loans & Advances 2.22 0.08 0.03 0.02 0.01

Deffered Credit 0.00 0.00 0.00 0.00 0.00

Current Liabilities 0.08 0.06 0.95 0.97 0.97

Provisions 0.01 1.45 1.39 1.39 1.39

Total CL & Provisions 0.09 1.51 2.34 2.36 2.36

Net Current Assets 2.13 -1.43 -2.31 -2.34 -2.35

Miscellaneous Expenses 0.00 0.00 0.00 0.00 0.00

Total Assets 1,093.56 1,090.36 1,089.42 1,089.35 1,089.30

Contingent Liabilities 0.00 1.21 0.16 0.00 0.00

Book Value (Rs) 372.13 370.51 370.05 500.39 500.36

Analysis:-

y There is not too much increase in the share capital.It is same in year05,06,07 i.e19.89 cr

& in year 08 & 09it increased upto 21.77.

y Net worth has been increased upto 1089.28 in year 09 from740 in year05.

y Total debt is nil in year 08 & 09.

y There is not too much variation in the total liabilities.It is about 1090 in all year.

y There is not too much variation in the total Assets.It is about 1090 in all year.

Profit & Loss account of Bharti Telecom ------------------- in Rs. Cr. -------------------

Mar'05

Mar '06 Mar '07 Mar '08 Mar '09

12mths

12 mths 12 mths 12 mths 12 mths

Income

Sales Turnover 0.00 0.00 0.00 0.00 0.00

Excise Duty 0.00 0.00 0.00 0.00 0.00

Net Sales 0.00 0.00 0.00 0.00 0.00

Other Income 0.20 0.00 0.00 0.01 0.01

Stock Adjustments 0.00 0.00 0.00 0.00 0.00

Total Income 0.20 0.00 0.00 0.01 0.01

Expenditure

Raw Materials 0.00 0.00 0.00 0.00 0.00



Power & Fuel Cost 0.00 0.00 0.00 0.00 0.00

Employee Cost 0.04 0.04 0.01 0.00 0.00

Other Manufacturing Expenses 0.00 0.00 0.00 0.00 0.00

Selling and Admin Expenses 0.10 0.00 0.00 0.00 0.00

Miscellaneous Expenses -0.01 0.07 0.05 0.08 0.08

Preoperative Exp Capitalised 0.00 0.00 0.00 0.00 0.00

Total Expenses 0.13 0.11 0.06 0.08 0.08 B

Mar

'05Mar '06 Mar '07 Mar '08 Mar '09

12mths

12 mths 12 mths 12 mths 12 mths

Operating Profit -0.13 -0.11 -0.06 -0.08 -0.08

PBDIT 0.07 -0.11 -0.06 -0.07 -0.07

Interest 0.00 0.00 0.00 0.00 0.00

PBDT 0.07 -0.11 -0.06 -0.07 -0.07

Depreciation 0.06 0.00 0.00 0.00 0.00

Other Written Off 0.00 0.00 0.00 0.00 0.00Profit Before Tax 0.01 -0.11 -0.06 -0.07 -0.07

Extra-ordinary items 0.06 -3.11 -0.86 0.00 0.01

PBT (Post Extra-ord Items) 0.07 -3.22 -0.92 -0.07 -0.06

Tax -0.12 0.00 0.00 0.00 0.00

Reported Net Profit 0.18 -3.23 -0.92 -0.07 -0.06

Total Value Addition 0.13 0.11 0.06 0.08 0.08

Preference Dividend 0.00 0.00 0.00 0.00 0.00

Equity Dividend 0.00 0.00 0.00 0.00 0.00

Corporate Dividend Tax 0.00 0.00 0.00 0.00 0.00

Per share data (annualised)

Shares in issue (lakhs) 198.85 198.85 198.85 217.70 217.70

Earning Per Share (Rs) 0.09 -1.62 -0.46 -0.03 -0.03

Equity Dividend (%) 0.00 0.00 0.00 0.00 0.00

Book Value (Rs) 372.13 370.51 370.05 500.39 500.36

FINANCIAL RATIOS.



Mar06 Mar07 Mar08 Mar09

Investment Valuation Ratios

Face Value 10.00 10.00 10.00 10.00 5.00

Dividend Per Share -- -- -- 2.00 1.00

Operating Profit Per Share (Rs) 21.32 38.28 56.16 69.50 36.48 Net Operating Profit Per Share (Rs) 59.45 94.16 135.73 179.37 93.77

