summer project r

8/3/2019 Summer Project R

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with respect to BOOM/RECESSION

A report submitted towards the partial fulfillment of the requirements of the two years

full-time Post Graduate Program in Management

SUBMITTED BY: RASHMI GUPTA

2K8 /PGPM/ A-45

POST GRADUATE PROGRAMME IN MANAGEMENT

(PGPM)

2008-10

ASIA-PACIFIC INSTITUTE OF

MANAGEMENT STUDIES

New Delhi


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INDEX

1. Objective of the project2. Company profile3. Product & Services offered by the Sharekhan4. SWOT Analysis of company5. Introduction to stock market

6. Short term financial instrument

7. Long term financial instrument8. Derivatives9. Precautions taken before investing10. Valuation of Share11. Analyzing a Company12. Ratio Analysis

Type of research design used

Data collection

Result analysis

Recommendation for the investors

Hypothesis Testing

13. A problem analysis at sharekhan14. Limitation of the research study15. Recommendation / suggestions16. Executive summary17. Glossary18. Bibliography19. Questionnaire


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ACKNOWLEDGEMENT

I take this opportunity to thank Sharekhan ltd for giving me the opportunity to work forthis project and I would like to express my sincere thanks to, Mr. Amit Pal Singh(RSM) , Mr. Amit Sharma (AM) , Mrs. Meenakshi Pandey (Mentor) & Mr. Rajesh

Verma (Profeesor) , who helped, inspired and mentored me and without his help this project report would not have taken its current shape. Under his brilliant untiringguidance I could complete the project being undertaken on the Comparative study ofinvestment pattern Boom / Recession successfully in time. His meticulous attention and

invaluable suggestions have helped me in simplifying the problem involved in the work. Iwould also like to thank the overwhelming support of all the people who gave me anopportunity to learn and gain knowledge about the various aspects of the industry.

I once again express our heartfelt indebt ness to all-aforesaid. Any omission or error inacknowledgment is inadvertent. For such oversights and lapses, we tender unconditionalapology.


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PREFACE

The project has been initiated for the purpose of acquainting me with, right from thebasics of the financial term used in the stock market, further up to gaining of in-depthknowledge of investment pattern in boom / recession phase, basically the study of humanpsychology.

This work is a detailed study of stock market and about the way in which investorsinvest. The initial phase of the project explains what I have learned about the company,their products and the functioning of the stock market. I have tried to explain the entirecash and derivative market with examples. The next phase was about the study ofinvestment pattern for which a questionnaire is developed and a survey is conductedbetween the retail investors.

At the same time I have tried to find out as in which financial instrument investor investduring recession or boom phase.


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INTRODUCTION

The time one talks about stock market, another word also clicks and that is risk. Peoplehave lost their millions in the stock market. This is a place of gambling for those whodont know where to invest. The market behaves differently to differently people. Thespeculators are one who loose most of the money. There are hedgers who keep risk intheir mind but try to minimize it by using different strategies. Though hedging doesntalways give good returns but it helps one to take out his money with remarkable profits.Lot of analysis is required to decide in which instrument one should invest. Many peoplethink that particular time is the best time to invest but the fact is that it depends on theinvestor and his capacity to take risk and invest not the time. Before stepping intoinvestment process one should get the entire knowledge about the financial instrumentoptions available in the market and the risk factor involved with the instrument and theestimated returns the investor would probably get.

This project will help the people in getting lot of their answers related to investmentoptions and the ways to analysis the market. The data in the project can also help thecompany in making the strategy for potential investors.


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OBJECTIVE OF THE STUDY

MAIN OBJECTIVE

1. To know the investors preference in the financial instrument2. To understand the human psychology of investment wrt Recession/Boom3. To know which is the best instrument to invest in during Recession

SPECIFIC OBJECTIVE

1. To know how many people are risk takers?2. To know the capacity of the investors to invest3. To know the stock market functioning4. To know what factors effect the stock index5. To understand the valuation of the shares and the company


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SHAREKHAN PROFILE

Sharekhan is one of the leading retail broking House ofSSKI Group which was runningsuccessfully since 1922 in the country. It is the retail broking arm of the Mumbai-basedSSKI Group, which has over eight decades of experience in the stock broking business.Sharekhan offers its customers a wide range of equity related services including tradeexecution on BSE, NSE, Derivatives, depository services, online trading, investmentadvisory, Mutual Fund Advisory etc.

The firms online trading and investment site - www.sharekhan.com - waslaunched on Feb 8, 2000. The site gives access to superior content and transaction facilityto retail customers across the country. Known for its jargon-free, investor friendlylanguage and high quality research, the site has a registered base of over two lakhcustomers. The number oftrading members currently stands More than 6 Lacs. Whileonline trading currently accounts for just over 8 per cent of the daily trading in stocks inIndia, Sharekhan alone accounts for32 per cent of the volumes traded online.

The content-rich and research oriented portal has stood out among itscontemporaries because of its steadfast dedication to offering customers best-of-breed

technology and superior market information. The objective has been to let customersmakeinformed decisions and to simplify the process of investing in stocks.

On April 17, 2002 Sharekhan launched Speed Trade, a net-based executableapplication that emulates the broker terminals along with host of other informationrelevant to the Day Traders. This was for the first time that a net-based trading station ofthis caliber was offered to the traders. In the last six months Speed Trade has become ade facto standard for the Day Trading community over the net.

On October 01, 2007 Sharekhan again launched his another integrated Softwarebased product Trade Tiger, a net-based executable application that emulates the broker

terminals along with host of other information relevant to the Day Traders. It has anotherquality which differs it from other that IT HAS THE COMBINED TERMINAL FOREQUITY AND COMMODITIES BOTH.


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Share khans ground network includes over 1005 centers in 410 cities in India, of

which 210 are fully-owned branches.

Sharekhan has always believed in investing in technology to build its business. Thecompany has used some of the best-known names in the IT industry, like SunMicrosystems, Oracle, Microsoft, Cambridge Technologies, Nexgenix, Vignette,Verisign Financial Technologies India Ltd, Spider Software Pvt Ltd. to build its tradingengine and content. Previously the Morakiya family holds a majority stake in thecompany but now a world famous brand CITI GROUP has taken a majority stake in thecompany. HSBC, Intel & Carlyle are the other investors.

With a legacy of more than 80 years in the stock markets, the SSKI groupventured into institutional broking and corporate finance 18 years ago. Presently SSKI isone of the leading players in institutional broking and corporate finance activities. SSKIholds a sizeable portion of the market in each of these segments. SSKIs institutionalbroking arm accounts for 7% of the market for Foreign Institutional portfolio investmentand 5% of all Domestic Institutional portfolio investment in the country. It has 60institutional clients spread over India, Far East, UK and US. Foreign InstitutionalInvestors generate about 65% of the organizations revenue, with a daily turnover of overUS$ 4 million. The Corporate Finance section has a list of very prestigious clients andhas many firsts to its credit, in terms of the size of deal, sector tapped etc. The group

has placed over US$ 1 billion in private equity deals. Some of the clients include BPLCellular Holding, Gujarat Pipavav, Essar, Hutchison, Planetasia, and Shoppers Stop.

REASONS TO CHOOSE SHAREKHAN LIMITED

Experience

SSKI has more than eight decades of trust and credibility in the Indian stockmarket. In the Asia Money broker's poll held recently, SSKI won the 'India's best brokinghouse for 2004' award. Ever since it launched Sharekhan as its retail broking division inFebruary 2000, it has been providing institutional-level research and broking services to

individual investors.


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Technology

With our online trading account you can buy and sell shares in an instant fromany PC with an internet connection. You will get access to our powerful online tradingtools that will help you take complete control over your investment in shares.

Accessibility

Sharekhan provides ADVICE, EDUCATION, TOOLS AND EXECUTIONservices for investors. These services are accessible through our centers across thecountry (Over 721 locations in 210 cities) over the internet (through the websitewww.sharekhan.com) as well as over the Voice Tool.

Knowledge

In a business where the right information at the right time can translate into direct profits, you get access to a wide range of information on our content-rich portal,Sharekhan. You will also get a useful set of knowledge-based tools that will empoweryou to take informed decisions.

Convenience

You can call our Dial-N-Trade number to get investment advice and execute your

transactions. We have a dedicated call-centre to provide this service via a Toll FreeNumber1800-22-7500,1800-22-7050 from anywhere in India.

Customer Service

Our customer service team will assist you for any help that you need relating totransactions, billing, demat and other queries. Our customer service can be contracted viaa toll-free number, email or live chat on www.sharekhan.com.

Investment Advice

Sharekhan has dedicated research teams of more than 30 people for fundamentaland technical researches. Our analysts constantly track the pulse of the market andprovide timely investment advice to you in the form of daily research emails, online chat,printed reports and SMS on your mobile phone.


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BENEFITS

Free Depository A/c

Secure Order by Voice Tool Dial-n-Trade.

Automated Portfolio to keep track of the value of your actual purchases.

24x7 Voice Tool access to your trading account.

Personalized Price and Account Alerts delivered instantly to your Cell Phone & E-mail address.

Special Personal Inbox for order and trade confirmations.

On-line Customer Service via Web Chat. Anytime Ordering.

NSDL Account

Instant Cash Tranferation.

Multiple Bank Option.

Enjoy Automated Portfolio.

Buy or sell even single share.

Branch - Head Office

A-206, Phoenix House, 2nd Floor, Senapati Bapat Marg, Lower Parel, Mumbai- 400 013.

Telephone No: 67482000Email: [email protected]

KEY OFFICIALS DESIGNATION

1. Mr. Shripal Morakhia Chairman2. Mr. Tarun Shah CEO3. Mr. Kaliyan Raman Online Sales Head4. Mr. Jason Pandey and DP Head

Mr. Pradeep

5. Mr. Hemendra Aggarwal Cluster Head6. Mr Amit pal Singh and Regional Sales Manager

Mr. Maneet Rastogi


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PRODUCTS OF SHAREKHAN

CLASSIC ACCOUNT

This account allows the client to trade through the website and is suitable for the retailinvestor who is risk-averse and hence prefers to invest in stocks or who do not trade toofrequently.It allows investor to buy and sell stocks online along with the following features likemultiple watch lists, Integrated Banking, De-mat and Digital contracts, Real-timeportfolio tracking with price alerts and Instant money transfer.

FEATURES

Online trading account for investing in Equity and Derivatives viawww.sharekhan.com

Live Terminal and Single terminal for NSE Cash, NSE F&O, BSE & MutualFunds.

Integration of On-line trading, Saving Bank and De-mat Accounts.

Instant cash transfer facility against purchase & sale of shares.

Competative transaction charges. Instant order and trade confirmation by E-mail.

Streaming Quotes (Cash & Derivatives).

Personlized market watch.

Single screen interface for Cash and derivatives and more.

Provision to enter price trigger and view the same online in market watch.


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TRADE TIGER

TRADE TIGER is an internet-based software application which is thecombination of EQUITY & COMMODITIES, that enables you to buy and sell shareand well as commodities item instantly. It is ideal for every client of SHAREKHANLTD.

FEATURES

Integration of EQUITY & COMMODITIES MARKET.

Instant order Execution and Confirmation.

Single screen trading terminal for NSE Cash, NSE F&O & BSE & Commodities. Technical Studies.

Multiple Charting.

Real-time streaming quotes, tic-by-tic charts.

Market summary (Cost traded scrip, highest value etc.)

Hot keys similar to brokers terminal.

Alerts and reminders.

Back-up facility to place trades on Direct Phone lines.

Live market debts.

DIAL-N-TRADE

Along with enabling access for your trade online, the CLASSIC and TRADETIGER ACCOUNT also gives you our Dial-n-trade services. With this service, all youhave to do is dial our dedicated phone lines which are 1800-22-7500, 3970-7500.


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PORTFOLIO MANAGEMENT SERVICES

Sharekhan is also having Portfolio Management Services for Exclusive clients.

1. PROPRIME - Research & Fundamental Analysis.

Ideal for investors looking at steady and superior returns with low to medium riskappetite. This portfolio consists of a blend of quality blue-chip and growth stocksensuring a balanced portfolio with relatively medium risk profile. The portfolio willmostly have large capitalization stocks based on sectors & themes that have medium tolong term growth potential.

2. PROTECH - Technical Analysis.Protech uses the knowledge of technical analysis and the power of derivatives market toidentify trading opportunities in the market. The Protech lines of products are designedaround various risk/reward/ volatility profiles for different kinds of investment needs.

THRIFTY NIFTY: Nifty futures are bought and sold on the basis of anautomated trading system that generates calls to go long/short. The exposurenever exceeds value of portfolio i.e. there is no leveraging; but being short inNifty allows you to earn even in falling markets and there by generates linear

BETA PORTFOLIO:Positional trading opportunities are identified in the

futures segment based on technical analysis. Inflection points in the momentumcycles are identified to go long/short on stock/index futures with 1-2 month timehorizon. The idea is to generate the best possible returns in the medium termirrespective of the direction of the market without really leveraging beyond theportfolio value. Risk protection is done based on stop losses on daily closingprices.

STAR NIFTY: Trailing Stops Momentum trading techniques are used to spotshort term momentum of 5-10 days in stocks and stocks/index futures. Trailingstop loss method of risk management or profit protection is used to lower theportfolio volatility and maximize returns. Trading opportunities are explored bothon the long and the short side as the market demands to get the best of both

upwards & downward trends.


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3. PROARBITRAGE - Exploit price analysis

- ONLINE IPO'S AND MUTUAL FUNDS ADVISORY IS AVAILABLE.

CHARGE STRUCTURE

1) Pre Paid Account: -

-Advance Amount which will be fully adjusted against your brokerage you paid in Oneyear.

Following Schemes Are Available: - Brokerage will be charged - 2,000/- Scheme: - 0.070 / 0.40 % 6,000/- Scheme: - 0.025 / 0.25 % 18,000/- Scheme: - 0.040 / 0.20 % 30,000/- Scheme: - 0.030 / 0.18 % 60,000/- Scheme: - 0.020 / 0.15 % 1,00,000/- Scheme: - 0.015 / 0.10 %

2) Normal Account: -Cash Trading : - 0.50% or 10 Paisa per share. Min. Rs.16/- per script.

Margin Trading : - 0.10% or 5 Paisa per share.

Future & Options : - 0.10% (First Leg)0.02% (2nd Leg if square off same day)

0.10% (2nd Leg)


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DEPOSITORY CHARGES

Account Opening Charges Rs. 750

Annual Maintenance Charges Rs. NIL first year

Rs. 300 Per annum from second yearonward

Minimum Brokerage Intra Day per Share:

5 Paisa each leg (buy or sell) for Intra-day Trades (For e.g. on Rs 20 Scrip, brokerage @0.10% = 2 paisa, but there is a min. chargeable amount of 5 paisa).

Minimum Delivery Handling Charges:

10 Paisa for Delivery Trades (buy and sell) (For e.g. on a Rs 10 Scrip, brokerage @0.50% = 5 paisa, but there is a min. chargeable amount of 10 paisa). Rs 16/- per Scrip

(brok. per Scrip will be charged for the selling of shares). (For e.g. if a customer sells 100shares of SAIL, Delivery value = 2200, brokerage @ 0.5% = Rs 11, but the minchargeable amt per scrip per day = Rs 16), so additional Rs 5/- will be charged as Mindelivery handling charges).

Minimum Margin of Rs.5000/- is Required for Account Opening.

Annual Maintenance Charges will NIL for 1st year and Rs. 300/- from 2nd year.

EXPOSURE:It is the limit or turnover that a depository participant allows to its client totake positions at a time on margin money in his account. Sharekhan offers an Exposure of4 to 6.6 times of margin money in cash. In Futures and Options it offers 10 times ofmargin money.Sharekhan also offers exposure of Trading+two days on delivery, it means that a client isnot asked to deposit margin due on his account for next two days and thereafter if it againallows a client to hold order for additional 3 days and charges nominal interest @14%


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p.a. on the same. On sixth day order will be squared off if margin money is not deposited.

TIE UPS: Tie up with eleven banks i.e. HDFC Bank Ltd, ICICI Bank, Oriental BankOf Commerce, IDBI Bank Ltd, Citi Bank, United Bank of India, Axis bank, Bank ofIndia, Indusland Bank, Centurian Bank of Punjab for online money transfer. If you are

having bank a/c in one of them, you can transfer the funds and withdraw the funds onlinefrom your trading a/c at anytime.

DOCUMENTS REQUIRED FOR ACCOUNT OPENING: -

Photo ID Proof Residence Proof (Permanent or Correspondence) Pan Card (Mandatory) Passport Driving License Voter's ID

MAPIN UIN Card

Passport (valid) Voter's ID Driving License (valid) Letter verified by Bank

Bank Statement & Bank Passbook (latest) Telephone Bill (latest) Electricity Bill (latest) Ration Card Rent Agreement (Noterised) Latest Insurance Policy with Bond Copy Letter from Employer (Only in case of Army People)

--2 Photographs (Passport size & front face)

--1 Cheque of Rs. 750/- in the favor of SHAREKHAN LTD.


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SWOT ANALYSIS OF SHAREKHAN

(My observation)

STRENGTHS

1. Big client base2. In-house research house3. online as well as offline trading4. Online IPO/ MF services5. Share shops6. Transparent7. User friendly tie ups with 10 banks8. Excellent order execution speed and reliability

WEAKNESS

1. Lack of awareness among customer2. Less focus on customer retention3. Less Exposure

OPPORTUNITIES

1. Diversification2. Product modification3. Improve Web based trading4. Provide competitive brokerage5. Concentrate on PMS6. Focus on Institutional investors7. Concentrate on HNIs (high net worth investor)


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THREATS

1. Aggressive promotional strategies by close competitor like Religare, Angel Brokingand India bulls.2 More and more players are venturing into this domain, which can further reduce the

earning of Share Khan.3 Stock market is very volatile, risk involves is very high.