Free Reserves Per Share (Rs) 28.11 49.88 83.18 121.78 --

Bonus in Equity Capital 82.70 82.61 82.53 82.51 82.49

Profitability Ratios

Operating Profit Margin(%) 35.86 40.65 41.37 38.74 38.89

Profit Before Interest And Tax Margin(%) 23.05 27.31 28.78 29.12 27.90

Gross Profit Margin(%) 23.14 27.47 29.08 29.33 27.97

Cash Profit Margin(%) 31.57 36.26 38.03 36.96 37.88

Adjusted Cash Margin(%) 31.57 36.26 38.03 36.96 37.88

Net Profit Margin(%) 17.80 22.46 23.99 22.58 26.40

Adjusted Net Profit Margin(%) 17.80 22.46 23.99 22.58 26.40

Return On Capital Employed(%) 20.74 29.06 27.95 28.40 23.56

Return On Net Worth(%) 27.47 35.35 30.94 28.13 25.78

Adjusted Return on Net Worth(%) 27.42 35.23 32.04 33.74 25.78

Return on Assets Excluding Revaluations 10.36 14.51 106.34 145.01 96.25

Return on Assets Including Revaluations 10.36 14.51 106.35 145.02 96.25

Return on Long Term Funds(%) 21.28 29.83 28.52 29.01 23.66

Liquidity And Solvency Ratios

Current Ratio 0.44 0.47 0.57 0.69 0.72

Quick Ratio 0.45 0.47 0.55 0.65 0.72

Debt Equity Ratio 0.65 0.47 0.33 0.28 0.14

Long Term Debt Equity Ratio 0.61 0.43 0.30 0.26 0.14

Debt Coverage RatiosInterest Cover 12.76 23.45 34.38 46.28 -11.50

Total Debt to Owners Fund 0.65 0.47 0.33 0.28 0.14

Financial Charges Coverage Ratio 17.22 26.09 27.77 30.93 --

Financial Charges Coverage Ratio Post Tax 16.08 24.13 25.60 26.63 --

Management Efficiency Ratios

Inventory Turnover Ratio 634.52 373.35 453.06 547.83 1,307.05

Debtors Turnover Ratio 12.57 14.31 12.28 12.78 15.30

Investments Turnover Ratio 634.52 373.35 453.06 547.83 1,307.05

Fixed Assets Turnover Ratio 0.72 0.75 1.03 1.00 0.81

Total Assets Turnover Ratio 1.15 1.27 1.09 1.06 0.85

Asset Turnover Ratio 0.72 0.75 1.03 1.00 0.81

Average Raw Material Holding -- -- -- -- --



Average Finished Goods Held 0.74 1.36 1.18 0.98 --

Number of Days In Working Capital -125.78 -113.65 -82.77 -42.30 -36.57

Profit & Loss Account Ratios

Material Cost Composition 0.47 0.29 0.16 0.05 0.78

Imported Composition of Raw MaterialsConsumed

-- -- -- -- --

Selling Distribution Cost Composition 7.14 6.30 7.15 6.49 6.75

Expenses as Composition of Total Sales 11.33 8.82 6.00 5.31 5.03

Cash Flow Indicator Ratios

Dividend Payout Ratio Net Profit -- -- -- 5.73 4.71

Dividend Payout Ratio Cash Profit -- -- -- 3.99 3.28

Earning Retention Ratio 100.00 100.00 100.00 95.22 95.29

Cash Earning Retention Ratio 100.00 100.00 100.00 96.50 96.72

AdjustedCash Flow Times 1.34 0.82 0.66 0.61 0.37


Earnings Per Share 10.62 21.27 32.90 40.79 24.82Book Value 38.71 60.19 106.34 145.01 96.25

ANALYSIS-

Liquity Ratio 2009 2010

Current ratio 0.69 0.72

Quick ratio 0.65 0.72

Investor look at liquidity ratios to determine the ability of a business to pay off its short term

obligations from cash or near cash assets to evaluate the risk associated if were to invest in this

company. Failure to pay off short term obligation may resulted in financial difficulty or

bankruptcy in near future.

Current ratio has been increased slightly in year 2010 only by .03.This shows that this

organisation has not too much current assets to pay for its current obligation.

Quick ratio in year 2010 has also been slightly increased & its value is 0.72.this shows that there is

no stock and prepaid expenses.there is no enough quick assets to pay for its current obligation.

Profitability ratio 2009 2010

Operating profitmargin

38.74 38.89



Gross profit margin 29.33 27.97

Return on capitalemployed

28.40 23.56

Return on net worth 28.13 25.78

Operating profit margin

The operating profit margin ratio indicates how much profit a company makes after paying

for variable costs of production such as wages, raw materials, etc. It is expressed as a percentage

of sales and shows the efficiency of a company controlling the costs and expenses associated

with business operations. Phrased more simply, it is the return achieved from standard operations

and does not include unique or one time transactions. Terms used to describe operating profit

margin ratios this include operating margin, operating income margin, operating profit margin or

return on sales (ROS).

there is not too much change in it.it is slightly increased by .15 in year 2010.

Gross profit margin

The gross profit ratio indicates how much of each sales dollar is available to meet expenses and

profits after merely paying for the goods that were sold. This interactive tutorial explains thegross profit ratio by walking you through the steps, including where Sales and Cost of Goods

Sold are on the Income statement.

Gross profit margin has been decreased in year 2010 upto 25.78.

Return on capital employed

ROCE compares earnings with capital invested in the company. It is similar to Return on

Assets (ROA), but takes into account sources of financing.

ROCE should always be higher than the rate at which the company borrows, otherwise any

increase in borrowing will reduce shareholders' earnings.

Its value has been decreased from 28.40 in year 2009 to 23.56 in year 2010.



Return on net worth

Ratio of net income after taxes to total end of the year net worth . This ratio indicates the return

on stockholder's total equity.

Its value also has been decreased from 28.13 in year 2009 to 25.78 in year 2010.

SWOT Analysis Bharti Airtel

Strengths

y Bharti Airtel has more than 65 million customers (July 2008). It is the largest cellular provider in India, and also supplies

broadband and telephone services - as well as many other telecommunications services to both domestic and corporate customers.

y Other stakeholders in Bharti Airtel include Sony-Ericsson, Nokia - and Sing Tel, with whom they hold a strategic alliance. This

means that the business has access to knowledge and technology from other parts of the telecommunications world.y The company has covered the entire Indian nation with its network. This has underpinned its large and rising customer base.

Weaknesses

y An often cited original weakness is that when the business was started by Sunil Bharti Mittal over 15 years ago, the business has

little knowledge and experience of how a cellular telephone system actually worked. So the start-up business had to outsource to

industry experts in the field.

y Until recently Airtel did not own its own towers, which was a particular strength of some of its competitors such as Hutchison

Essar. Towers are important if your company wishes to provide wide coverage nationally.

y The fact that the Airtel has not pulled off a deal with South Africa's MTN could signal the lack of any real emerging market

investment opportunity for the business once the Indian market has become mature.

Opportunities

y The company possesses a customized version of the Google search engine which will enhance broadband services to customers.

The tie-up with Google can only enhance the Airtel brand, and also provides advertising opportunities in Indian for Google.

y Global telecommunications and new technology brands see Airtel as a key strategic player in the Indian market. The new iPhone

will be launched in India via an Airtel distributorship. Another strategic partnership is held with BlackBerry Wireless Solutions.

y Despite being forced to outsource much of its technical operations in the early days, this allowed Airtel to work from its own

blank sheet of paper, and to question industry approaches and practices - for example replacing the Revenue-Per-Customer model

with a Revenue-Per-Minute model which is better suited to India, as the company moved into small and remote villages and

towns.

y The company is investing in its operation in 120,000 to 160,000 small villages every year. It sees that less well-off consumers

may only be able to afford a few tens of Rupees per call, and also so that the business benefits are scalable - using its 'Matchbox'

strategy.

y Bharti Airtel is embarking on another joint venture with Vodafone Essar and Idea Cellular to create a new independent tower

company called Indus Towers. This new business will control more than 60% of India's network towers. IPTV is another

potential new service that could underpin the company's long-term strategy.