INTRODUCTION TO STOCK MARKET

STOCK MARKETA stock market is a public marketfor the trading ofcompanystockand derivativesat an

agreed price; these aresecurities listed on a stock exchange as well as those only tradedprivately.The stock market is one of the most important sources forcompanies to raisemoney. This allows businesses to be publicly traded, or raise additional capital forexpansion by selling shares of ownership of the company in a public market.The size of the world stock market was estimated at about $36.6 trillion US at thebeginning of October 2008. The total world derivatives market has been estimated at

about $791 trillion face or nominal value, 11 times the size of the entire world economy.

STOCK EXCHANGEA stock exchange, (formerly a securities exchange) is a corporation ormutual

organization which provides "trading" facilities forstock brokers and traders, to tradestocks and othersecurities. Stock exchanges also provide facilities for the issue andredemption of securities as well as other financial instruments and capital eventsincluding the payment of income and dividends. The securities traded on a stockexchange include: shares issued by companies, unit trusts, derivatives, pooled investmentproducts andbonds. To be able to trade a security on a certain stock exchange, it has tobe listedthere.Companies that are not listed are sold as short forOver-The-Counter.

SHAREA share is a unit of account for various financvial instrument including stocks, bonds andmutual funds.The total capital of a company may be divided into small units called shares. Forexample, if the required capital of a company is Rs. 5, 00,000 and is divided into 50,000units of Rs. 10 each, each unit is called a share of face value Rs. 10. A share may be ofany face value depending upon the capital required and the number of shares into which
http://en.wikipedia.org/wiki/Market_systemhttp://en.wikipedia.org/wiki/Market_systemhttp://en.wikipedia.org/wiki/Tradehttp://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Derivative_(finance)http://en.wikipedia.org/wiki/Derivative_(finance)http://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Stock_exchangehttp://en.wikipedia.org/wiki/Companieshttp://en.wikipedia.org/wiki/Moneyhttp://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Mutual_organizationhttp://en.wikipedia.org/wiki/Mutual_organizationhttp://en.wikipedia.org/wiki/Stock_brokerhttp://en.wikipedia.org/wiki/Trader_(finance)http://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Dividendhttp://en.wikipedia.org/wiki/Shareshttp://en.wikipedia.org/wiki/Unit_trusthttp://en.wikipedia.org/wiki/Derivativeshttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Market_systemhttp://en.wikipedia.org/wiki/Tradehttp://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Derivative_(finance)http://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Stock_exchangehttp://en.wikipedia.org/wiki/Companieshttp://en.wikipedia.org/wiki/Moneyhttp://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Mutual_organizationhttp://en.wikipedia.org/wiki/Mutual_organizationhttp://en.wikipedia.org/wiki/Stock_brokerhttp://en.wikipedia.org/wiki/Trader_(finance)http://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Dividendhttp://en.wikipedia.org/wiki/Shareshttp://en.wikipedia.org/wiki/Unit_trusthttp://en.wikipedia.org/wiki/Derivativeshttp://en.wikipedia.org/wiki/Bond_(finance)


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it is divided. The holders of the shares are called share holders. The shares can bepurchased or sold only in integral multiples.Share consists of Equity share and preference share. Preference shareholder entitled todividend prior to equity holder.

STOCKSThe shares may be fully paid or partly paid. A company may consolidate and convert anumber of its fully paid up shares to form a single stock. Stock being one lump amountcan be purchased or sold even in fractional parts.

DEBENTURESThe term Debenture is derived from the Latin word debere which means to owe adebt. A debenture is a loan borrowed by a company from the public with a guarantee topay a certain percentage of interest at stated intervals and to repay the loan at the end of afixed period.

DIVIDENDThe profit of the company distributed among the share holders is called Dividend. Eachshare holder gets dividend proportionate to the face value of the shares held. Dividend isusually expressed as a percentage.

YIELD OR RETURNSuppose a person invests Rs. 100 in the stock market for the purchase of a stock. Theconsequent annual income he gets from the company is called yield or return. It is usuallyexpressed as a percentage.

BROKERAGEThe purchase or sale of stocks, shares and debentures is done through agents called StockBrokers. The charge for their service is called brokerage. It is based on the face value andis usually expressed as a percentage. Both the buyer and seller pay the brokerage.When stock is purchased, brokerage is added to cost price. When stock is sold, brokerage

is subtracted from the selling price.

DEPOSITORYA depository is like a bank wherein the deposits are securities (viz. shares, debentures,bonds, government securities, units etc.) in electronic form. There are two type ofdepository: National Security Depository Ltd and Central Depository Services Ltd.

DEMATERIALIZATION


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Dematerialization is the process by which physical certificates of an investor areconverted to an equivalent number of securities in electronic form and credited to theinvestors account with hisDepository Participant(DP).

PRIMARY AND SECONDARY MARKET

PRIMARY MARKET

The primary market provides the channel for sale of new securities. Primary marketprovides opportunity to issuers of securities; Government as well as corporate, to raiseresources to meet their requirements of investment and/or discharge some obligation.They may issue the securities at face value, or at a discount/premium and these securitiesmay take a variety of forms such as equity, debt etc. They may issue the securities indomestic market and/or international market.

SECONDARY MARKET

Secondary market refers to a market where securities are traded after being initiallyoffered to the public in the primary market and/or listed on the Stock Exchange. Majorityof the trading is done in the secondary market. Secondary market comprises of equitymarkets and the debt markets. For the general investor, the secondary market provides anefficient platform for trading of his securities. For the management of the company,Secondary equity markets serve as a monitoring and control conduitby facilitatingvalue-enhancing control activities, enabling implementation of incentive-basedmanagement contracts, and aggregating information (via price discovery) that guidesmanagement decisions.

PRODUCTS IN THE SECONDARY MARKETS

Following are the main financial products/instruments dealt in the Secondary marketwhich may be divided broadly into Shares and Bonds:

SHARES


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Equity Shares: An equity share, commonly referred to as ordinary share, represents theform of fractional ownership in a business venture.

Rights Issue/ Rights Shares: The issue of new securities to existing shareholders at a

ratio to those already held, at a price. For e.g. a 2:3 rights issue at Rs. 125, would entitle ashareholder to receive 2 shares for every 3 shares held at a price of Rs. 125 per share.

Bonus Shares: Shares issued by the companies to their shareholders free of cost based onthe number of shares the shareholder owns.

Preference shares: Owners of these kind of shares are entitled to a fixed dividend ordividend calculated at a fixed rate to be paid regularly before dividend can be paid inrespect of equity share. They also enjoy priority over the equity shareholders in paymentof surplus. But in the event of liquidation, their claims rank below the claims of thecompanys creditors, bondholders/debenture holders.

Cumulative Preference Shares:A type of preference shares on which dividendaccumulates if remained unpaid. All arrears of preference dividend have to be paid outbefore paying dividend on equity shares.

Cumulative Convertible Preference Shares:A type of preference shares where the

dividend payable on the same accumulates, if not paid. After a specified date, theseshares will be converted into equity capital of the company.

BOND

Bond is a negotiable certificate evidencing indebtedness. It is normally unsecured. A debtsecurity is generally issued by a company, municipality or government agency. A bondinvestor lends money to the issuer and in exchange, the issuer promises to repay the loanamount on a specified maturity date. The issuer usually pays the bond holder periodicinterest payments over the life of the loan. The various types of Bonds are as follows:

Zero Coupon Bond:Bond issued at a discount and repaid at a face value. No periodicinterest is paid. The difference between the issue price and redemption price representsthe return to the holder. The buyer of these bonds receives only one payment, at thematurity of the bond.

Convertible Bond: A bond giving the investor the option to convert the bond into equityat a fixed conversion price.


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Treasury Bills:Short-term (up to one year) bearer discount security issued bygovernment as a means of financing their cash requirements.

SHORT-TERM FINANCIAL OPTIONS AVAILABLE FORINVESTMENT

SAVINGS BANK ACCOUNT is often the first banking product people use, whichoffers low interest (4%-5% p.a.), making them only marginally better than fixed deposits.

MONEY MARKET OR LIQUID FUNDS are a specialized form of mutual funds thatinvest in extremely short-term fixed income instruments and thereby provide easyliquidity. Unlike most mutual funds, money market funds are primarily oriented towardsprotecting your capital and then, aim to maximize returns. Money market funds usuallyyield better returns than savings accounts, but lower than bank fixed deposits.

FIXED DEPOSITS WITH BANKS are also referred to as term deposits and minimuminvestment period for bank FDs is 30 days. Fixed Deposits with banks are for investorswith low risk appetite, and may be considered for 6-12 months investment period asnormally interest on less than 6 months bank FDs is likely to be lower than money marketfund returns.