Threats

y Airtel and Vodafone seem to be having an on/off relationship. Vodafone which owned a 5.6% stake in the Airtel business sold it

back to Airtel, and instead invested in its rival Hutchison Essar. Knowledge and technology previously available to Airtel now

moves into the hands of one of its competitors.

y The quickly changing pace of the global telecommunications industry could tempt Airtel to go along the acquisition trail which

may make it vulnerable if the world goes into recession. Perhaps this was an impact upon the decision not to proceed with talks

about the potential purchase of South Africa's MTN in May 2008. This opened the door for talks between Reliance

Communication's Anil Ambani and MTN, allowing a competing Inidan industrialist to invest in the new emerging African

telecommunications market.

y Bharti Airtel could also be the target for the takeover vision of other global telecommunications players that wish to move into

the Indian market.

Intrinsic value

The actual value of a company or an asset based on an underlying perception of its true value

including all aspects of the business, in terms of both tangible and intangible factors. This value

may or may not be the same as the current market value. Value investors use a variety of

analytical techniques in order to estimate the intrinsic value of securities in hopes of finding

investments where the true value of the investment exceeds its current market value.

For call options, this is the difference between the underlying stock's price and the strike price.

For put options, it is the difference between the strike price and the underlying stock's price. Inthe case of both puts and calls, if the respective difference value is negative, the instrinsic value

is given as zero.

For example, value investors that follow fundamental analysis look at both qualitative (business

model, governance, target market factors etc.) and quantitative (ratios, financial statement

analysis, etc.) aspects of a business to see if the business is currently out of favor with the market

and is really worth much more than its current valuation.



Conclusio

Bharati Airtel which is one of the market leader in the Indian Telecommunication industry is

now a days facing tough cvompetition.Though its financial ratios showa that its profitability has

been decreased from past but the growth of this firm has not been stoped.it is one the largest

cellular service provider in india and also largest no. of customers i.e 66 million. The companyhas covered the entire Indian nation with its network. This has underpinned its large and rising

customer base. Bharti Airtel is embarking on another joint venture with Vodafone Essar and Idea

Cellular to create a new independent tower company called Indus Towers. This new business

will control more than 60% of India's network towers. IPTV is another potential new service that

could underpin the company's long-term strategyThe company is investing in its operation in

120,000 to 160,000 small villages every year. It sees that less well-off consumers may only be

able to afford a few tens of Rupees per call, and also so that the business benefits are scalable -

using its 'Matchbox' strategy

Technical Analysis

Introduction:

Technical analysis is a method of evaluating securities by analyzing the statistics generated by

market activity, such as past prices and volume. Technical analysts do not attempt to measure a

security's intrinsic value, but instead use charts and other tools to identify patterns that can

suggest future activity.

Just as there are many investment styles on the fundamental side, there are also many different

types of technical traders. Some rely on chart patterns, others use technical indicators andoscillators, and most use some combination of the two. In any case, technical analysts' exclusiveuse of historical price and volume data is what separates them from their fundamentalcounterparts. Unlike fundamental analysts, technical analysts don't care whether a stock isundervalued - the only thing that matters is a security's past trading data and what informationthis data can provide about where the security might move in the future.

The field of technical analysis is based on three assumptions:

1. The market discounts everything.2. Price moves in trends.

3. History tends to repeat itself.

1. The Market Discounts EverythingA major criticism of technical analysis is that it only considers price movement, ignoring thefundamental factors of the company. However, technical analysis assumes that, at any giventime, a stock's price reflects everything that has or could affect the company - includingfundamental factors. Technical analysts believe that the company's fundamentals, along with broader economic factors and market psychology, are all priced into the stock, removing the



need to actually consider these factors separately. This only leaves the analysis of pricemovement, which technical theory views as a product of the supply and demand for a particular stock in the market.

2. Price Moves in Trends

In technical analysis, price movements are believed to follow trends. This means that after atrend has been established, the future price movement is more likely to be in the same directionas the trend than to be against it. Most technical trading strategies are based on this assumption.

3. History Tends To Repeat Itself

Another important idea in technical analysis is that history tends to repeat itself, mainly in termsof price movement. The repetitive nature of price movements is attributed to market psychology;in other words, market participants tend to provide a consistent reaction to similar market stimuliover time. Technical analysis uses chart patterns to analyze market movements and understandtrends. Although many of these charts have been used for more than 100 years, they are still believed to be relevant because they illustrate patterns in price movements that often repeat

themselves.

Technical Analysis tools:

Moving Averages

Most chart patterns show a lot of variation in price movement. This can make it difficult for traders to get

an idea of a security's overall trend. One simple method traders use to combat this is to apply moving

averages. A moving average is the average price of a security over a set amount of time. By plotting a

security's average price, the price movement is smoothed out. Once the day-to-day fluctuations are

removed, traders are better able to identify the true trend and increase the probability that it will work in

their favor.

Types of Moving Averages

There are a number of different types of moving averages that vary in the way they arecalculated, but how each average is interpreted remains the same. The calculations only differ inregards to the weighting that they place on the price data, shifting from equal weighting of each price point to more weight being placed on recent data. The three most common types of movingaverages are simple, linear and exponential.

Simple Moving Average (SMA)This is the most common method used to calculate the moving average of prices. It simply takesthe sum of all of the past closing prices over the time period and divides the result by the number of prices used in the calculation. For example, in a 10-day moving average, the last 10 closing prices are added together and then divided by 10. As you can see in Figure 1, a trader is able tomake the average less responsive to changing prices by increasing the number of periods used inthe calculation. Increasing the number of time periods in the calculation is one of the best ways



to gauge the strength of the long-term trend and the likelihood that it will reverse.

Figure 1

Many individuals argue that the usefulness of this type of average is limited because each pointin the data series has the same impact on the result regardless of where it occurs in the sequence.The critics argue that the most recent data is more important and, therefore, it should also have ahigher weighting. This type of criticism has been one of the main factors leading to the inventionof other forms of moving averages.