LONG-TERM FINANCIAL OPTIONS AVAILABLE FOR

INVESTMENT

POST OFFICE SAVINGS: Post Office Monthly Income Scheme is a low risk savinginstrument, which can be availed through any post office. It provides an interest rate of8% per annum, which is paid monthly. Minimum amount, which can be invested, is Rs.1,000/- and additional investment in multiples of 1,000/-. Maximum amount is Rs.3,00,000/- (if Single) or Rs. 6,00,000/- (if held Jointly) during a year. It has a maturity


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period of 6 years. Premature withdrawal is permitted if deposit is more than one year old.A deduction of 5% is levied from the principal amount if withdrawn prematurely.

PUBLIC PROVIDENT FUND: A long term savings instrument with a maturity of 15years and interest payable at 8% per annum compounded annually. A PPF account can beopened through a nationalized bank at anytime during the year and is open all through theyear for depositing money. Tax benefits can be availed for the amount invested andinterest accrued is tax-free. A withdrawal is permissible every year from the seventhfinancial year of the date of opening of the account and the amount of withdrawal will belimited to 50% of the balance at credit at the end of the 4th year immediately precedingthe year in which the amount is withdrawn or at the end of the preceding year whicheveris lower the amount of loan if any.

COMPANY FIXED DEPOSITS: These are short-term (six months) to medium-term(three to five years) borrowings by companies at a fixed rate of interest which is payablemonthly, quarterly, semiannually or annually. They can also be cumulative fixed depositswhere the entire principal along with the interest is paid at the end of the loan period. Therate of interest varies between 6-9% per annum for company FDs. The interest received isafter deduction of taxes.

BONDS: It is a fixed income (debt) instrument issued for a period of more than one yearwith the purpose of raising capital. The central or state government, corporations andsimilar institutions sell bonds. A bond is generally a promise to repay the principal along

with a fixed rate of interest on a specified date, called the Maturity Date.

MUTUAL FUNDS: These are funds operated by an investment company which raisesmoney from the public and invests in a group of assets (shares, debentures etc.), inaccordance with a stated set of objectives. It is a substitute for those who are unable toinvest directly in equities or debt because of resource, time or knowledge constraints.Benefits include professional money management, buying in small amounts anddiversification. Mutual fund units are issued and redeemed by theFund Management


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Companybased on the fund's net asset value (NAV), which is determined at the end ofeach trading session. NAV is calculated as the value of all the shares held by the fund,minus expenses, divided by the number of units issued. Mutual Funds are usually longterm investment vehicle though there some categories of mutual funds, such as moneymarket mutual funds which are short term instruments. Types of mutual funds are

discussed below:

CLOSE END MUTUAL FUND

A closed-end mutual fund has a set number of shares issued to the public through aninitial public offering. These funds have a stipulated maturity period generally rangingfrom 3 to 15 years. The fund is open for subscription only during a specified period.Investors can invest in the scheme at the time of the initial public issue and thereafterthey can buy or sell the units of the scheme on the stock exchanges where they are listed.

Once underwritten, closed-end funds are trade on stock exchanges like stocks or bonds.The market price of closed-end funds is determined by supply and demand and not bynet-asset value (NAV), as is the case in open-end funds. Usually closed mutual funds aretrade at discounts to their underlying asset value.

OPEN END MUTUAL FUND

Open-end funds raise money by selling shares of the fund to the public, in a mannersimilar to any other company, which sell its stock to raise the capital. An open-endmutual fund does not have a set number of shares. It continues to sell shares to investorsand will buy back shares when investors wish to sell. Units are bought and sold at theircurrent net asset value.

Open-end funds are required to calculate their net asset value (NAV) daily. Since theNAV of an open-end fund is calculated daily, it serves as a useful measure of its fairmarket value on a per-share basis. The NAV of the fund is calculated by dividing thefund's assets minus liabilities by the number of shares outstanding. Open-end fundsusually charge an entry or exit load from the investors.

LARGE-CAP MUTUAL FUNDS


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Large cap funds are those mutual funds, which seek capital appreciation by investingprimarily in stocks of large blue chip companies with above-average prospects forearnings growth.

MID-CAP MUTUAL FUNDS

Mid cap funds are those mutual funds, which invest in small / medium sized companies.

EQUITY MUTUAL FUND

Equity mutual funds are also known as stock mutual funds. Equity mutual funds investpooled amounts of money in the stocks of public companies.

BALANCED FUND

Balanced fund is also known as hybrid fund. It is a type of mutual fund that buys acombination of common stock, preferred stock, bonds, and short-term bonds

GROWTH FUNDS

Growth funds are those mutual funds that aim to achieve capital appreciation by investingin growth stocks.

EXCHANGE TRADED FUNDS (ETFs)

ETFs are listed on a recognized stock exchange and their units are directly traded onstock exchange during the trading hours.

VALUE FUNDS

Value funds are those mutual funds that tend to focus on safety rather than growth, andoften choose investments providing dividends as well as capital appreciation.

MONEY MARKET FUND

A money market fund is a mutual fund that invests solely in money market instruments.

Money market instruments are forms of debt that mature in less than one year and arevery liquid

SECTOR FUND

Sector mutual funds are those mutual funds that restrict their investments to a particularsegment or sector of the economy.

INDEX FUNDS


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An index fund is a mutual fund or exchange-traded fund) that aims to replicate themovements of an index of a specific financial market.

FUND OF FUNDS

A fund of funds (FoF) is an investment fund that holds a portfolio of other investment

funds rather than investing directly in shares, bonds or other securities.

DERIVATIVES

Derivative is a product whose value is derived from the value of one or more basicvariables, called underlying. The underlying asset can be equity, index, foreign exchange(forex), commodity or any other asset. Derivative products initially emerged as hedgingdevices against fluctuations in commodity prices and commodity-linked derivativesremained the sole form of such products for almost three hundred years. The financial

derivatives came into spotlight in post-1970 period due to growing instability in thefinancial markets. However, since their emergence, these products have become verypopular and by 1990s, they accounted for about two-thirds of total transactions inderivative products.

TYPES OF DERIVATIVES

FORWARDS: A forward contract is a customized contract between two entities, wheresettlement takes place on a specific date in the future at todays pre-agreed price.

FUTURES: A futures contract is an agreement between two parties to buy or sell an

asset at a certain time in the future at a certain price. Futures contracts are special types offorward contracts in the sense that the former are standardized exchange-traded contracts,such as futures of the Nifty index.

OPTIONS: An Option is a contract which gives the right, but not an obligation, to buy orsell the underlying at a stated date and at a stated price. While a buyer of an option paysthe premium and buys the right to exercise his option, the writer of an option is the one


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who receives the option premium and therefore obliged to sell/buy the asset if the buyerexercises it on him. Options are of two types - Calls and Puts options:

Callsgive the buyer the right but not the obligation to buy a given quantity of theunderlying asset, at a given price on or before a given future date.

Puts give the buyer the right, but not the obligation to sell a given quantity ofunderlying asset at a given price on or before a given future date.Presently, at NSE futures and options are traded on the Nifty, CNX IT, BANK Nifty and116 single stocks.

WARRANTS: Options generally have lives of up to one year. The majority of optionstraded on exchanges have maximum maturity of nine months. Longer dated options arecalled Warrants and are generally traded over-the counter.

SEBI AND ITS ROLE

The Securities and Exchange Board of India (SEBI) is the regulatory authority in Indiaestablished under Section 3 of SEBI Act, 1992. SEBI Act, 1992 provides for

establishment of Securities and Exchange Board of India (SEBI) with statutory powersfor(a) Protecting the interests of investors in securities(b) Promoting the development of the securities market and(c) Regulating the securities market. Its regulatory jurisdiction extends over corporate in

the issuance of capital and transfer of securities, in addition to all intermediaries andpersons associated with securities market. SEBI has been obligated to perform theaforesaid functions by such measures as it thinks fit. In particular, it has powers for:

Regulating the business in stock exchanges and any other securities markets

Registering and regulating the working of stock brokers, subbrokers etc.

Promoting and regulating self-regulatory organizations

Prohibiting fraudulent and unfair trade practices Calling for information from, undertaking inspection, conducting inquiries and

audits of the stock exchanges, intermediaries, self regulatory organizations,mutual funds and other persons associated with the securities market.

BSEBombay Stock Exchange is the oldest stock exchange in Asia with a rich heritage, nowspanning three centuries in its 133 years of existence. What is now popularly known as


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BSE was established as "The Native Share & Stock Brokers' Association" in 1875.

BSE is the first stock exchange in the country which obtained permanent recognition (in1956) from the Government of India under the Securities Contracts (Regulation) Act1956.It migrated from the open outcry system to an online screen-based order driven

trading system in 1995. BSE is the world's number 1 exchange in terms of the number oflisted companies and the world's 5th in transaction numbers. The market capitalization ason December 31, 2007 stood at USD 1.79 trillion. An investor can choose from morethan 4,700 listed companies, which for easy reference, are classified into A, B, S, T and Zgroups.