Linear Weighted AverageThis moving average indicator is the least common out of the three and is used to address the problem of the equal weighting. The linear weighted moving average is calculated by taking thesum of all the closing prices over a certain time period and multiplying them by the position of

the data point and then dividing by the sum of the number of periods. For example, in a five-daylinear weighted average, today's closing price is multiplied by five, yesterday's by four and so onuntil the first day in the period range is reached. These numbers are then added together anddivided by the sum of the multipliers.

Exponential Moving Average (EMA)

This moving average calculation uses a smoothing factor to place a higher weight on recent data points and is regarded as much more efficient than the linear weighted average. Having anunderstanding of the calculation is not generally required for most traders because most charting packages do the calculation for you. The most important thing to remember about theexponential moving average is that it is more responsive to new information relative to the

simple moving average. This responsiveness is one of the key factors of why this is the movingaverage of choice among many technical traders. As you can see in Figure 2, a 15-period EMArises and falls faster than a 15-period SMA. This slight difference doesn¶t seem like much, but itis an important factor to be aware of since it can affect returns.



Figure 2

Major Uses of Moving AveragesMoving averages are used to identify current trends and trend reversals as well as to set upsupport and resistance levels.

Moving averages can be used to quickly identify whether a security is moving in an uptrend or adowntrend depending on the direction of the moving average. As you can see in Figure 3, when amoving average is heading upward and the price is above it, the security is in an uptrend.Conversely, a downward sloping moving average with the price below can be used to signal adowntrend.

Figure 3

Another method of determining momentum is to look at the order of a pair of moving averages.When a short-term average is above a longer-term average, the trend is up. On the other hand, along-term average above a shorter-term average signals a downward movement in the trend.

Moving average trend reversals are formed in two main ways: when the price moves through amoving average and when it moves through moving average crossovers. The first common signalis when the price moves through an important moving average. For example, when the price of a



security that was in an uptrend falls below a 50-period moving average, like in Figure 4, it is asign that the uptrend may be reversing.

Figure 4

The other signal of a trend reversal is when one moving average crosses through another. For example, as you can see in Figure 5, if the 15-day moving average crosses above the 50-daymoving average, it is a positive sign that the price will start to increase.

Figure 5

If the periods used in the calculation are relatively short, for example 15 and 35, this could signala short-term trend reversal. On the other hand, when two averages with relatively long timeframes cross over (50 and 200, for example), this is used to suggest a long-term shift in trend.

Another major way moving averages are used is to identify support and resistance levels. It is notuncommon to see a stock that has been falling stop its decline and reverse direction once it hitsthe support of a major moving average. A move through a major moving average is often used as



a signal by technical traders that the trend is reversing. For example, if the price breaks throughthe 200-day moving average in a downward direction, it is a signal that the uptrend is reversing.

Figure 6

Moving averages are a powerful tool for analyzing the trend in a security. They provide usefulsupport and resistance points and are very easy to use. The most common time frames that are

used when creating moving averages are the 200-day, 100-day, 50-day, 20-day and 10-day. The

200-day average is thought to be a good measure of a trading year, a 100-day average of a half a

year, a 50-day average of a quarter of a year, a 20-day average of a month and 10-day average of

two weeks.

Moving averages help technical traders smooth out some of the noise that is found in day-to-day

price movements, giving traders a clearer view of the price trend. So far we have been focused

on price movement, through charts and averages.

Calculation of 7 days moving average of Bharti Airtel

Month

Open High Low Close

Price Price Price Price7 days

mov avg

8-Mar 422 460 346.1 425.3

8-Apr 425 492 402 488.6

8-May 494.5 518.85 471.55 508

8-Jun 500 537.9 433 437.95

8-Jul 441 449.9 355.15 416

8-Aug 410 460.9 405.1 432.3



8-Sep 428 457.7 317 339.65 435.4

8-Oct 343 351.7 181.7 272.15 413.52

8-Nov 271.4 289.9 208 243.3 378.48

8-Dec 244.4 264.25 214.2 233.55 339.27

9-Jan 236 255 200 231.1 279.91

9-Feb 230 231.9 204.25 207.35 253.21

9-Mar 200.25 261.4 195 245.4 251.91

9-Apr 246 332 240 330.5 267.54

9-May 334 448 333.15 381.55 286.73

9-Jun 384.8 454 368 377.65 323.46

9-Jul 379 496 362.3 490.65 369.12

9-Aug 491.3 573.9 476.05 550.75 425.46

9-Sep 555 605 538.05 601.75 477.21

9-Oct 591.2 640 548.5 607.65 519.84

9-Nov 605 658 575.15 628.9 562.39

9-Dec 632 699 630.9 679.4 600.93

10-Jan 697.7 753 630 647.4 627.51

10-Feb 647.4 740 535 676.7 649.8

10-Mar 697.7 742 647.5 706.8 657.81

Month Open Price High Price Low Price Close Price

moving

avg

8-Mar 839 845.55 706.8 826.1

8-Apr 832.05 950 777.1 898.8

8-May 914 919.9 798 876.45

8-Jun 888 888 717.2 721.65

8-Jul 722 861 688 799.15

8-Aug 788.8 886.3 777.1 837.2



8-Sep 830 839.75 700 785.05 820.63

8-Oct 787 806 484 649 795.33

8-Nov 675 740.15 575.95 671.05 762.79

8-Dec 675 756.5 630 715.1 739.74

9-Jan 719.7 725 576 633.85 727.2

9-Feb 627 678.4 607 636.65 703.99

9-Mar 625 637 544 625.8 673.79

9-Apr 625.8 759.6 594.3 749.3 668.68

9-May 760 990 738.7 819.65 693.06

9-Jun 921 921 741 802.1 711.78

9-Jul 800.35 864 404.25 410.55 668.27

9-Aug 410.55 439 360.1 424.7 638.39

9-Sep 429 453 395.1 418.55 607.24

9-Oct 435 467 290.3 292.15 559.57

9-Nov 285 325.45 229.5 299.7 495.34

9-Dec 302 348.8 300 328.8 425.22

10-Jan 330 349.8 304.65 306.5 354.42

10-Feb 305.5 323.8 269.65 279.25 335.66

10-Mar 281.6 321 280 311.9 319.55

10-Apr 315 325.3 292 298.4 302.39

10-May 297.5 300 254.15 262.3 298.12

10-Jun 263 288.2 254 263.25 292.91

10-Jul 263 325 262 306.9 289.79

10-Aug 307.1 335.6 307.1 327.15 292.74

10-Sep 328.5 376.5 328.5 365.9 305.11

10-Oct 366 368.8 319 325.7 307.09

10-Nov 329.5 335.95 325.7 329.45 311.52



Interpretation:-

Indicators And Oscillators

Indicators are calculations based on the price and the volume of a security that measure such things as

money flow, trends, volatility and momentum. Indicators are used as a secondary measure to the actual

price movements and add additional information to the analysis of securities. Indicators are used in two

main ways: to confirm price movement and the quality of chart patterns, and to form buy and sell signals.

There are two main types of indicators: leading and lagging. A leading indicator precedes pricemovements, giving them a predictive quality, while a lagging indicator is a confirmation tool because it follows price movement. A leading indicator is thought to be the strongest during periods of sideways or non-trending trading ranges, while the lagging indicators are still usefulduring trending periods.



There are also two types of indicator constructions: those that fall in a bounded range and thosethat do not. The ones that are bound within a range are called oscillators - these are the mostcommon type of indicators. Oscillator indicators have a range, for example between zero and100, and signal periods where the security is overbought (near 100) or oversold (near zero). Non-

bounded indicators still form buy and sell signals along with displaying strength or weakness, but they vary in the way they do this.

The two main ways that indicators are used to form buy and sell signals in technical analysis isthrough crossovers and divergence. Crossovers are the most popular and are reflected wheneither the price moves through the moving average, or when two different moving averages crossover each other.The second way indicators are used is through divergence, which happens whenthe direction of the price trend and the direction of the indicator trend are moving in the oppositedirection. This signals to indicator users that the direction of the price trend is weakening.

Indicators that are used in technical analysis provide an extremely useful source of additional

information. These indicators help identify momentum, trends, volatility and various other aspects in a security to aid in the technical analysis of trends. It is important to note that whilesome traders use a single indicator solely for buy and sell signals, they are best used inconjunction with price movement, chart patterns and other indicators.

Accumulation/Distribution Line The accumulation/distribution line is one of the more popular volume indicators that measuresmoney flows in a security. This indicator attempts to measure the ratio of buying to selling bycomparing the price movement of a period to the volume of that period.

Calculated:

Acc/Dist = ((Close - Low) - (High - Close)) / (High -

Low) * Period's Volume

This is a non-bounded indicator that simply keeps a running sum over the period of the security.Traders look for trends in this indicator to gain insight on the amount of purchasing compared toselling of a security. If a security has an accumulation/distribution line that is trending upward, itis a sign that there is more buying than selling.

Average Directional Index The average directional index (ADX) is a trend indicator that is used to measure the strength of acurrent trend. The indicator is seldom used to identify the direction of the current trend, but canidentify the momentum behind trends.

The ADX is a combination of two price movement measures: the positive directional indicator (+DI) and the negative directional indicator (-DI). The ADX measures the strength of a trend butnot the direction. The +DI measures the strength of the upward trend while the -DI measures thestrength of the downward trend. These two measures are also plotted along with the ADX line.



Measured on a scale between zero and 100, readings below 20 signal a weak trend whilereadings above 40 signal a strong trend.

Aroon The Aroon indicator is a relatively new technical indicator that was created in 1995. The Aroon

is a trending indicator used to measure whether a security is in an uptrend or downtrend and themagnitude of that trend. The indicator is also used to predict when a new trend is beginning.

The indicator is comprised of two lines, an "Aroon up" line (blue line) and an "Aroon down" line(red dotted line). The Aroon up line measures the amount of time it has been since the highest price during the time period. The Aroon down line, on the other hand, measures the amount of time since the lowest price during the time period. The number of periods that are used in thecalculation is dependent on the time frame that the user wants to analyze.

Figure 1Aroon Oscillator An expansion of the Aroon is the Aroon oscillator, which simply plots the difference between theAroon up and down lines by subtracting the two lines. This line is then plotted between a rangeof -100 and 100. The centerline at zero in the oscillator is considered to be a major signal linedetermining the trend. The higher the value of the oscillator from the centerline point, the moreupward strength there is in the security; the lower the oscillator's value is from the centerline, themore downward pressure. A trend reversal is signaled when the oscillator crosses through thecenterline. For example, when the oscillator goes from positive to negative, a downward trend isconfirmed. Divergence is also used in the oscillator to predict trend reversals. A reversal warning

is formed when the oscillator and the price trend are moving in an opposite direction.

The Aroon lines and Aroon oscillators are fairly simple concepts to understand but yield powerful information about trends. This is another great indicator to add to any technical trader'sarsenal.

Moving Average Convergence The moving average convergence divergence (MACD) is one of the most well known and used



indicators in technical analysis. This indicator is comprised of two exponential moving averages,which help to measure momentum in the security. The MACD is simply the difference betweenthese two moving averages plotted against a centerline. The centerline is the point at which thetwo moving averages are equal. Along with the MACD and the centerline, an exponentialmoving average of the MACD itself is plotted on the chart. The idea behind this momentum

indicator is to measure short-term momentum compared to longer term momentum to help signalthe current direction of momentum.

MACD= shorter term moving average - longer term

moving average

When the MACD is positive, it signals that the shorter term moving average is above the longer term moving average and suggests upward momentum. The opposite holds true when the MACDis negative - this signals that the shorter term is below the longer and suggest downwardmomentum. When the MACD line crosses over the centerline, it signals a crossing in the movingaverages. The most common moving average values used in the calculation are the 26-day and12-day exponential moving averages. The signal line is commonly created by using a nine-dayexponential moving average of the MACD values. These values can be adjusted to meet theneeds of the technician and the security. For more volatile securities, shorter term averages areused while less volatile securities should have longer averages.

Another aspect to the MACD indicator that is often found on charts is the MACD histogram. Thehistogram is plotted on the centerline and represented by bars. Each bar is the difference betweenthe MACD and the signal line or, in most cases, the nine-day exponential moving average. Thehigher the bars are in either direction, the more momentum behind the direction in which the bars point. (For more on this, see Moving Average C onvergence Divergence - Part 1 and Part 2, andTrading The M ACD Divergence.)