NSENSE was set up by leading institutions to provide a modern, fully automated screen-based

trading system with national reach. The Exchange has brought about unparalleledtransparency, speed & efficiency, safety and market integrity. It has set up facilities thatserve as a model for the securities industry in terms of systems, practices and procedures.

NSE has played a catalytic role in reforming the Indian securities market in terms ofmicrostructure, market practices and trading volumes. The market today uses state-of-artinformation technology to provide an efficient and transparent trading, clearing andsettlement mechanism, and has witnessed several innovations in products & services viz.demutualisation of stock exchange governance, screen based trading, compression ofsettlement cycles, dematerialisation and electronic transfer of securities, securitieslending and borrowing, professionalisation of trading members, fine-tuned risk

management systems, emergence of clearing corporations to assume counterparty risks,market of debt and derivative instruments and intensive use of information technology.

PRECAUTIONS ONE MUST TAKE BEFORE INVESTING IN THE

STOCK MARKETS

Here are some useful pointers to bear in mind before you invest in the markets:


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Make sure your broker is registered with SEBI and the exchanges and do not dealwith unregistered intermediaries.

Ensure that you receive contract notes for all your transactions from your brokerwithin one working day of execution of the trades.

All investments carry risk of some kind. Investors should always know the risk

that they are taking and invest in a manner that matches their risk tolerance. Do not be misled by market rumors, luring advertisement or hot tips of the day.

Take informed decisions by studying the fundamentals of the company. Find outthe business the company is into, its future prospects, quality of management, pasttrack record etc Sources of knowing about a company are through annual reports,economic magazines, database available with vendors or your financial advisor.

If your financial advisor or broker advises you to invest in a company you havenever heard of, be cautious. Spend some time checking out about the companybefore investing.

Do not be attracted by announcements of fantastic results/news reports, about acompany. Do your own research before investing in any stock.

Do not be attracted to stocks based on what an internet website promotes, unlessyou have done adequate study of the company.

Be cautious about stocks which show a sudden spurt in price or trading activity.

Any advice or tip that claims that there are huge returns expected, especially for

acting quickly, ma y be risky and may to lead to losing some, most, or all of yourmoney.

VALUATION OF SHARES

BASES OF SHARE VALUATION

Share valuation can either be in income or on asset values. There are two incomesreceivable on share, namely:-Dividend incomeTotal income (earning attributable to each shareholder)Dividend income is payable out of the attributable earnings and the two will only beequal when the company has a 100% dividend payout ratio. The following gives bases

used for share valuation

Earnings

Dividends

Assets

ABBREVIATIONS


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Po = market price (present value) of the stock per shareDi = expected dividend i periods hence (i = 1, 2, 3 . . . n)ke = the minimum required rate of return on the stock given its riskPn = the anticipated selling price of the stock at time ng = expected growth rate of dividends

VALUATION OF SHARES

The commonly used model is the DISCOUNTED CASH FLOW MODEL givesas:

Po = 1D / ( )1

1 ke+ + 2D / ( )2

1 ke+ + 3D / ( )3

1 ke+ +.. nD / ( )n

ke+1

In practice, the model is difficult to use in valuing common stock. Two problems

associate with the model.1) Determination of nD i.e the eventual price when the share will be sold.

2) The formula does not give consideration to forecast all future dividends.

To overcome the ambiguities the (GORDON) CONSTANT GROWTH

DIVIDENDMODEL was employed:

Po = 1D / ( )gke

Example: 1D = Rs. 2 (next expected dividend per share)

ke = 14%g = 10%

Po = Rs.2 / (0.14 0.10)= Rs. 50 per share


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Note: The above equation can be re-written to give the divided yield on the commonstock.

ke = 1D / (Po + g)

Example: 1D = Rs. 2 , Po = Rs. 50 , g = 10%

ke = Rs. 2 / (50 + 0.10)= 0.14 or 14%

Note: The term 1D / Po = dividend yield = Rs.2 / Rs.50 = 4 %

Note: In this case, g is the Capital Gain yield.

THE PRICE/EARNINGS MODEL

Useful when a company's stock is not traded publicly and no market price existsMethod:

1) Determine the P/E (Price by Earning ratio) ratio for the industry;2) calculate the Earnings Per Share (EPS) of the company;

3) multiply the (P/E) industry times the EPS company

COMMON STOCK VALUATION (TOTAL COMMON

EQUITY)

BOOK VALUE APPROACH


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BV per Share = (Total Assets - Total Liabilities)/# com stock sharesExample: Total Assets = $10 million; Total Liabilities = $4 million; number of commonstock shares outstanding = 3 millionBV per share = ($10million - $4million)/3 million = $2.00 per share

LIQUIDATION VALUE MODEL

Note: The liquidation model assumes assets are sold at below book value to reflect theirpoor or zero earning power.From the previous example, using the asset value of $10million, assume the assets can besold at a discount of $2million.BV per share liquidation = ($8 - $4)/3 million = $1.33 per shareNote: Liquidation value is a "worse case" scenario valuation assessment

PREFERRED STOCK VALUATION

Preferred stock is valued as a perpetuity. The preference shares differs from the ordinaryshares in that they carry certain preferential rights. The common areas where the rightsexist are:-i) Dividend payment: Dividends are a fixed percent of par value Dividend right

ii) Distribution in liquidation Capital rightDiminishing importance of preference Shares.The combined effect of inflation on fixed interest investments and the unfavorable taxtreatment of preference shares compared t debentures has caused the virtualdisappearance of the new issues of this type of shares.

VALUATION MODEL


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Vp = Dp / kp

WhereVp = present (market) value of the preferred stock per share

Dp = amount of dividend per yearKp = investors required return on the preference stock

Example: Jambo Telecoms Ltd. Preference stocks pays an annual dividend of Rs 4 andhas required rate of return of 10%. What is the price of the stock?

Solution: Vp = Rs 4/ 0.10= Rs. 40 per share

Effect of inflation can be incorporated by considering inflation as a negative growth. Theformulae would become

Vp = Dp / (kp + r)Where r is the inflation ratePreference Share Yield formulae

kp = Dp / VpFrom previous example

kp = 4 / 40= 10 % = the current yield on the preference stock

Investors compare the market yield to their required yield to make buy/sell decisions.

ABOUT SYSTEMATICALLY ANALYZING A COMPANY

One must look for the following to make the right analysis:

INDUSTRY ANALYSIS:Companies producing similar products are subset (form apart) of an Industry/Sector. For example, National Hydroelectric Power Company(NHPC) Ltd., National Thermal Power Company (NTPC) Ltd., Tata Power Company(TPC) Ltd. etc. belong to the Power Sector/Industry of India. It is very important to seehow the industry to which the company belongs is faring. Specifics like effect ofGovernment policy, future demand of its products etc. need to be checked. At timesprospects of an industry may change drastically by any alterations in businessenvironment. For instance, devaluation of rupee may brighten prospects of all export


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oriented companies. Investment analysts call this as Industry Analysis.

TECHNICAL ANALYSIS:Technical analysis is a security analysis discipline forforecasting the future direction of prices through the study of past market data, primarilyprice and volume.In its purest form, technical analysis considers only the actual price

and volume behavior of the market or instrument. Technical analysts may employ modelsand trading rules based on price and volume transformations, such as the relative strengthindex, moving averages,regressions, inter-market and intra-market price correlations,cycles or, classically, through recognition of chart patterns.Technical analysis "ignores" the actual nature of the company, market, currency orcommodity and is based solely on "the charts," that is to say price and volumeinformation, whereas fundamental analysis does look at the actual facts of the company,market, currency or commodity.

FUNDAMENTAL ANALYSIS: Fundamental analysis of a business involvesanalyzing its financial statements and health, its management and competitive

advantages, and its competitors and markets.Fundamental analysis is performed on historical and present data, but with the goal ofmaking financial forecasts. There are several possible objectives:

to conduct a company stock valuation and predict its probable price evolution,

to make a projection on its business performance,

to evaluate its management and make internal business decisions,

to calculate its credit risk.

CORPORATE ANALYSIS: How has the company been faring over the past fewyears? Seek information on its current operations, managerial capabilities, growth plans,its past performance vis--vis its competitors etc. This is known as Corporate Analysis.

FINANCIAL ANALYSIS: If performance of an industry as well as of the company

seems good, then check if at the current price, the share is a good buy. For this look at thefinancial performance of the company and certain key financial parameters like EarningsPer Share (EPS), P/E ratio, current size of equity etc. for arriving at the estimated futureprice. This is termed as Financial Analysis. For that you need to understand financialstatements of a company i.e. Balance Sheet and Profit and Loss Account contained in theAnnual Report of a company.