As you can see in Figure 2, one of the most common buy signals is generated when the MACDcrosses above the signal line (blue dotted line), while sell signals often occur when the MACDcrosses below the signal.



Figure 2

Relative Strength IndexThe relative strength index (RSI) is another one of the most used and well-known momentumindicators in technical analysis. RSI helps to signal overbought and oversold conditions in asecurity. The indicator is plotted in a range between zero and 100. A reading above 70 is used tosuggest that a security is overbought, while a reading below 30 is used to suggest that it isoversold. This indicator helps traders to identify whether a security¶s price has beenunreasonably pushed to current levels and whether a reversal may be on the way.

Figure 3

The standard calculation for RSI uses 14 trading days as the basis, which can be adjusted to meetthe needs of the user. If the trading period is adjusted to use fewer days, the RSI will be morevolatile and will be used for shorter term trades. (To read more, see Momentum And The RelativeStrength Index, Relative Strength Index And Its Failure-Swing P oints and Getting T o Know



O scillat ors - Part 1 and Part 2.)

On-Balance VolumeThe on-balance volume (OBV) indicator is a well-known technical indicator that reflectmovements in volume. It is also one of the simplest volume indicators to compute and

understand.

The OBV is calculated by taking the total volume for the trading period and assigning it a positive or negative value depending on whether the price is up or down during the trading period. When price is up during the trading period, the volume is assigned a positive value, whilea negative value is assigned when the price is down for the period. The positive or negativevolume total for the period is then added to a total that is accumulated from the start of themeasure.

It is important to focus on the trend in the OBV - this is more important than the actual value of the OBV measure. This measure expands on the basic volume measure by combining volume

and price movement. (For more insight, see Intr oduction T o On-Balance V olume.)

Stochastic Oscillator The stochastic oscillator is one of the most recognized momentum indicators used in technicalanalysis. The idea behind this indicator is that in an uptrend, the price should be closing near thehighs of the trading range, signaling upward momentum in the security. In downtrends, the priceshould be closing near the lows of the trading range, signaling downward momentum.

The stochastic oscillator is plotted within a range of zero and 100 and signals overboughtconditions above 80 and oversold conditions below 20. The stochastic oscillator contains twolines. The first line is the %K, which is essentially the raw measure used to formulate the idea of momentum behind the oscillator. The second line is the %D, which is simply a moving averageof the %K. The %D line is considered to be the more important of the two lines as it is seen to produce better signals. The stochastic oscillator generally uses the past 14 trading periods in itscalculation but can be adjusted to meet the needs of the user.



Figure 4



Chart

In technical analysis, charts are similar to the charts that you see in any business setting. A chartis simply a graphical representation of a series of prices over a set time frame. For example, achart may show a stock's price movement over a one-year period, where each point on the graphrepresents the closing price for each day the stock is traded:

Figure 1

Figure 1 provides an example of a basic chart. It is a representation of the price movements of astock over a 1.5 year period. The bottom of the graph, running horizontally (x-axis), is the dateor time scale. On the right hand side, running vertically (y-axis), the price of the security isshown. By looking at the graph we see that in October 2004 (Point 1), the price of this stock wasaround $245, whereas in June 2005 (Point 2), the stock's price is around $265. This tells us thatthe stock has risen between October 2004 and June 2005.

Chart Properties

There are several things that you should be aware of when looking at a chart, as these factors canaffect the information that is provided. They include the time scale, the price scale and the price point properties used.

The Time ScaleThe time scale refers to the range of dates at the bottom of the chart, which can vary fromdecades to seconds. The most frequently used time scales are intraday, daily, weekly, monthly,quarterly and annually. The shorter the time frame, the more detailed the chart. Each data pointcan represent the closing price of the period or show the open, the high, the low and the closedepending on the chart used.



Intraday charts plot price movement within the period of one day. This means that the time scalecould be as short as five minutes or could cover the whole trading day from the opening bell tothe closing bell.

Daily charts are comprised of a series of price movements in which each price point on the chart

is a full day¶s trading condensed into one point. Again, each point on the graph can be simply theclosing price or can entail the open, high, low and close for the stock over the day. These data points are spread out over weekly, monthly and even yearly time scales to monitor both short-term and intermediate trends in price movement.

Weekly, monthly, quarterly and yearly charts are used to analyze longer term trends in themovement of a stock's price. Each data point in these graphs will be a condensed version of whathappened over the specified period. So for a weekly chart, each data point will be arepresentation of the price movement of the week. For example, if you are looking at a chart of weekly data spread over a five-year period and each data point is the closing price for the week,the price that is plotted will be the closing price on the last trading day of the week, which is

usually a Friday.

The Price Scale and Price P oint Pr operties

The price scale is on the right-hand side of the chart. It shows a stock's current price andcompares it to past data points. This may seem like a simple concept in that the price scale goesfrom lower prices to higher prices as you move along the scale from the bottom to the top. The problem, however, is in the structure of the scale itself. A scale can either be constructed in alinear (arithmetic) or logarithmic way, and both of these options are available on most chartingservices.

If a price scale is constructed using a linear scale, the space between each price point (10, 20, 30,40) is separated by an equal amount. A price move from 10 to 20 on a linear scale is the samedistance on the chart as a move from 40 to 50. In other words, the price scale measures moves inabsolute terms and does not show the effects of percent change.



Figure 2

If a price scale is in logarithmic terms, then the distance between points will be equal in terms of

percent change. A price change from 10 to 20 is a 100% increase in the price while a move from

40 to 50 is only a 25% change, even though they are represented by the same distance on a linear

scale. On a logarithmic scale, the distance of the 100% price change from 10 to 20 will not be the

same as the 25% change from 40 to 50. In this case, the move from 10 to 20 is represented by a

larger space one the chart, while the move from 40 to 50, is represented by a smaller space

because, percentage-wise, it indicates a smaller move. In Figure 2, the logarithmic price scale on

the right leaves the same amount of space between 10 and 20 as it does between 20 and 40

because these both represent 100% increases.