RATIO ANALYSIS
http://en.wikipedia.org/wiki/Security_analysishttp://en.wikipedia.org/wiki/Relative_strength_indexhttp://en.wikipedia.org/wiki/Relative_strength_indexhttp://en.wikipedia.org/wiki/Moving_averagehttp://en.wikipedia.org/wiki/Regression_analysishttp://en.wikipedia.org/wiki/Financial_statementshttp://en.wikipedia.org/wiki/Competitorshttp://en.wikipedia.org/wiki/Marketshttp://en.wikipedia.org/wiki/Forecastshttp://en.wikipedia.org/wiki/Stock_valuationhttp://en.wikipedia.org/wiki/Credit_riskhttp://en.wikipedia.org/wiki/Security_analysishttp://en.wikipedia.org/wiki/Relative_strength_indexhttp://en.wikipedia.org/wiki/Relative_strength_indexhttp://en.wikipedia.org/wiki/Moving_averagehttp://en.wikipedia.org/wiki/Regression_analysishttp://en.wikipedia.org/wiki/Financial_statementshttp://en.wikipedia.org/wiki/Competitorshttp://en.wikipedia.org/wiki/Marketshttp://en.wikipedia.org/wiki/Forecastshttp://en.wikipedia.org/wiki/Stock_valuationhttp://en.wikipedia.org/wiki/Credit_risk


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Mere statistics/data presented in the different financial statements do not reveal the truepicture of a financial position of a firm. Properly analyzed and interpreted financialstatements can provide valuable insights into a firms performance. To extract theinformation from the financial statements, a number of tools are used to analyse such

statements. The most popular tool is the Ratio Analysis.Financial ratios can be broadly classified into three groups: (I) Liquidity ratios, (II)Leverage/Capital structure ratio, and (III) Profitability ratios.

(I) LIQUIDITY RATIOS:Liquidity refers to the ability of a firm to meet its financial obligations in the short-termwhich is less than a year. Certain ratios, which indicate the liquidity of a firm, are (i)Current Ratio, (ii) Acid Test Ratio, (iii) Turnover Ratios. It is based upon the relationshipbetween current assets and current liabilities.

(i) Current ratio = Current Liabilities / Current Assets

The current ratio measures the ability of the firm to meet its current liabilities from thecurrent assets. Higher the current ratio, greater the short-term solvency (i.e. larger is theamount of rupees available per rupee of liability).

(ii) Acid-test Ratio = Current Liabilities / Quick Assets

Quick assets are defined as current assets excluding inventories and prepaid expenses.The acid-test ratio is a measurement of firms ability to convert its current assets quicklyinto cash in order to meet its current liabilities. Generally speaking 1:1 ratio is consideredto be satisfactory.

(iii) Turnover Ratios:

Turnover ratios measure how quickly certain current assets are converted into cash or

how efficiently the assets are employed by a firm. The important turnover ratios are:Inventory Turnover Ratio, Debtors Turnover Ratio, Average CollectionPeriod, Fixed Assets Turnover and Total Assets Turnover

Inventory Turnover Ratio =Cost of Good Sold/ Average Inventory

Where, the cost of goods sold means sales minus gross profit. AverageInventory refers to simple average of opening and closing inventory. The inventory


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turnover ratio tells the efficiency of inventory management. Higher the ratio, moreefficient inventory management.

Debtors Turnover Ratio =Net Credit Sale / Average Accounts Receivable (Debtors)

The ratio shows how many times accounts receivable (debtors) turns over during theyear. If the figure for net credit sales is not available, then net sales figure is to be used.Higher the debtors turnover, the greater the efficiency of credit management.

Average Collection Period = Average Debtors / Average Daily Credit Sales

Average Collection Period represents the number of days worth credit sales that islocked in debtors (accounts receivable).Please note that the Average Collection Period and the Accounts Receivable(Debtors) Turnover is related as follows:

Average Collection Period =365 Days / Debtors Turnover

Fixed Assets turnover ratio measures sales per rupee of investment in fixed assets. Inother words, how efficiently fixed assets are employed. Higher ratio is preferred. It iscalculated as follows:

Fixed Assets turnover ratio = Net Sales / Net Fixed Assets

Total Assets turnover ratio measures how efficiently all types of assets are employed.

Total Assets turnover ratio = Net Sales / Average Total Assets

(II) LEVERAGE/CAPITAL STRUCTURE RATIOS:

Long term financial strength or soundness of a firm is measured in terms of its ability topay interest regularly or repay principal on due dates or at the time of maturity. Such longterm solvency of a firm can be judged by using leverage or capital structure ratios.Broadly there are two sets of ratios:First, the ratios based on the relationship between borrowed funds and owners capitalwhich are computed from the balance sheet. Some such ratios are: Debt to Equity andDebt to Asset ratios. The second set of ratios which are calculated from Profit and LossAccount is: The interest coverage ratio and debt service coverage ratio are coverage ratio


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to leverage risk.

(i) Debt-Equity ratio reflects relative contributions of creditors and owners to financethe business.Debt-Equity ratio = Total Debt / Total Equity

The desirable/ideal proportion of the two components (high or low ratio) varies fromindustry to industry.

(ii) Debt-Asset Ratio: Total debt comprises of long term debt plus current liabilities. Thetotal assets comprise of permanent capital plus current liabilities.

Debt-Asset Ratio = Total Debt / Total Assets

The second set or the coverage ratios measure the relationship between proceeds from the

operations of the firm and the claims of outsiders.

(iii) Interest Coverage ratio = Earnings before Interest and Taxes / Interest

Higher the interest coverage ratio better is the firms ability to meet its interest burden.The lenders use this ratio to assess debt servicing capacity of a firm.

(iv) Debt Service Coverage Ratio (DSCR) is a more comprehensive and apt to computedebt service capacity of a firm. Financial institutions calculate the average DSCR for theperiod during which the term loan for the project is repayable. The Debt ServiceCoverage Ratio is defined as follows:

Profit after tax + depreciation + other non cash expenditure + interest on term loan /Interest on term loan + repayment on term loan

(III) PROFITABILITY RATIOS:Profitability and operating/management efficiency of a firm is judged mainly by thefollowing profitability ratios:

(i) Gross Profit Ratio (%) = Gross Profit / Net Sales * 100

(ii) Net Profit Ratio (%) = Net Profit / Net Sales * 100


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Some of the profitability ratios related to investments are:

(iii) Return on Total Assets = profit before Interest and Tax / fixed asset + current asset

(iv) Return on Capital Employed = Net Profit after Tax / Total Capital Employed

(Here, Total Capital Employed = Total Fixed Assets + Current Assets -Current Liabilities)

(v) Return on Shareholders Equity = Net profit After Tax / Average TotalShareholders Equity or Net Worth

(Net worth includes Shareholders equity capital plus reserves and surplus)A common (equity) shareholder has only a residual claim on profits and assets of a firm,i.e., only after claims of creditors and preference shareholders are fully met, the equity

shareholders receive a distribution of profits or assets on liquidation. A measure of hiswell being is reflected by return on equity. There are several other measures to calculatereturn on shareholders equity of which the following are the stock market related ratios:

(i) Earnings Per Share (EPS): EPS measures the profit available to the equityshareholders per share, that is, the amount that they can get on every share held. It iscalculated by dividing the profits available to the shareholders by number of outstandingshares. The profits available to the ordinary shareholders are arrived at as net profits aftertaxes minus preference dividend.

It indicates the value of equity in the market.EPS = Net Profit Available To The Shareholder / Number of Ordinary SharesOutstanding

(ii) Price-earnings ratios = P/E Ratio = Market Pr ice per Share / EPS


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RESEARCH DESIGN: In this case study I am using both Descriptive and CausalResearch Design. Reasons re as follows:


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DESCRIPTIVE RESEARCH DESIGN: It is used when one is interested in knowingthe proportion of the people in a given population who have behaved in a particularmanner, making projections of certain things. This will help me in knowing theInvestment Pattern i.e. how many people are going in the same direction to invest theirmoney. The objective of this study is to answer who, what, where and how of the subject

under investigation.

CAUSAL RESEARCH DESIGN: It investigates the cause and effect relationshipbetween two variables. In this project this will help us in knowing how recession andboom phase of economy effects the investors decision of investment and how thecapacity of taking risk in the market increases or decreases.

DATA COLLECTION

For this study, there was a need to collect PRIMARY DATA as the decision of theinvestor keeps on changing from time to time. Collection of primary data is reliable as it

avoids self report bias and cannot record what can not be said.

Due to time and financial constraint Marketing Research is done through Sampling.Sample offers various benefits as:1) It saves time.2) It helps in cutting expense.

INSTRUMENT USED TO COLLECT DATA

Data is colleted with the help of Questionnaire.

For this study, the sample is taken from Cannaught Palace, Jhandewalan, Pitam Puraand Rajouri Garden. Sample of 300 is taken for this study.

RESULT ANALYSIS


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There are certain questions which have been asked to the people for the completion ofthis project and find the result matching to the Objective.

PEOPLE WHO INVEST AND DONT INVEST

Yes

83%

No

17%

Yes

No

Interpretation: This shows that though the slowdown has affected many peoplefinancially and mentally but then also there is large portion of population who invest theirmoney in one or the other financial instrument in hope of getting some handsome return.The people who dont invest can be the client of the company as these people are thefresh market for the company and the challenge for the marketers to find out the reasons

behind their decision and pull them towards the growing investment sector.


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REASON FOR NOT INVESTING

8%

54%18%

20%

Time Constraint

Financial

Constraint

Lack of knowledge

Volatile Market

Interpretation: This chart answers the why part of not investing the money. Thecompany should concentrate on these reasons and try to solve the issues like impartingknowledge about the various investment options and the share market. Those havingfinancial constraint can also be converted to the clients as the company should providethem the options which are in the client reach of investment. The people with timeconstraint and financially sound can be given an option of Portfolio Management

Services.


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TRADER OR INVESTOR

70%

30% Short Term Trad

Long Term

Investor

Interpretation: This chart shows that 70% of the people believe in short term trading i.e.investing their money for less than 1 year. These short term investors believe in gettingtheir return quick as they dont want to park their money for longer time. The company

can attract them towards the share market as this market give high return in short spancombining with risk factor. The company should identify the risk taker and then play therole of increasing their client base by absorbing the clients in their company. For longterm investors aspiring high return on their investment Portfolio Management Servicescan be a good options and attracting them towards the investment in blue chip companiesin share market for more than a year.


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PREFERENCE OF INVESTMENT

45%

17%

31%

4% 3%

Share Market

Mutual Fund

Insurance

Govt. Sec &

Bonds

Fixed Deposits

Interpretation: In this chart we can see that the preference for Share Market is more butthe preference for Insurance is not less. Insurance sector is an upcoming sector. Thecompany should see this as an opportunity and should take a step towards diversificationto Insurance sector. Mutual Fund is also a limited risky platform to invest in with goodreturn and the company should step forward to tell more about this instrument.


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WHAT MOVES THE SHARE MARKET

18%

10%

37%

23%

12%

US economy

Govt.announcem

nt

Market

sentiments

company

performance

Speculation

Interpretation: This helps in understanding the psychology of the investor and helps thecompany in making the research reports for the clients (this is a kind of additionalservice to retain the customer towards share market). The Company can provide thetechnical and fundamental analysis so that those reports help them in their analysis ofshare market and they can make their own company portfolio for investment purposeaccording to the market forecasting and their own analysis.


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PERCENTAGE OF THE EARNING INVESTED BY THE PEOPLE

30%

37%

19%

14%

10% of earning

20% of earning

30% of earning

m ore than 30%

earning

Interpretation: This statistical data is very important for the company as this is anestimation of how much business the company can get in their court. The company couldcategories the investors according to their capacity to invest and pitch them the rightproduct to invest in. The investors who are ready to invest more than 30% of theirearning should be treated under special category as they can be High Net worthIndividual for the company.


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APPETITE FOR RISK

17%

54%

12%

17%

5%

10%

15%20%

Interpretation: This data shows the capacity of the investors to take risk. Those who areready to take high risk seek high return on their investment from the market. These datawill help the company to target the customer with right kind of product offering to themand categorize the client under different heads. This data will also cross check certainother data in the research whether client is true to the questionnaire or not.


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RECESSION: THE BEST TIME TO PURCHASE SHARE

Yes

37%

No63%

Yes

No

Interpretation: This chart shows that in recession phase also around 40% people do notloose hope to earn or invest. The company should take an initiative to hold the faith ofthese people in recession. The rest not having faith in the recession time should beprovided with financial consultancy to do the right investment in the critical phase ofeconomy.


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BEST FINANCIAL INSTRUMENT TO INVEST DURING

BOOM PHASE

2%

57%8%

17%7%

9%

Fixed Deposit

Share market(blue

chip co.)Mutual Fund

Insurance

Govt. sec &

Bonds

Interpretation: This chart shows the proportion of people investing in differentfinancial instruments during boom phase. This helps the company in knowing thepsychology of the investors as how they switch on their investing decision from boomphase to normal or stagnant phase to recession phase. It is expected during boom phasethat there are more chance of high return from share market and sectors which investtheir major portion of money in share market so 57% of people are tilted towards sharemarket.


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BEST FINANCIAL INSTRUMENT TO INVEST DURING

RECESSION PHASE

8%18%

9%

17%

43%

5%

Fixed Deposit

Share market(blu

chip co.)

Mutual Fund

Insurance

Govt. sec &

Bonds

Interpretation: This chart shows the contrasting data from the earlier one. This is howthe economical situation changes the decision of the investor. As we can see that duringboom period, share market was the most liked one but in recession the people see thesecurity and most of their investment goes to government securities and bonds as they are

safer than any other instrument. In recession time people usually loose faith in theeconomic growth and their vision to get good return is very short and change theirdecision or some of them either dont invest and keep their money with them which givethem zero in return. The people should be aware of the difference between recession anddepression and this can be done by any company consultant to their clients.


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RECOMMENDATION FOR THE INVESTORS

WHERE ONE SHOULD PARK THE MONEY DURING

FINANCIAL CRUNCH

The main factors to consider when investing ones money in bad times and good timesare the same. It depends on what kind of investor you are. Are you a conservative orrisk-averse investor or is your appetite for risk high?Since every individual has a different ability and willingness to take on risk, someinstruments may be suitable for some, yet inappropriate for others.As in every project, the first step in investing ones money is to sit down and think aboutones goals in life, both in the short-term and the long-term. This is what investmentcompanies do before they take your money and invest it for you.For ordinary people who are just starting out, or who have limited funds or littleexperience in investing, it is recommended to put emphasis on priority and trulyworthwhile investments and expenditures, and generally adopting a wait and see

perspective.

MONEY IN THE BANK

When it comes to keeping the money, most people automatically turn to banks. One cantchoose just any bank. Some of the smaller banks have a greater risk of collapsing, but Ithink banks like Standard charted, SBI etc. are large and solid enough.

INVESTING IN GOVERNMENT

For people who wish to protect their money from being chipped away by the inflation

rate but who are averse to risk, it is recommended investing in government securitiesbonds, treasury bills (which mature in less than one year), treasury bonds (governmentbonds that mature beyond one year), and the like. While the rates of return ongovernment securities are lower than those of higher-risk instruments, they areconsidered virtually risk-free as they are backed by the national government. They canalso be considered short-term investments, and can be easily liquidated. One can usuallybuy government securities through banks. Investing in government securities might be


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more advantageous than investing in certain mutual funds, whose value fluctuatesdepending on the interest rates, whether they are fixed-income or not.

PLAYING THE MARKET

For the savvier investorone who has the experience, resources, and cast-iron stomachfor investing in high-risk instruments such as stocksthe economic and financial

doldrums can actually be a gold mine of opportunity. The prices of stocks have gonedownrock-bottom isnt much lowerbut when the economy has recovered and one ispatient and far-sighted enough, the upside potential for these stocks is unbelievably high.

The thing is, you have to be very selective when it comes to the stocks you buy. There arevariables to consider in choosing what stocks to invest. These variables include acompanys balance sheet and track record. The companys profitability and the stabilityof its earnings would enable it to provide substantial amounts of cash dividendsperiodically. The companys management and their track record, and the companys size,would increase its likelihood of surviving a hit. The knowledge of how the stock marketreacts to news also helps.

The market has a tendency to overreact both to good news and bad news, and normallythe drop in the market following bad news is an opportunity to buy. But you dont buystocks just because a company is good. And you dont buy all at once. Timing is alsoimportant.

You must be willing to wait and you must be willing to see the worth of your stocks fallbelow the amount you bought them for and not get discouraged. You need to learn howto buy and sell your stocks knowing that what goes down will, given enough time, go upagain.

The problem is, some people invest in the market just because a friend told them it was agood buy. You have to know what youre getting into. You have to learn how to invest inthe stock market and you have to know the companies youre investing in, because thebest person who can protect your investments is you.

The time of crisis is actually a good time for an interested person to learn how the stockmarket works. If there ever was a time to get in, that time is now.


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LAND REFORM

Other avenues for investments, such as real estate, also come with their own risks anddownsides. The same principles apply. Know your objectives. Consider the timing. Knowwhat youre getting into.

RISK-RETURN INVESTING

When considering the range of investment instrumentsfrom stocks to governmentsecurities to savings deposits to piggy banksit is vital to keep the risk-return

relationship in mind. Never compare investment alternatives by simply ranking thembased on their promised returns. Investments should always be evaluated based on theirreturn and risk characteristics. An instrument that promises a 25 percent return is notautomatically better than one that promises only five percent. The greater the return, thegreater the risk involved; the lower the risk, the lower the return. An understanding of therisks involved in investing in a certain product is always mandatory. Before committingyour money, you must carefully assess the features of the product and how certain actionsissued by the issuersuch as a change in business strategy or an increase in leverageand changes in the economic conditions affect the value of your investment.