Technical Analysis: Chart TypesThere are four main types of charts that are used by investors and traders depending on theinformation that they are seeking and their individual skill levels. The chart types are: the line

chart, the bar chart, the candlestick chart and the point and figure chart. In the following sections,we will focus on the S&P 500 Index during the period of January 2006 through May 2006. Notice how the data used to create the charts is the same, but the way the data is plotted andshown in the charts is different.

Line Chart

The most basic of the four charts is the line chart because it represents only the closing pricesover a set period of time. The line is formed by connecting the closing prices over the timeframe. Line charts do not provide visual information of the trading range for the individual pointssuch as the high, low and opening prices. However, the closing price is often considered to be themost important price in stock data compared to the high and low for the day and this is why it is

the only value used in line charts.

Figure 1: A line chart



Bar Charts

The bar chart expands on the line chart by adding several more key pieces of information to eachdata point. The chart is made up of a series of vertical lines that represent each data point. Thisvertical line represents the high and low for the trading period, along with the closing price. The

close and open are represented on the vertical line by a horizontal dash. The opening price on a bar chart is illustrated by the dash that is located on the left side of the vertical bar. Conversely,the close is represented by the dash on the right. Generally, if the left dash (open) is lower thanthe right dash (close) then the bar will be shaded black, representing an up period for the stock,which means it has gained value. A bar that is colored red signals that the stock has gone downin value over that period. When this is the case, the dash on the right (close) is lower than thedash on the left (open).

Figure 2: A bar chart

Candlestick Charts

The candlestick chart is similar to a bar chart, but it differs in the way that it is visuallyconstructed. Similar to the bar chart, the candlestick also has a thin vertical line showing the period's trading range. The difference comes in the formation of a wide bar on the vertical line,which illustrates the difference between the open and close. And, like bar charts, candlesticksalso rely heavily on the use of colors to explain what has happened during the trading period. Amajor problem with the candlestick color configuration, however, is that different sites usedifferent standards; therefore, it is important to understand the candlestick configuration used at

the chart site you are working with. There are two color constructs for days up and one for daysthat the price falls. When the price of the stock is up and closes above the opening trade, thecandlestick will usually be white or clear. If the stock has traded down for the period, then thecandlestick will usually be red or black, depending on the site. If the stock's price has closedabove the previous day¶s close but below the day's open, the candlestick will be black or filledwith the color that is used to indicate an up day. (To read more, see The Art Of Candlestick Charting - Part 1, Part 2, Part 3 and Part 4.)



Figure 3: A candlestick chart

Point and Figure ChartsThe point and figure chart is not well known or used by the average investor but it has had a longhistory of use dating back to the first technical traders. This type of chart reflects pricemovements and is not as concerned about time and volume in the formulation of the points. The point and figure chart removes the noise, or insignificant price movements, in the stock, whichcan distort traders' views of the price trends. These types of charts also try to neutralizethe skewing effect that time has on chart analysis. (For further reading, see P oint And FigureCharting .)

Figure 4: A point and figure chart

When first looking at a point and figure chart, you will notice a series of Xs and Os. The Xs

represent upward price trends and the Os represent downward price trends. There are also

numbers and letters in the chart; these represent months, and give investors an idea of the date.



Each box on the chart represents the price scale, which adjusts depending on the price of the

stock: the higher the stock's price the more each box represents. On most charts where the price

is between $20 and $100, a box represents $1, or 1 point for the stock. The other critical point of

a point and figure chart is the reversal criteria. This is usually set at three but it can also be set

according to the chartist's discretion. The reversal criteria set how much the price has to move

away from the high or low in the price trend to create a new trend or, in other words, how much

the price has to move in order for a column of Xs to become a column of Os, or vice versa.

When the price trend has moved from one trend to another, it shifts to the right, signaling a trend

change.

Technical Analysis: Chart Patterns

A chart pattern is a distinct formation on a stock chart that creates a trading signal, or a sign of future

price movements. Chartists use these patterns to identify current trends and trend reversals and to trigger

buy and sell signals.

In the first section of this tutorial, we talked about the three assumptions of technical analysis,the third of which was that in technical analysis, history repeats itself. The theory behind chart patters is based on this assumption. The idea is that certain patterns are seen many times, and thatthese patterns signal a certain high probability move in a stock. Based on the historic trend of achart pattern setting up a certain price movement, chartists look for these patterns to identifytrading opportunities.

While there are general ideas and components to every chart pattern, there is no chart pattern thatwill tell you with 100% certainty where a security is headed. This creates some leeway and

debate as to what a good pattern looks like, and is a major reason why charting is often seen asmore of an art than a science. (For more insight, see Is f inance an art or a science?)

There are two types of patterns within this area of technical analysis, reversal and continuation.A reversal pattern signals that a prior trend will reverse upon completion of the pattern. Acontinuation pattern, on the other hand, signals that a trend will continue once the pattern iscomplete. These patterns can be found over charts of any timeframe. In this section, we willreview some of the more popular chart patterns. (To learn more, check out C ontinuation Patterns

- Part 1, Part 2, Part 3 and Part 4.)

Head and Shoulders

This is one of the most popular and reliable chart patterns in technical analysis. Head andshoulders is a reversal chart pattern that when formed, signals that the security is likely to moveagainst the previous trend. As you can see in Figure 1, there are two versions of the head andshoulders chart pattern. Head and shoulders top (shown on the left) is a chart pattern that isformed at the high of an upward movement and signals that the upward trend is about to end.Head and shoulders bottom, also known as inverse head and shoulders (shown on the right) is thelesser known of the two, but is used to signal a reversal in a downtrend.



Figure 1: Head and shoulders top is shown on the left. Head and shoulders bottom, or inverse head and shoulders, is on the right.

Both of these head and shoulders patterns are similar in that there are four main parts: twoshoulders, a head and a neckline. Also, each individual head and shoulder is comprised of a highand a low. For example, in the head and shoulders top image shown on the left side in Figure 1,the left shoulder is made up of a high followed by a low. In this pattern, the neckline is a level of support or resistance. Remember that an upward trend is a period of successive rising highs andrising lows. The head and shoulders chart pattern, therefore, illustrates a weakening in a trend byshowing the deterioration in the successive movements of the highs and lows. (To learn more,see Price Patterns - Part 2.)