The most important point to note is that never pour all your money into one purchase.

Always try to diversify your investment in different financial instrument so that youmoney is not in trap. Take overall knowledge of the instrument from risk factor to returnsto the future prospects so that it will help you in making final decision about theinvestment.


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HYPOTHESIS TESTING

In order to verify the statistics got from the survey, a HYPOTHESIS TESTING isrequired.The analysis is on whether every financial instrument has same weightage duringrecession and normal phase or not. In other words does the recession phase changes theinvestors decision or it remains the same like in normal slow growth.

Chi-square Test: For this kind of data chi square testing is required (non-parametrictest).Chi-square is used in determining whether the number of observations or responses

fall into various categories differ or not.

A sample of 250 investors is taken and their preference during recession and normalphase of economy is as follows:

RECESSION PHASE NO. OF INVESTOR NORMAL PHASE NO. OF INVESTOR

Fixed Deposit 19 Fixed Deposit 9Share Market 44 Share Market 87Mutual Fund 23 Mutual Fund 30

Insurance 42 Insurance 40Govt.sec & Bonds 110 Govt.sec & Bonds 69PMS* 12 PMS 15

PMS is Portfolio Management services


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Null Hypothesis H0= Instruments have same weightage in recession as it is duringnormal phase

Alternative Hypothesis H1 = Instruments not having same weightage in recession as it ishaving during normal phase

If the calculated value falls in the rejection region then we reject the null hypothesis andaccept the alternative hypothesis. This a not the full proof verification as the data is smalland scientific skills are also used while doing these king of researches

Instrument Observed

frequency

(O)

Expected

frequency

(E)

O-E ( )2EO2

=

( )2EO / E

FixedDeposit

19 9 10 100 11.11

Share

Market

44 87 -43 1849 21.25

Mutual Fund 23 30 -7 49 1.63

Insurance 42 40 2 4 0.10

Govt.sec &Bonds

110 69 41 1681 24.36

PMS 12 15 -3 9 0.60

Total 250 250 2 = 59.05

2

is Chi-Square

Degree of freedom = n-1, where n is the number of instruments which is 6 in this case

So, Degree of freedom is 6-1 = 5

At 5% level o significance the critical value of 2 for 5 degree of freedom is 11.070.

Since the calculated value of 2 , it falls in the rejection region. We therefore reject the

null hypothesis that the preference for the instruments is similar in recession as it is in


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normal phase. In orther words, the investment pattern in recession differs from that ofnormal phase.

A PROBLEM ANALYSIS AT SHAREKHAN

Sharekhan is having a Lead Management System, which is used by the AssistantManager and the Executive to maintain and update the status of the leads they get fromthe company. The problem in the company is that the call ratio of the Sharekhan Delhi isless than the other city branch. I have taken the sample of 32 employees. The followingtwo reasons came out while analyzing the reason behind the issue:

1) Updating the leads daily with handling the field work is bit difficult.2) Fake updating of leads as updating the system daily is compulsory otherwise come inviolation. Motivation to work with honesty lacks in employees.

According, if every employee which is 60 in number updates the system daily withhonesty then the call ratio of Delhi Sharekhan must be equal to other city branch. Asample of 32 is taken and the mean for the honestly updating the leads came out to be 42and standard deviation 18.The sample is large and therefore Z-test is applied to verify the situation.

Null Hypothesis Ho = call ratio is similar to that of other city branchAlternative Hypothesis H1 = call ratio is not similar to other city branch

Z= x - / / n

Where x = 42 (sample mean) = 60 (population mean) = 18 (standard deviation)

n = 32 (sample size)


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Z= 42-60 / 18/ 32

Z= -18 / 3.18Z = -5.66

At 5% level of significance the critical value of Z in table is -1.64, which falls in therejection region. Therefore we reject the null hypothesis that Delhi has similar call ratioas of other city branch. In other words, the company should look into the matter andconcentrate on the reasons as why this ratio is low as if this becomes high the companycan earn more business from Delhi as this city is full of young generation to invest andtake risk.

LIMITATION OF THE RESEARCH STUDY

1) For performing these king of research large data base is required. The data collected

for this study is not sufficient to analyze the investment pattern of retail investors inIndia.

2) There may be many variables which influences the result but this analysis reveals onlyfew variables.

3) There can be some deviations in the data as the human psychology changes from timeto time.

4) The feedback we got may not be correct as the respondent might have filled in theinformation with no interest or in hurry.

5) Scientific research on the part of research is also required.

6) Accuracy level may be effected when data is subjected to weighing.

7) Time was the biggest constraint as these studies cannot be completed with accuracy intwo month.


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8) Understanding the psychology of human is not the cup of every one tea so, might besome interpretations go wrong.

9) Some respondents might have taken the question in different sense which can changethe data collected.

10) Cost was also the constraint as collection of Primary data required huge amount ofspending.

RECOMMENDATIONS/SUGGESTIONS

1) The company should look into the low call ratio problem and sort this out at the

earliest as these potential clients can be a customer of the company.

2) The company should go through the entire data collected about the investors riskappetite, their preference for financial instrument and investment capacity etc. todiversify their business in other sectors also.

3) Apart from retail investors, the company can also focus on institutional sector asinstitutions, banks and corporate have their own unique investment needs.

4) The company can also go for business tie-ups to upgrade their services or to widen theproduct line and width.

5) The company can adopt corporate level strategy like merger or acquisition to increasetheir client base and geographical dominance.

6) Keep on improving the Information Technology section of the company so as to keepthemselves ahead from others in terms of quality and speed.

7) Marketing strategy for the promotion of the company is required.


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8) Identify the core competencies of the company as well as the loose ends so as tomaintain the core competency and work on the weakness.

9) Quarterly review of the employee performance to maintain the hard working employee

in the company otherwise they can be a liability on the company.

10) Review the pay system of the company to keep the motivation of the employee asemployees are the one who convert the commitments of the company into reality.

EXECUTIVE SUMMARY

To keep the pace with other competitors, Sharekhan need to target the potential customeras it will increase their customer base. The company needs to enter into new sectors sothat it can offer wide options to the investor.

The project is undertaken to provide the knowledge about the company and the productsthey offer. This project focuses on how the recession/ boom phase affects the decision ofinvestors. This also guides you as where one should park their money during recession

and also how to judge yourself to make investment decision. This also tells you whatpoints one should keep in mind before making an investment and also how to evaluatethe shares to buy or not.

The project is divided into 5 parts:-


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1. COMPANY PROFILE: This section provides the information about thecompany and the products they offer with the charges required to pay at the time ofopening the account and for its maintenance.

2. INTRODUCTION TO SHARE MARKET: This section tells you about theentire functioning of the share market. It also gives you the information about the IPO,mutual funds etc. This section serves with the options for short term financial instrumentand long term financial instrument. It will also provide you the information on derivativemarket.

3. VALUATION OF SHARE: This part tells you how valuation of share is done anddifferent methods for different kind of shares. This valuation helps the investor to choosewhich share to buy and which are going to give high return on investment. The methodsused are very simple to understand and use so that a common man who can not perform

hard calculations can also learn to valuate the shares.

4.ANALYSIS REQUIRED: To review the position of the company there are certainrations required to calculate with the analysis of the profit and loss and balance sheet ofthe company. These instruments help the investor in analyzing the companiesperformance and position in the market. This also tells you about the requirement of theTechnical analysis as how the Share market moves.

5. RESEARCH ANALYSIS: This part analyzes the data collected for the purpose toknow the investment pattern and the investors psychology. This part helps the companyin knowing where to target the client and helps in categorizing the client so as to offerthem with the right kind of product. This section also helps in parking the investorsmoney at right place and at the right time. It will guide one for how to go for theinvestment. This study will help them in planning the future targets and the strategies to


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grab the opportunities. This will also tell about the importance of planning in order tokeep pace with the opponents.

GLOSSARY

Bear Someone who thinks that the price of a share or stock market prices in general areabout to fall.

Bid price The price you sell your stocks or shares.

Blue chip The shares of large well established companies. The expression is thought tohave been derived from blue chips, the highest denomination of chips used in casinos.

Bull Someone who thinks that the price of a share or the market in general is about torise.


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Call A further instalment due on shares which are only partly paid. For example, therewere two calls on British Telecom shares of 40p each.

Coupon is the amount of interest payable on a fixed interest stock.

Dividend The part of a company's profits distributed to shareholders, usually on a regularbasis. An interim dividend is paid at the half-year stage and a final dividend at the end ofthe full year.

Earnings per share A company's profits (after payment of interest and preference sharedividends) dividend by the number of shares issued.

Flotation When a company's shares are offered on the market for the first time.

Futures Contracts which give the holder the right to buy or sell the FT-SE 100 ShareIndex for an agreed price at a future date.

Hedge A means of insuring the risk.

Limit order An order to a stockbroker specifying a price limit so that the deal can onlybe done at that pri

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