Cup and Handle A cup and handle chart is a bullish continuation pattern in which the upward trend has paused

but will continue in an upward direction once the pattern is confirmed.

Figure 2



As you can see in Figure 2, this price pattern forms what looks like a cup, which is preceded byan upward trend. The handle follows the cup formation and is formed by a generallydownward/sideways movement in the security's price. Once the price movement pushes abovethe resistance lines formed in the handle, the upward trend can continue. There is a wide ranging

time frame for this type of pattern, with the span ranging from several months to more than ayear.

Double Tops and Bottoms This chart pattern is another well-known pattern that signals a trend reversal - it is considered to be one of the most reliable and is commonly used. These patterns are formed after a sustainedtrend and signal to chartists that the trend is about to reverse. The pattern is created when a pricemovement tests support or resistance levels twice and is unable to break through. This pattern isoften used to signal intermediate and long-term trend reversals.

Figure 3: A double top pattern is shown on the left, while a double bottom pattern is shownon the right.

In the case of the double top pattern in Figure 3, the price movement has twice tried to moveabove a certain price level. After two unsuccessful attempts at pushing the price higher, the trendreverses and the price heads lower. In the case of a double bottom (shown on the right), the pricemovement has tried to go lower twice, but has found support each time. After the second bounceoff of the support, the security enters a new trend and heads upward. (For more in-depth reading,see The M emory Of Price and Price Patterns - Part 4.)

Triangles

Triangles are some of the most well-known chart patterns used in technical analysis. The threetypes of triangles, which vary in construct and implication, are the symmetrical triangle,ascending and descending triangle. These chart patterns are considered to last anywhere from acouple of weeks to several months.



Figure 4

The symmetrical triangle in Figure 4 is a pattern in which two trendlines converge toward eachother. This pattern is neutral in that a breakout to the upside or downside is a confirmation of atrend in that direction. In an ascending triangle, the upper trendline is flat, while the bottom

trendline is upward sloping. This is generally thought of as a bullish pattern in which chartistslook for an upside breakout. In a descending triangle, the lower trendline is flat and the upper trendline is descending. This is generally seen as a bearish pattern where chartists look for adownside breakout.

Flag and Pennant These two short-term chart patterns are continuation patterns that are formed when there is asharp price movement followed by a generally sideways price movement. This pattern is thencompleted upon another sharp price movement in the same direction as the move that started thetrend. The patterns are generally thought to last from one to three weeks.



Figure 5

As you can see in Figure 5, there is little difference between a pennant and a flag. The maindifference between these price movements can be seen in the middle section of the chart pattern.In a pennant, the middle section is characterized by converging trendlines, much like what isseen in a symmetrical triangle. The middle section on the flag pattern, on the other hand, shows a

channel pattern, with no convergence between the trendlines. In both cases, the trend is expectedto continue when the price moves above the upper trendline.

Wedge The wedge chart pattern can be either a continuation or reversal pattern. It is similar to asymmetrical triangle except that the wedge pattern slants in an upward or downward direction,while the symmetrical triangle generally shows a sideways movement. The other difference isthat wedges tend to form over longer periods, usually between three and six months.

Figure 6

The fact that wedges are classified as both continuation and reversal patterns can make readingsignals confusing. However, at the most basic level, a falling wedge is bullish and a rising wedgeis bearish. In Figure 6, we have a falling wedge in which two trendlines are converging in adownward direction. If the price was to rise above the upper trendline, it would form acontinuation pattern, while a move below the lower trendline would signal a reversal pattern.

Gaps



A gap in a chart is an empty space between a trading period and the following trading period.This occurs when there is a large difference in prices between two sequential trading periods. For example, if the trading range in one period is between $25 and $30 and the next trading periodopens at $40, there will be a large gap on the chart between these two periods. Gap pricemovements can be found on bar charts and candlestick charts but will not be found on point and

figure or basic line charts. Gaps generally show that something of significance has happened inthe security, such as a better-than-expected earnings announcement.

There are three main types of gaps, breakaway, runaway (measuring) and exhaustion. A breakaway gap forms at the start of a trend, a runaway gap forms during the middle of a trendand an exhaustion gap forms near the end of a trend. (For more insight, read Playing The Ga p.)

Triple Tops and Bottoms Triple tops and triple bottoms are another type of reversal chart pattern in chart analysis. Theseare not as prevalent in charts as head and shoulders and double tops and bottoms, but they act ina similar fashion. These two chart patterns are formed when the price movement tests a level of

support or resistance three times and is unable to break through; this signals a reversal of the prior trend.

Figure 7

Confusion can form with triple tops and bottoms during the formation of the pattern because theycan look similar to other chart patterns. After the first two support/resistance tests are formed inthe price movement, the pattern will look like a double top or bottom, which could lead a chartistto enter a reversal position too soon.

Rounding Bottom A rounding bottom, also referred to as a saucer bottom, is a long-term reversal pattern thatsignals a shift from a downward trend to an upward trend. This pattern is traditionally thought to



last anywhere from several months to several years.

Figure 8

A rounding bottom chart pattern looks similar to a cup and handle pattern but without the handle.

The long-term nature of this pattern and the lack of a confirmation trigger, such as the handle in

the cup and handle, makes it a difficult pattern to trade.

Different charts and charting pattern of Bharti Airtel



Line chart

Candle stick



EFFICIENT MARKET HYPOTHESIS

Efficient market hypothesis (EMH) is an idea partly developed in the 1960s by Eugene Fama. It states

that it is impossible to beat the market because prices already incorporate and reflect all relevant

information. This is also a highly controversial and often disputed theory. Supporters of this model

believe it is pointless to search for undervalued stocks or try to predict trends in the market

through fundamental analysis or technical analysis.

Under the efficient market hypothesis, any time you buy and sell securities, you're engaging in a game of

chance, not skill. If markets are efficient and current, it means that prices always reflect all information,

so there's no way you'll ever be able to buy a stock at a bargain price

This theory has been met with a lot of opposition, especially from the technical analysts. Their argument

against the efficient market theory is that many investors base their expectations on past prices, past

earnings, track records and other indicators. Because stock prices are largely based on investor

expectation, many believe it only makes sense to believe that past prices influence future prices.

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